Sustainable finance in the Islamic world: A comparative study of ESG reporting in Indonesia, Malaysia, and Brunei Darussalam
DOI:
https://doi.org/10.26740/al-uqud.v9n1.p18-32Keywords:
Sustainability reporting, ESG, Shariah compliance Disclosure, Islamic banksAbstract
This research examines the sustainability reporting procedures of three Islamic banks located in Indonesia, Malaysia, and Brunei Darussalam. The research methodology employs a comprehensive and dependable descriptive approach, utilising a content analysis framework grounded in established sustainable practices and prior studies. This led to an extensive examination of 302 elements, encompassing environmental, socioeconomic, governance, and sharia compliance dimensions. The findings indicate that all three Islamic banks exhibit a commendable level of transparency and are dedicated to adopting sustainable practices. This signifies substantial transparency regarding governance and minimal disclosure concerning sharia compliance, reflecting the ethical identity of the IBs. Bank Syariah Indonesia has the highest degree of disclosure among all sampled banks. This study examines ESG disclosure in Islamic banks and paves the way for future research to broaden its coverage by include more factors. This may result in a more thorough investigation and further insights in the domain. The study's conclusions and suggestions could substantially influence Islamic banks, regulators, and other stakeholders.
References
Belal, A. R., Abdelsalam, O., & Nizamee, S. S. (2015). Ethical Reporting in Islami Bank Bangladesh Limited (1983–2010). Journal of Business Ethics, 129(4), 769–784. https://doi.org/10.1007/s10551-014-2133-8
Boudawara, Y., Toumi, K., Wannes, A., & Hussainey, K. (2023). Shari’ah governance quality and environmental, social and governance performance in Islamic banks. A cross-country evidence. Journal of Applied Accounting Research, 24(5), 1004–1026. https://doi.org/10.1108/JAAR-08-2022-0208
Camilleri, M. A. (2017). Corporate sustainability and responsibility: creating value for business, society and the environment. Asian Journal of Sustainability and Social Responsibility, 2(1), 59–74. https://doi.org/10.1186/s41180-017-0016-5
Chiaramonte, L., Dreassi, A., Girardone, C., & Piserà, S. (2022). Do ESG strategies enhance bank stability during financial turmoil? Evidence from Europe. The European Journal of Finance, 28(12), 1173–1211. https://doi.org/10.1080/1351847x.2021.1964556
Chopra, S. S., Senadheera, S. S., Dissanayake, P. D., Withana, P. A., Chib, R., Rhee, J. H., & Ok, Y. S. (2024). Navigating the Challenges of Environmental, Social, and Governance (ESG) Reporting: The Path to Broader Sustainable Development. Sustainability, 16(2), 606. https://doi.org/10.3390/su16020606
Gutiérrez-Ponce, H., & Wibowo, S. A. (2023). Do Sustainability Activities Affect the Financial Performance of Banks? The Case of Indonesian Banks. Sustainability, 15(8), 6892. https://doi.org/10.3390/su15086892
Jan, A. A., Lai, F.-W., Asif, M., Akhtar, S., & Ullah, S. (2023). Embedding sustainability into bank strategy: implications for sustainable development goals reporting. International Journal of Sustainable Development & World Ecology, 30(3), 229–243. https://doi.org/10.1080/13504509.2022.2134230
Kolsi, M. C., & Al-Hiyari, A. (2023). Comparison of Sustainability Performance Reporting Practices in Islamic Versus Conventional Banks: Evidence from the GCC Region. In Islamic Accounting and Finance: Vol. Volume 6 (pp. 345–365). WORLD SCIENTIFIC (EUROPE). https://doi.org/doi:10.1142/9781800612426_0011
Mohamad Ariff, A., Abd Majid, N., Kamarudin, K. A., Zainul Abidin, A. F., & Muhmad, S. N. (2024). Corporate ESG performance, Shariah-compliant status and cash holdings. Journal of Islamic Accounting and Business Research, 15(3), 534–552. https://doi.org/10.1108/JIABR-08-2022-0217
Mohd Zain, F. A., Muhamad, S. F., Abdullah, H., Sheikh Ahmad Tajuddin, S. A. F., & Wan Abdullah, W. A. (2024). Integrating environmental, social and governance (ESG) principles with Maqasid al-Shariah: a blueprint for sustainable takaful operations. International Journal of Islamic and Middle Eastern Finance and Management, 17(3), 461–484. https://doi.org/10.1108/IMEFM-11-2023-0422
