Ethical Glossary

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B

Best-in-Class Screening Ethical

A selection method that picks the highest-rated companies within each sector rather than excluding entire industries. Instead of removing all energy stocks, for example, you keep the ones with the strongest environmental practices. It allows diversification while still rewarding better behaviour.

Beta Financial

A measure of how much a stock moves relative to the broader market. A beta of 1.0 means the stock tracks the index closely; above 1.0 means more volatile, below 1.0 means calmer. Ethically screened portfolios often carry lower betas because they tend to exclude highly speculative names. See how beta fits into our ETF Screener.

Blended Score Financial

A single analysis number derived from multiple scoring layers. Rather than judging a stock on one metric alone, a blended score combines factors such as valuation, momentum, quality, and ethical compliance into a unified ranking. Our Ethical Trading tools use multi-layer blended scores to surface the strongest opportunities.

C

Carbon Footprint Ethical

The total greenhouse gas emissions attributable to a company, fund, or portfolio, usually expressed in tonnes of CO2 equivalent. Investors use this metric to compare the environmental impact of different holdings and to track progress toward net-zero commitments over time.

Compliance Quality Financial

A qualitative assessment of how well a company meets its stated ethical or Shariah compliance standards. A firm may technically pass a debt ratio threshold but still derive borderline revenue from non-compliant activities. Compliance quality looks beyond the numbers to evaluate the spirit of adherence.

Correlation Financial

A statistical measure of how two assets move in relation to each other, ranging from +1 (perfect lockstep) to -1 (perfect inverse). Understanding correlation is essential for diversification. Two ethically compliant stocks in the same sector may have high correlation, meaning they offer less diversification benefit than you might assume.

D

Dark Pool Financial

A private exchange where institutional investors trade large blocks of shares away from public view. Dark pool activity does not appear on standard order books until after execution. Monitoring dark pool volume can reveal institutional positioning that traditional price charts miss.

Debt Purity Ratio Financial

The proportion of a company’s total debt relative to its assets or market capitalisation. In Shariah screening, this ratio must typically remain below a set threshold (often 33%) for the stock to be considered compliant. It ensures that a company’s capital structure does not rely excessively on interest-bearing borrowing.

Debt Ratio Threshold Shariah

The maximum allowable level of interest-bearing debt a company may carry relative to its total assets or market cap. Most Shariah screening methodologies set this at 33%, derived from hadith guidance. Companies exceeding the threshold are excluded from compliant investment universes regardless of other qualities.

Divestment Ethical

The deliberate sale of holdings in companies or sectors that conflict with an investor’s ethical principles. Unlike selling for financial reasons, divestment is values-driven. The fossil fuel divestment movement is the most prominent example, but the concept applies equally to weapons, tobacco, gambling, and other excluded industries.

Dividend Yield Financial

The annual dividend payment divided by the share price, expressed as a percentage. For ethical investors, dividend yield matters in two ways: it indicates real cash returned to shareholders, and it raises the question of whether those dividends were generated from compliant revenue. Our Dividend Screener filters for both yield and compliance.

Drawdown Financial

The peak-to-trough decline in an investment’s value before it recovers to a new high. Maximum drawdown is a key risk metric because it shows the worst real-world pain an investor would have experienced. Ethically screened portfolios can exhibit different drawdown profiles from conventional indices because they exclude certain high-volatility sectors.

E

Environmental Score Ethical

The “E” in ESG. This score rates a company on its environmental practices: emissions, waste management, energy efficiency, water usage, and climate risk. It is typically calculated by third-party rating agencies and ranges from poor to excellent, though methodologies vary significantly between providers.

ESG (Environmental, Social, Governance) Ethical

A framework for evaluating companies beyond traditional financial metrics. Environmental covers climate and pollution; Social covers labour practices and community impact; Governance covers board structure, transparency, and executive compensation. ESG does not automatically mean ethical or Shariah-compliant, but it overlaps significantly with both approaches.

