Akademik Veri Yönetim Sistemi
International Conference on Social Research & Innovation: Innovations for Sustainability Forging the Path Ahead, Male, Maldivler, 8 - 09 Haziran 2024, cilt.1, sa.2, ss.1-17, (Tam Metin Bildiri)
ABSTRACT
The commitment of industries worldwide to environmental, social and governance (ESG) has become a global imperative. Given that Islam is a comprehensive way of life, it is crucial to evaluate the commitment of the Islamic financial sector to ESG. This study, conducted with a rigorous quantitative research approach using panel data for the period ranging from 2019 to 2022, resulting in 286 observations, aims to discuss the findings from the perspective of the Maqasid al-Shariah pyramid. The study variable is the Islamic banking industry's ESG score as the dependent variable. The ESG commitment score of Islamic banks at the country level, Islamic banks' industry environmental score, Islamic banks' industry social score, and Islamic banks' industry governance score are independent variables. In contrast, the ESG controversy score serves as a control variable. The data was obtained from the REFINTIVE database covering 18 countries, and the panel ARDL model was employed. The finding statistically significantly revealed that the Islamic financial industry set a greater standard of ESG for Islamic banks at the country level to comply with, as the adjustment due to short-run shocks is adjusting at the speed of 99.93%. In the long run, the Industrial environmental index score explains 15.46%, the social index score explains 49.23%, and the governance index score explains 35.94%. On average, the commitment of Islamic banks at the country level is statistically significant, but the magnitude is low (0.4004%). This indicates that, on average, Islamic banks at the country level need to increase their commitment to ESG to a proportion even better than the industry benchmark. It can be deduced from the Islamic banking industry's benchmark that more attention is driven towards the social index score, which implies that substantial attention is required on the social life as Daruriyyah (essential), followed by strengthening the governance factors as Hajiyyah and finally, environmental factor as Tahsiniyah (embellishment). Despite that, Islamic banks at the country level neither manufacture nor produce goods and services, but their clients do; As part of their contribution towards ESG achievement, they need to set checks and balances for companies seeking finance to comply with. These findings emphasize the crucial role of Islamic banks in the ESG commitment and the potential impact of their actions on the industry's overall ESG performance.
Keywords: ESG, Islamic Financial Industry, Maqasid al-Shariah,
Environmental index, Social Index, Governance Index