Muhamad, S. F., Zain, F. A. M., Samad, N. S. A., Rahman, A. H. A., & Yasoa, M. R. (2022). Measuring Sustainable Performance of Islamic Banks: Integrating the principles of Environmental, Social and Governance (ESG) and Maqasid Shari’ah. IOP Conference Series: Earth and Environmental Science, 1102(1), 12080. https://doi.org/10.1088/1755-1315/1102/1/012080
Nasution, A. A., Harahap, D., & Uula, M. M. (2022). Environmental, social, governance (ESG) and Islamic finance: A review. Management and Sustainability, 1(1). https://doi.org/10.58968/ms.v1i1.285
Norjidi, D. (2022). Making strides with ESG. https://borneobulletin.com.bn/making-strides-with-esg/
Ramadhan, M. A., Mulyany, R., & Mutia, E. (2023). The irrelevance of R&D intensity in the ESG disclosure? Insights from top 10 listed companies on global Islamic indices. Cogent Business & Management, 10(1), 2187332. https://doi.org/10.1080/23311975.2023.2187332
Sakınç, İ. (2021). Analysis of the Working Capital Management Efficiency of the Manufacturing Companies in the Islamic Index TT - İslami Endekste Yer Alan İmalat Sanayi Şirketlerinin Çalışma Sermayesi Yönetimi Etkinlik Analizi. Hitit İlahiyat Dergisi, 20(3), 107–128. https://doi.org/10.14395/hid.930402
Sarea, A. M. (2020). The Impact of Islamic Finance on Sustainability Reporting. In Global Approaches to Sustainability Through Learning and Education (pp. 262–269). IGI Global. https://doi.org/10.4018/978-1-7998-0062-0.ch017
Sendi, A., Banna, H., Hassan, M. K., & Huq, T. I. (2024). The effect of ESG scores on bank stability: Islamic vs. conventional banks. Journal of Sustainable Finance & Investment, 1–31. https://doi.org/10.1080/20430795.2024.2395876
Siregar, I. F., Ismail, T., Taqi, M., & Soleha, N. (2024). Influence of ESG on Sustainability Reporting: Mediation Rule of Green Innovation and Investor Sentiment. International Journal of Energy Economics and Policy, 14(1 SE-Articles), 452–463. https://doi.org/10.32479/ijeep.14988
Sulkowski, A., & Jebe, R. (2022). Evolving ESG Reporting Governance, Regime Theory, and Proactive Law: Predictions and Strategies. American Business Law Journal, 59(3), 449–503. https://doi.org/https://doi.org/10.1111/ablj.12210
Sun, Y., Zhao, D., & Cao, Y. (2024). The impact of ESG performance, reporting framework, and reporting assurance on the tone of ESG disclosures: Evidence from Chinese listed firms. Journal of Cleaner Production, 466, 142698. https://doi.org/10.1016/j.jclepro.2024.142698
Umar, U. H., Besar, M. H. A., & Abduh, M. (2023). Compatibility of the CSR practices of Islamic banks with the United Nations SDGs amidst COVID-19: a documentary evidence. International Journal of Ethics and Systems, 39(3), 629–647. https://doi.org/10.1108/IJOES-12-2021-0221
Wai-Khuen, W., Boon-Heng, T., & Siow-Hooi, T. (2023). The influence of external stakeholders on environmental, social, and governance (ESG) reporting: Toward a conceptual framework for ESG disclosure. Foresight and STI Governance (Foresight-Russia till No. 3/2015), 17(2), 9–20. https://doi.org/10.17323/2500-2597.2023.2.9.20
AAOIFI. (2020). AAOIFI Governance Standard (GS) 11. http://aaoifi.com/issued-standards-2/?lang=en
Abdullah, N. A. I. N., & Haron, R. (2022). ESG reporting practices among Islamic banks: a global perspective. IIUM Law Journal, 30(S2), 1–36. https://doi.org/10.31436/iiumlj.v30iS2.755
Agustin, F., Muhtadi, R., & Sahal, S. (2023). The Importance of Implementing Environment, Social and Government (ESG) and Maqasid Sharia-Based Islamic Finance in Islamic Bank. Journal of Islamic Economic Laws, 6(2), 133–158. https://doi.org/10.23917/jisel.v6i2.21214
Amran, A., Fauzi, H., Purwanto, Y., Darus, F., Yusoff, H., Zain, M. M., Naim, D. M. A., & Nejati, M. (2017). Social responsibility disclosure in Islamic banks: a comparative study of Indonesia and Malaysia. Journal of Financial Reporting and Accounting, 15(1), 99–115. https://doi.org/10.1108/JFRA-01-2015-0016
Arini. (2021). Pengungkapan sustainability report pada kinerja bank: perspektif maqashid syariah. Masters thesis, Universitas Negeri Malang.