Ethical Screen Financial

A filter applied to an investment universe that removes companies failing to meet specified ethical criteria. An ethical screen might exclude firms involved in alcohol, tobacco, weapons, adult entertainment, or interest-based financial services. The screen creates the investable universe from which portfolio construction begins. See our Ethical Trading section for how we apply multi-layer screens.

Exclusion Criteria Ethical

The specific rules that determine which companies or sectors are removed from an investable universe. Common exclusions include weapons manufacturers, tobacco producers, gambling operators, and companies deriving significant revenue from alcohol or adult content. Shariah-compliant criteria add interest-based finance and pork-related industries to the list.

G

Gharar (Uncertainty) Shariah

Excessive uncertainty or ambiguity in a financial transaction. In Islamic finance, contracts must have clearly defined terms, quantities, and obligations. Gharar prohibits transactions where one party is significantly disadvantaged by hidden information or undefined outcomes. Conventional derivatives and highly speculative instruments often fall foul of this principle.

Governance Score Ethical

The “G” in ESG. This evaluates a company’s leadership structure, board independence, executive pay practices, shareholder rights, and transparency. Strong governance tends to correlate with lower fraud risk and more sustainable long-term returns, making it valuable for both ethical and purely financial analysis.

Greenwashing Ethical

The practice of making misleading claims about a product’s or fund’s environmental or ethical credentials. A company might highlight a small green initiative while its core business remains heavily polluting. For investors, the equivalent danger is “ESG-washing” funds that rebrand conventional strategies with ethical labels while changing little about actual holdings.

H

Halal Shariah

Permissible under Islamic law. In an investing context, a halal stock or fund is one that passes both business activity screening (no haram revenue) and financial ratio screening (debt, interest income, and liquid assets within acceptable thresholds). The term applies to the investment itself, not just the underlying business.

Haram Shariah

Prohibited under Islamic law. In finance, haram activities include interest-based lending, gambling, alcohol production, pork-related products, and weapons manufacturing. A stock deriving meaningful revenue from any haram source is excluded from Shariah-compliant portfolios regardless of its financial attractiveness.

I

Ijarah (Leasing) Shariah

A Shariah-compliant leasing contract where the financier purchases an asset and leases it to the client for an agreed rental fee. Ownership remains with the financier, and the risk associated with ownership (maintenance, insurance) typically stays with them too. It is the Islamic alternative to conventional hire purchase agreements.

Impact Investing Ethical

Investments made with the explicit intention of generating measurable positive social or environmental outcomes alongside financial returns. Unlike broad ESG screening, impact investing targets specific outcomes: clean water projects, affordable housing, renewable energy infrastructure. The returns may be market-rate or concessionary, depending on the investor’s priorities.

Insider Trading (Legal) Financial

When corporate officers, directors, or major shareholders buy or sell shares in their own company and report those transactions to regulators. This is perfectly legal and publicly disclosed. Tracking legal insider purchases can signal management confidence, while clusters of insider selling may warrant caution. Not to be confused with illegal insider trading based on material non-public information.

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Liquidity Purity Ratio Financial

The proportion of a company’s liquid assets (cash, short-term investments, receivables) relative to total assets or market capitalisation. Shariah screening methodologies use this ratio to ensure a company’s assets are predominantly tangible or business-related rather than interest-generating cash reserves. The typical threshold is 33% of total assets.

M

Market Capitalisation (Market Cap) Financial

The total market value of a company’s outstanding shares, calculated as share price multiplied by shares outstanding. Market cap determines a company’s weight in most indices and serves as the denominator in several Shariah financial ratio calculations. Large-cap stocks tend to be more liquid and less volatile than small-caps.

Maysir (Gambling) Shariah

Any transaction where the outcome depends purely on chance rather than productive economic activity. Maysir is prohibited in Islamic finance because it creates wealth for one party at the direct expense of another without adding value to the economy. Binary options and certain speculative derivatives are commonly cited examples.

Monte Carlo Simulation Financial

A computational technique that runs thousands of random scenarios to model the range of possible outcomes for a portfolio. Instead of relying on a single forecast, Monte Carlo simulations show the probability distribution of returns, helping investors understand how likely different gain or loss scenarios actually are.

