HSBC 'sharia-compliant' fund to exclude arms companies after spending $100m on Israeli military-linked firms

The UK’s largest “sharia-compliant” fund is divesting from companies which take more than 5 percent of their revenue from weaponry, after Middle East Eye revealed last month that it purchased more than $100m worth of shares in companies linked to the Israeli military in the first half of this year. The new change means the British banking giant HSBC’s Islamic Global Equity Index Fund is expected to divest from major companies including RTX, Rolls-Royce, Honeywell International, BAE Systems and Palantir. The HSBC fund began tracking the S&P Global 1200 Shariah Select Index, a benchmark of companies screened for compliance with Islamic finance principles, in March. The fund is passively managed, which means it mirrors the index's investments. In early November, the index updated its methodology and is set to implement the changes on 23 November. It will now exclude defence and weapons companies, military contractors and related sectors from the index. According to the new criteria, the index will exclude companies with a more than 5 percent exposure to military contracting, nuclear weapons, depleted uranium, incendiary weapons, biological weapons and small arms, among other types of weaponry. New MEE newsletter: Jerusalem Dispatch Sign up to get the latest insights and analysis on Israel-Palestine, alongside Turkey Unpacked and other MEE newsletters According to most screening guidelines, businesses can be deemed “sharia-compliant” if less than 5 percent of their income derives from sources categorised as impermissible. The index did not previously exclude companies with exposure to most types of weaponry. HSBC ‘sharia‑compliant’ fund spent over $100m on five Israeli military‑linked firms Read More » The HSBC fund is overseen by a board of Islamic scholars. MEE reported last month that the fund purchased $35.7m worth of shares in RTX, the world’s second-largest arms company, in the first half of 2026. Raytheon, an RTX subsidiary, has been described by Campaign Against the Arms Trade (CAAT) as a “significant supplier of missiles and other goods and services to the Israeli military” and as “implicated in Israel’s war on Gaza”. As an arms company, RTX is now expected to be excluded from the index. Multiple major companies to be excluded MEE also reported that the HSBC fund purchased $18.9m worth of shares in Honeywell International, a US conglomerate which designs sensors and guidance devices used in weaponry. Honeywell manufactured an inertial measurement unit - used to aid precision targeting - which was found in a missile that attacked a school in Gaza in June 2024 and killed at least 40 Palestinians, including 14 children and nine women. Nearly 20 percent of Honeywell's revenue comes from military weapons, meaning it is now expected to be excluded from the index. MEE further reported that the HSBC fund purchased $17.6m worth of shares in Rolls-Royce, which produces engines for Merkava tanks, used extensively by Israel in Gaza, as well as Israeli ships through its German subsidiary MTU. Since over 12 percent of Rolls-Royce's revenue comes from military weapons, it is set to be excluded from the index. The fund also holds 386,784 shares with a current market value of around $9.4m in BAE Systems - Britain’s largest arms company, which manufactures components for F-35 fighter jets. F-35s have been used by the Israeli military in Gaza. BAE Systems is also set to be excluded from the index. HSBC to review Islamic fund’s $38m investment in Palantir Read More » Hyphen reported last month that HSBC’s fund purchased $38.3m worth of shares in Palantir, the US data surveillance firm with links to Israeli abuses in occupied Palestine. Palantir does not manufacture weapons, but in January 2024 it announced a partnership with the Israeli Ministry of Defence to deploy its technology in support of “war-related missions” that use drone-fired missiles to target civilians in Gaza, including journalists and aid workers. In late October, it emerged that HSBC would review the fund's investment in Palantir. The bank said it "take[s] any concerns from our clients seriously and will review this matter carefully, in partnership with independent expert advisers, to assess whether the approach still meets investors’ expectations". Since military contracting will now be excluded from the index, it is likely that Palantir will be removed.