Baron, R. (2014). The evolution of corporate reporting for integrated performance. Background Paper for the 30th Round Table on Sustainable Development, 25, 1–35.
Bassen, A., & Kovács, A. M. (2020). Environmental, social and governance key performance indicators from a capital market perspective. Springer.
Buallay, A. (2019). Is sustainability reporting (ESG) associated with performance? Evidence from the European banking sector. Management of Environmental Quality: An International Journal, 30(1), 98–115. https://doi.org/10.1108/MEQ-12-2017-0149
Chang, W. F., Amran, A., Iranmanesh, M., & Foroughi, B. (2019). Drivers of sustainability reporting quality: financial institution perspective. International Journal of Ethics and Systems, 35(4), 632–650. https://doi.org/10.1108/IJOES-01-2019-0006
Dayan, D. W. (2020). Sustainability Reporting di Indonesia: Peran, Tantangan, dan Dilema dibalik Penerapannya. figshare. online resource. https://doi.org/10.6084/m9.figshare.15655692.v1
El-Halaby, S., & Hussainey, K. (2016). Determinants of compliance with AAOIFI standards by Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 9(1), 143–168. https://doi.org/10.1108/IMEFM-06-2015-0074
Elzahar, H., Hussainey, K., Mazzi, F., & Tsalavoutas, I. (2015). Economic consequences of key performance indicators’ disclosure quality. International Review of Financial Analysis, 39, 96–112. https://doi.org/10.1016/j.irfa.2015.03.005
Fatemi, A., Glaum, M., & Kaiser, S. (2018). ESG performance and firm value: The moderating role of disclosure. Global Finance Journal, 38, 45–64. https://doi.org/10.1016/j.gfj.2017.03.001
Freeman, R. E. (1984). Strategic management: A stokcholder approach. Pitman.
Grassa, R., El-Halaby, S., & Hussainey, K. (2019). Corporate governance and multi-corporate disclosures evidence from Islamic banks. In Research in corporate and shari’ah governance in the Muslim world: Theory and practice (pp. 167–187). Emerald Publishing Limited. https://doi.org/10.1108/978-1-78973-007-420191014
Hamdan, M. H. (2013). Corporate social responsibility of Islamic banks in Brunei Darussalam. In Corporate social responsibility in Asia: Practice and experience (pp. 85–107). Springer. https://doi.org/10.1007/978-3-319-01532-3_5
Haniffa, R., & Hudaib, M. (2007). Exploring the ethical identity of Islamic banks via communication in annual reports. Journal of Business Ethics, 76, 97–116. https://doi.org/10.1007/s10551-006-9272-5
IDX. (2021). Synergy to Reach Sustainability and Beyond.
IFSB. (2022). Governance Framework for Institutions Offering Islamic Financial Services (ED-RSGF) for Public Consultation. https://aaoifi.com/wp-content/uploads/2022/04/ED-IFSB-AAOIFI-Revised-Shariah-Governance-Framework_En.pdf
Ioannou, I., & Serafeim, G. (2017). The consequences of mandatory corporate sustainability reporting. Harvard Business School Research Working Paper, 11–100.
