The United Kingdom’s largest so-called Sharia-compliant fund has spent more than $130 million on shares in several companies connected to the Israeli military. The purchases were made while Israel’s war on Gaza, its operations in the occupied West Bank and its occupation of southern Lebanon were ongoing.
The fund is run by HSBC, which is described as Europe’s second-largest bank. Through its Islamic Global Equity Index Fund, the bank invested in businesses that sit within Israel’s military supply chain, ranging from weapons components to technology and equipment with military uses. With more than $8bn in assets, the fund pools savings from investors who are expected to be mostly Muslim and places them in global equities screened against Islamic financial principles.
Military-linked holdings raise questions about screening
The report cites more than 74,300 Palestinians killed in Gaza since October 2023, including nearly 1,500 killed since a “ceasefire” was agreed last year. It says the war has devastated the Palestinian enclave, home to 2.3 million people, and has drawn global condemnation.
Against that backdrop, the fund’s holdings raise a basic question: can money marketed as compliant with Islamic law flow into companies tied to a military? HSBC’s website says the fund aims to deliver “both investment returns and better outcomes for society as a whole”. It also describes its Sharia approach as “ethical investments that enhance society”.
According to the bank, the fund is meant to exclude businesses and financial practices that fall foul of its Islamic law screening rules. A Sharia committee provides oversight, and HSBC says two internationally renowned Islamic scholars sit on its independent committee to check compliance. The bank’s stated philosophy says a company should have “no significant exposure to non-permissible revenue sources such as selling goods or services related to … weapons”.
Stakes in Palantir, RTX and other defence suppliers
An analysis of the fund’s activities in the first half of 2026 found that the bank bought shares in at least five companies linked to the Israeli military’s wars in the Middle East. Earlier reports first disclosed the purchases. The holdings identified so far are:
- Palantir Technologies: $38.3m
- RTX: $35.7m
- Analog Devices: $20.3m
- Honeywell International: $18.9m
- Rolls-Royce Holdings: $17.6m
Palantir, a US data analytics and artificial intelligence company, has faced scrutiny over its support for Israel’s military. In January 2024 it announced a strategic partnership with Israel’s Ministry of Defence to support “war-related missions”, and it held a board meeting in Tel Aviv in solidarity with Israel. Its software combines large volumes of data to help military and intelligence agencies analyse information and make operational decisions.
A United Nations report from June 2025 said Palantir had expanded its support to the Israeli military since the Gaza war began. The report said there were “reasonable grounds” to believe the company supplied predictive policing technology used in automated battlefield decisions, including systems named “Lavender”, “Gospel” and “Where’s Daddy?”. The US military also reportedly relied on Palantir’s systems when it wrongly identified a school in the Iranian city of Minab as a target, a strike that killed more than 150 people, mostly children, on February 28, the first day of the US-Israeli war on Iran.
RTX Corporation, a US defence company whose units include Raytheon, is among the world’s biggest arms makers. Through Raytheon, it works with the Israeli government-owned Rafael Advanced Defense Systems to make components and Tamir interceptor missiles for the Iron Dome air-defence system. The two also jointly developed David’s Sling, another Israeli missile-defence system.
Raytheon additionally makes Tomahawk missiles and MIM-104 Patriot systems for the US military, which have been used in the war on Iran. It also supplies components for F-series fighter jets deployed in the occupied Palestinian territory. Analog Devices, a US semiconductor company, has shipped components to Elbit Systems, Israel’s biggest privately owned weapons manufacturer, during the Gaza war. Its components are used in surveillance systems, aircraft and precision-guided munitions.
Irish investigative outlet The Ditch reported in July 2025 that Analog Devices International, the company’s Irish-registered subsidiary, shipped components from its factory in the Philippines to Elbit Systems in August, October and November 2024. A measurement unit used to aid precision targeting in a missile was made by Honeywell, an American conglomerate that designs sensors and guidance devices for military weapons, an analysis cited in the report had shown.
Rolls-Royce is the only British company identified on the list so far. It makes engines and propulsion systems for military aircraft and armoured vehicles. Its German subsidiary, MTU Aero Engine, has supplied power systems for Israeli military vehicles, including the Merkava tank, the Namer armoured personnel carrier and the Eitan armoured vehicle. In April 2025, the US approved a potential $180m sale of additional Eitan engines.
Scholars question how Sharia screening works
Islamic finance experts said there are several industry standards on what qualifies for Sharia-compliant funds, and that these standards can differ by benchmark. Jatmiko, a lecturer at the University of Southampton Business School who focuses on Islamic finance, said scholars turn principles into practical rules within institutions shaped by regulation and commercial pressure. He pointed out that the S&P and Dow Jones indices treat defence companies differently, with the S&P’s standard Sharia indices not directly excluding them while the Dow Jones Islamic Market indices do.
Jatmiko said there are “strong grounds to criticise HSBC’s governance, transparency, and handling of investors’ ethical expectations”. He called the apparent tension between the fund’s stated restrictions and the reported investments the strongest concern. He added that the case should be a lesson for the wider Islamic finance industry.
Muhammed Ebrahim, a finance professor at the Business School of Durham University, said there is a “critical gap” in screening. Screens assess a company’s declared principal activities rather than the end use of its products or its customers. A firm classed as technology or industrial can pass even if its products end up in weapons systems, he said.
Ebrahim argued that an investment can be technically Sharia-compliant yet ethically incompatible with Islamic principles. He said the goals of Islamic law, including the preservation of life and justice, are not captured by a mechanical sector-exclusion test. He also argued that HSBC has failed its Muslim customers by investing in Israeli military-linked companies, and that screening should review indirect involvement and trace the end use of products.
Ebrahim and Jatmiko agreed on a central problem: Islamic finance outsources ethical judgement to screening providers whose methods are opaque and whose definitions are narrow. “The HSBC case is a wake-up call: technical compliance is not the same as ethical fidelity,” Ebrahim said.