Mudarabah (Profit-Sharing) Shariah

A partnership where one party provides capital and the other provides expertise and management. Profits are shared according to a pre-agreed ratio, but losses are borne solely by the capital provider (unless the manager was negligent). Mudarabah is a foundational structure in Islamic banking, used for savings accounts and investment funds.

Murabaha (Cost-Plus Financing) Shariah

A sale contract where the seller discloses the cost of an asset and adds a known profit margin. The buyer pays the total in instalments. Unlike a conventional loan, the financier actually purchases the asset first, takes ownership risk momentarily, and resells it. This structure avoids interest while allowing deferred payment.

Musharakah (Joint Venture) Shariah

A partnership where all parties contribute capital and share profits and losses proportionally. Unlike mudarabah, every partner bears financial risk. Musharakah is used in property financing, business ventures, and Islamic mortgage alternatives. Diminishing musharakah, where the bank’s share decreases over time, is particularly common for home purchases.

N

Negative Screening Ethical

The process of removing companies or sectors from an investment universe based on what they do. This is the most common form of ethical investing: if a company manufactures cluster munitions or operates casinos, it is excluded. Shariah compliance is fundamentally a form of negative screening, though it adds financial ratio tests on top of business activity filters.

O

Opportunity Score Financial

A analysis metric that ranks stocks by their current attractiveness based on multiple quantitative factors. Unlike a simple valuation screen, an opportunity score may combine momentum, relative strength, fundamental quality, and compliance status into a single actionable number. Higher scores indicate stronger convergence of positive signals.

P

PE Ratio (Price-to-Earnings) Financial

The share price divided by earnings per share. A PE of 15 means investors pay 15 times annual earnings for each share. It is the most widely used valuation shorthand. Ethical portfolios that exclude high-growth tech names may naturally carry lower average PE ratios, which affects both risk and return expectations.

Positive Screening Ethical

The opposite of negative screening. Instead of excluding bad actors, positive screening actively seeks companies that demonstrate strong ethical practices, environmental leadership, or social impact. A fund might overweight firms with the best carbon reduction programmes or strongest labour standards, creating a portfolio tilted toward positive outcomes.

Purification Shariah

The process of calculating and donating the portion of investment returns attributable to non-compliant income. Even in a Shariah-compliant stock, a small percentage of revenue may come from interest income or other impermissible sources. Purification requires the investor to calculate this percentage and give it to charity, ensuring their net returns are entirely clean.

R

Revenue Purity Shariah

The percentage of a company’s total revenue that comes from halal (permissible) sources. Most Shariah screening standards require at least 95% revenue purity, meaning no more than 5% of revenue may come from non-compliant activities. A bank earning interest as its core business fails entirely, while a technology company earning minor interest on cash reserves may still pass.

Revenue Purity Ratio Financial

The quantitative expression of revenue purity, calculated as non-compliant revenue divided by total revenue. This ratio is one of the core financial screens in Shariah compliance. It is also relevant for secular ethical investors who want to quantify how much of a company’s income comes from activities they wish to avoid.

Riba (Interest) Shariah

The Arabic term for usury or interest. Riba is categorically prohibited in Islamic finance. The prohibition extends beyond lending: any guaranteed, predetermined return on capital without sharing risk is considered riba. This is why Islamic finance uses profit-sharing, leasing, and trade-based structures instead of conventional interest-bearing instruments.

S

Screening Ratio Shariah

A generic term for any of the financial ratios used in Shariah compliance testing. The three primary screening ratios are the debt ratio, the interest income ratio, and the liquid assets ratio. Each must fall below its threshold (typically 33%) for the stock to be considered compliant. Different screening bodies (AAOIFI, MSCI, S&P) may use slightly different denominators.

Sector Rotation Financial

The practice of shifting portfolio allocation between sectors based on where you are in the economic cycle. Defensive sectors (healthcare, utilities) tend to outperform in downturns; cyclicals (industrials, consumer discretionary) lead in recoveries. For ethical investors, sector rotation must be weighed against the compliance status of target sectors.