Jamil, A., Mohd Ghazali, N. A., & Puat Nelson, S. (2021). The influence of corporate governance structure on sustainability reporting in Malaysia. Social Responsibility Journal, 17(8), 1251–1278. https://doi.org/10.1108/SRJ-08-2020-0310
Kramer, M. R., & Porter, M. (2011). Creating shared value (Vol. 17). FSG Boston, MA, USA.
Lui, T. K., Zainuldin, M. H., Wahidudin, A. N., & Foo, C. C. (2021). Corporate social responsibility disclosures (CSRDs) in the banking industry: A study of conventional banks and Islamic banks in Malaysia. International Journal of Bank Marketing, 39(4), 541–570. https://doi.org/10.1108/IJBM-04-2020-0192
Maali, B., Casson, P., & Napier, C. (2006). Social reporting by Islamic banks. Abacus, 42(2), 266–289. https://doi.org/10.1111/j.1467-6281.2006.00200.x
Niswah, M. A., & Falikhatun, F. (2021). Capital Structure, Organizational Slack and Sustainability Reporting In Islamic Bank of Indonesia, Qatar and Bahrain. IQTISHADIA Jurnal Ekonomi & Perbankan Syariah, 8(1), 71–87. https://doi.org/10.19105/iqtishadia.v8i1.3706
Prime Minister’s Brunei Darussalam. (2023). Voluntary National Review Brunei Darussalam 2023.
Qoyum, A., Sakti, M. R. P., Thaker, H. M. T., & AlHashfi, R. U. (2022). Does the islamic label indicate good environmental, social, and governance (ESG) performance? Evidence from sharia-compliant firms in Indonesia and Malaysia. Borsa Istanbul Review, 22(2), 306–320. https://doi.org/10.1016/j.bir.2021.06.001
Ramadhan, M. A., Mulyany, R., & Mutia, E. (2023). The irrelevance of R&D intensity in the ESG disclosure? Insights from top 10 listed companies on global Islamic indices. Cogent Business & Management, 10(1), 2187332. https://doi.org/10.1080/23311975.2023.2187332
Salman, K. R. (2023). What Drives the Level of Social Reporting Disclosure at Islamic Commercial Banks? Banks and Bank Systems, 18(4), 61–73.
Santhirasegar, J., Ramakrishnan, S., Hishan, S. S., & Jamal, N. M. (2018). The Relationship Between Corporate Social Responsibility Practices and Firm Performance of Domestic Banks in Malaysia. International Journal of Engineering & Technology, 7(2.29), 451. https://doi.org/10.14419/ijet.v7i2.29.13797
Shahrom, Z. R., & Kunhibava, S. (2023). Malaysia’s Sustainable Banking Regulatory Framework: Value-Based Intermediation and Climate Change Principle-Based Taxonomy. In Green Finance Instruments, FinTech, and Investment Strategies: Sustainable Portfolio Management in the Post-COVID Era (pp. 125–166). Springer.
Srairi, S. (2019). Transparency and bank risk-taking in GCC Islamic banking. Borsa Istanbul Review, 19, S64–S74. https://doi.org/10.1016/j.bir.2019.02.001
Yee, E. (2022). When Shariah Meets ESG: The Next Level. https://www.businesstoday.com.my/2022/11/17/when-shariah-meets-esg-the-next-level/
Yu, E. P., Guo, C. Q., & Luu, B. Van. (2018). Environmental, social and governance transparency and firm value. Business Strategy and the Environment, 27(7), 987–1004. https://doi.org/10.1002/bse.2047
Zhao, C., Guo, Y., Yuan, J., Wu, M., Li, D., Zhou, Y., & Kang, J. (2018). ESG and corporate financial performance: Empirical evidence from China’s listed power generation companies. Sustainability, 10(8), 2607. https://doi.org/10.3390/su10082607
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 the author(s)
This work is licensed under a Creative Commons Attribution 4.0 International License.
CC BY 4.0
Abstract views: 23
,
PDF Downloads: 0
