HSBC Islamic fund to cut ties with firms linked to Israeli military

HSBC’s Islamic Global Equity Index Fund, the UK’s largest sharia-compliant investment fund, is expected to stop investing in several major companies linked to Israel’s military after new rules were introduced to restrict investments in weapons and military businesses.

Middle East Eye (MEE) reported the development on Wednesday, November 11, 2026. It follows an October investigation by the news outlet which found that the HSBC fund had bought more than USD 100 million worth of shares in companies linked to the Israeli military during the first half of 2026.

The new rules for the S&P Global 1200 Shariah Select Index, which the fund follows, will come into force on Monday, November 23, 2026.

The changes are expected to affect investments in five major companies: RTX, Rolls-Royce, Honeywell International, BAE Systems and Palantir.

The fund started following the index in March. As a passively managed fund, it invests in the companies included in the index. A board of Islamic scholars oversees it.

New rules target weapons companies

Under the revised rules, companies earning more than 5 per cent of their income from certain military-related activities will be removed from the index.

These activities include military contracts, nuclear weapons, depleted uranium, incendiary weapons, biological weapons and small arms.

The earlier rules did not specifically exclude companies involved in most types of weapons production.

Under common Islamic finance guidelines, a company may be considered sharia-compliant if less than 5 per cent of its income comes from activities that are not allowed under Islamic principles.

Five companies face removal

RTX, one of the world’s largest arms manufacturers, is among the companies expected to be excluded. HSBC’s fund bought shares worth USD 35.7 million in the company during the first half of 2026.

RTX subsidiary Raytheon makes missiles and other military equipment. The Campaign Against Arms Trade (CAAT) has described it as a major supplier to the Israeli military and raised concerns about its role in Israel’s war on Gaza.

The fund also bought USD 18.9 million worth of shares in Honeywell International.

The US company makes sensors and guidance systems used in weapons. Nearly 20 per cent of its income comes from military weapons, which is above the new limit.

A device made by Honeywell that helps missiles hit their targets was reportedly found in a missile used in an attack on a school in Gaza in June 2024. At least 40 Palestinians, including 14 children and nine women, were killed in the attack.

Another company facing exclusion is Rolls-Royce. The fund bought shares worth USD 17.6 million in the British company.

Rolls-Royce makes engines for Israel’s Merkava tanks and naval vessels through its German subsidiary MTU. More than 12 per cent of its income comes from military weapons.

BAE Systems, Britain’s largest arms manufacturer, is also expected to be removed. HSBC’s fund holds 386,784 shares in the company, worth around USD 9.4 million.

BAE Systems makes parts for F-35 fighter jets, which have been used by the Israeli military in Gaza.

Palantir investment also under review

Palantir is another company that could be removed from the index. Unlike the other companies, it does not make weapons. However, it provides technology to military organisations.

The HSBC fund bought shares worth USD 38.3 million in the US data and surveillance company during the first half of 2026.

In January 2024, Palantir announced a partnership with Israel’s Ministry of Defence to support what it called war-related missions.

The company’s work with Israel has raised concerns about the use of its technology in military operations in the occupied Palestinian territory.

In late October, HSBC said it would review its investment in Palantir following these concerns.

“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,” the bank said.

Under the revised rules, Palantir could also lose its place in the index because of its military contracts.

The changes come amid growing pressure on investment companies to review their links with businesses connected to Israel’s military operations in Gaza.

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