HSBC's Islamic Global Equity Index Fund invested more than $130 million in five defence and technology companies linked to the Israeli military during the first half of 2026, according to an analysis cited by Al Jazeera.
The fund, described as the UK's largest Sharia-compliant fund, manages more than $8 billion in assets. Its investments included companies involved in data analytics, semiconductors, missile defence and military vehicle power systems.
The investments have raised questions about how the fund's Sharia-compliance screening assesses companies whose products or components may be used in military operations.
Which companies received the investments?
The analysis identified five companies in the fund's portfolio: Palantir Technologies, RTX Corporation, Analog Devices, Honeywell International and Rolls-Royce Holdings.
Palantir received the largest investment, at $38.3 million, followed by RTX with $35.7 million. The fund also held $20.3 million in Analog Devices, $18.9 million in Honeywell and $17.6 million in Rolls-Royce.
Palantir, a US data analytics and artificial intelligence company, entered a strategic partnership with Israel's Ministry of Defence in January 2024 to support war-related missions. A UN report identified reasonable grounds that the company supplies automated target-generation systems, including Lavender, Gospel and Where's Daddy?, used in the Gaza conflict.
RTX, through its Raytheon business, co-produces Tamir interceptor missiles for Israel's Iron Dome and supplies systems associated with David's Sling missile defence, Tomahawk and Patriot missiles, as well as components for F-series military aircraft. RTX is the world's second-largest arms manufacturer, according to the information cited in the analysis.
Analog Devices manufactures semiconductor components used in surveillance and precision-guided munitions. Its Irish subsidiary shipped components to Elbit Systems, Israel's largest private weapons producer.
Honeywell produces sensors and guidance systems. A guidance measurement unit manufactured by the company was identified in a missile strike on the UN-run al-Sardi school in Gaza's Nuseirat camp in June 2024.
Rolls-Royce Holdings and its German subsidiary MTU Aero Engines manufacture power systems for Israeli military vehicles, including Merkava tanks, Namer armoured personnel carriers and Eitan armoured vehicles.
How did the companies pass the screening?
HSBC markets the fund as offering "ethical investments that enhance society" under the oversight of an independent Sharia committee.
The bank states that companies must have "no significant exposure to non-permissible revenue sources such as selling goods or services related to … weapons".
Finance scholars interviewed by Al Jazeera said conventional screening methods can overlook links between companies' business classifications and the eventual use of their products.
Muhammed Ebrahim, a professor of finance at Durham University, said traditional screening often relies on primary sector classifications rather than examining supply chains or how products are used.
"A company classified as 'technology' or 'industrial' can pass the business activity screen even if its products end up in weapons systems. This is precisely the issue in the HSBC case."
"The screening does not typically trace a company's supply chain to determine whether its components are used in civilian harm."
Ebrahim also argued that technical compliance checks may not adequately reflect the broader ethical objectives of Islamic law, including the preservation of life, known as hifz al-nafs, and justice, or adl.
"The HSBC case is a wake-up call: technical compliance is not the same as ethical fidelity. Funds that invoke the Sharia label have a responsibility to ensure that the substance, not just the form, aligns with the objectives of the law."
Wahyu Jatmiko, an Islamic finance lecturer at the University of Southampton, said the case highlighted wider governance questions in Islamic finance.
"The 'Sharia' label should mean something; it carries expectations about investing differently and realising the higher ethical objectives of Islamic law."
What has HSBC said?
Ebrahim said many Muslim savers hold the fund through halal pension schemes and expect their investments to reflect the ethical principles associated with Sharia-compliant products.
He said they "reasonably expect that their money is not funding companies implicated in civilian harm".
An HSBC spokesperson told Al Jazeera: "We understand how important it is that funds like this reflect the values of those who invest in them."
The spokesperson added: "We take 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. We commit to conducting this review swiftly and communicating any necessary actions to our customers."
The review will assess whether the fund's approach continues to meet investors' expectations, according to HSBC's statement.