Shariah Shariah

Islamic law derived from the Quran, the Hadith (sayings of the Prophet Muhammad, peace be upon him), and scholarly consensus. In finance, Shariah provides the framework governing what transactions, investments, and business activities are permissible. A Shariah board of qualified scholars typically oversees compliance for Islamic financial institutions and funds.

Sharpe Ratio Financial

A measure of risk-adjusted return, calculated as the excess return over the risk-free rate divided by the portfolio’s standard deviation. Higher is better. A Sharpe ratio of 1.0 or above is generally considered good. Ethical portfolios can achieve competitive Sharpe ratios because their exclusion of volatile sectors sometimes reduces overall portfolio volatility more than it reduces returns.

Social Score Ethical

The “S” in ESG. This evaluates a company’s relationships with employees, suppliers, customers, and communities. Factors include labour rights, diversity, supply chain ethics, data privacy, and community engagement. Companies with strong social scores tend to face fewer regulatory penalties and reputational crises.

SRI (Socially Responsible Investing) Ethical

An investment approach that considers both financial returns and social good. SRI predates ESG and tends to be more values-driven, with investors actively choosing to support or avoid certain industries based on personal or institutional ethics. It is the broadest umbrella term for conscience-based investing and encompasses faith-based, environmental, and human-rights-focused strategies.

Stakeholder Capitalism Ethical

An economic model where companies serve all stakeholders (employees, customers, communities, the environment) rather than maximising shareholder value alone. The concept argues that long-term shareholder value is actually best served by treating other stakeholders well, aligning closely with both Islamic ethical principles and modern ESG frameworks.

Sukuk (Islamic Bonds) Shariah

Shariah-compliant financial certificates, often described as Islamic bonds. Unlike conventional bonds that pay interest, sukuk represent ownership in a tangible asset, usufruct, or service and generate returns through profit-sharing or rental income. The global sukuk market exceeds $800 billion and is the primary fixed-income instrument in Islamic finance.

T

Takaful (Islamic Insurance) Shariah

A cooperative insurance model where participants contribute to a pool that is used to cover claims. Unlike conventional insurance, takaful avoids interest (riba), uncertainty (gharar), and gambling (maysir) by structuring the arrangement as mutual aid rather than a commercial risk-transfer contract. Any surplus in the pool is returned to participants or donated to charity.

Thematic Investing Ethical

Building a portfolio around a specific long-term trend or theme rather than traditional sector or geographic allocations. Common ethical themes include clean energy, water scarcity, gender diversity, and sustainable agriculture. Thematic investing allows focused exposure to the issues an investor cares about most, though it can reduce diversification.

13F Filing Financial

A quarterly report filed by institutional investment managers with over $100 million in assets under management. The 13F discloses all equity holdings, giving the public a window into what hedge funds, mutual funds, and pension funds actually own. Analysing 13F filings can reveal institutional conviction in specific ethical or compliant stocks.

V

Value at Risk (VaR) Financial

A statistical measure that estimates the maximum expected loss over a given time period at a specified confidence level. For example, a one-day 95% VaR of $10,000 means there is a 5% chance of losing more than $10,000 in a single day. VaR helps investors quantify downside risk, which is particularly relevant when constructing portfolios within a restricted ethical universe.

Z

Zakat Shariah

One of the five pillars of Islam. Zakat is an obligatory annual wealth tax of 2.5% on qualifying assets above a minimum threshold (nisab). For investors, zakat applies to the market value of shareholdings that have been held for one lunar year. It is calculated on the zakatable portion of each company’s assets, not simply on portfolio value, making accurate financial data essential.

How to Use This Glossary

This is a living reference. As our research expands, new terms will be added and existing definitions refined. Here is where to go next:

• Ethical Trading — our full ethical investing framework and research
• Dividend Screener — filter for compliant dividend-paying stocks
• ETF Screener — find ETFs that meet your ethical criteria

This glossary is for educational purposes only and does not constitute financial, legal, or religious advice. Shariah compliance determinations should be made in consultation with qualified scholars. Investment decisions should consider individual circumstances, risk tolerance, and professional financial advice. Past performance and analytical frameworks do not guarantee future results.