The United Kingdom’s biggest sharia-compliant investment vehicle, operated by banking titan HSBC, is set to offload all holdings in companies that generate over 5% of their total revenue from weapons manufacturing and military contracting, following a bombshell investigation from Middle East Eye (MEE) last month. The MEE exposé revealed that the HSBC Islamic Global Equity Index Fund had accumulated more than $100 million in shares of firms with documented ties to the Israeli military during the first half of 2026, a revelation that sparked widespread scrutiny of the fund’s adherence to core Islamic finance ethical guidelines.
As a passively managed fund launched to track the S&P Global 1200 Shariah Select Index back in March, the HSBC vehicle automatically mirrors every investment decision of its benchmark index, meaning it has no independent discretion to pick or exclude individual stocks. The sweeping policy shift was triggered by a formal methodology update from S&P Global rolled out in early November, scheduled to take full effect on November 23, which adds a brand new exclusion category for all defence contractors, weapons producers, and affiliated military supply chain entities that were previously permitted under the index’s old sharia compliance rules.
The revised eligibility criteria mandate that any firm deriving more than 5% of total revenue from military contracting, nuclear warheads, depleted uranium munitions, incendiary weapons, biological warfare agents, small arms, or other classified armaments will be automatically removed from the index. Prior to this update, the S&P benchmark only screened out firms that derived over 5% of income from widely recognized impermissible sectors such as alcohol, gambling, or pork-related products, and had no explicit restrictions on defence industry holdings. The entire HSBC fund operates under the oversight of an independent board of Islamic scholars tasked with verifying full alignment with sharia investment principles.
The MEE investigation first uncovered that the fund had poured $35.7 million into RTX, the world’s second largest arms manufacturer, in the first half of 2026. Campaign Against the Arms Trade (CAAT) has repeatedly flagged RTX’s Raytheon subsidiary as a top supplier of missiles and critical military support services to the Israeli military, explicitly naming the firm as a direct participant in Israel’s ongoing military campaign in Gaza. The fund also held $18.9 million in shares of US industrial conglomerate Honeywell International, which produces precision guidance sensors and inertial measurement units used to improve weapons targeting accuracy. A Honeywell-manufactured guidance component was recovered from a missile strike on a Gaza school in June 2024 that killed 40 Palestinians, including 14 children and 9 women, and nearly 20% of Honeywell’s total annual revenue comes from military weapons contracts, far exceeding the new 5% threshold.
Additional holdings identified in the MEE probe included $17.6 million in Rolls-Royce, which builds engines for Israel’s Merkava main battle tanks and Israeli naval vessels through its German MTU subsidiary; the firm draws over 12% of its revenue from military contracts. The fund also held 386,784 shares valued at roughly $9.4 million in BAE Systems, the United Kingdom’s largest defence contractor, which produces key components for F-35 fighter jets that the Israeli military has deployed extensively in Gaza operations. A separate report from Hyphen last month revealed the fund had also purchased $38.3 million in shares of US data surveillance firm Palantir, which does not manufacture physical weapons but signed a formal partnership with the Israeli Ministry of Defence in January 2024 to deploy its data analytics technology for war-related missions that have been linked to drone strikes targeting civilian populations in Gaza, including journalists and humanitarian aid workers.
Prior to the index’s methodology update, HSBC announced in late October that it had launched a formal review of its Palantir holdings, stating that it took all client concerns very seriously and would work alongside independent expert advisors to verify whether the fund’s existing investment approach continued to meet the ethical expectations of its sharia-compliant investor base. Under the new S&P rules, Palantir’s classified military contracting work will also qualify it for automatic exclusion from the benchmark, meaning it will be dropped from the HSBC fund’s portfolio alongside RTX, Honeywell, Rolls-Royce and BAE Systems when the changes go into effect later this month.