How does the Environment, Social, and Governance (ESG) Influence Shariah-compliant Companies' Performance?

Masturah Ma'in; Nurul Sabrina Nazhan Nazaiful Affendi; Mohamad Idham Md Razak; Akhmad Akbar Susamto

doi:10.21834/e-bpj.v10i31.6583

Authors

Masturah Ma'in Department of Economics and Financial Studies, Faculty of Business and Management, Universiti Teknologi MARA, 42300 Puncak Alam, Selangor, Malaysia
Nurul Sabrina Nazhan Nazaiful Affendi Department of Law Amendment & Interim Merger Unit, Malaysia Competition Commission (MyCC), Menara SSM @Sentral, 50623, Kuala Lumpur, Malaysia
Mohamad Idham Md Razak Department of Economics and Financial Studies, Faculty of Business and Management, Universiti Teknologi MARA, 42300 Puncak Alam, Selangor, Malaysia
Akhmad Akbar Susamto Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada, Depok, Sleman, DI Yogyakarta, 55281, Indonesia

DOI:

https://doi.org/10.21834/e-bpj.v10i31.6583

Keywords:

ESG, Shariah Companies, Performance, Stakeholder Theory

Abstract

This study examines the performance of Malaysian Shariah-listed companies by analyzing their environment, social, and governance (ESG) from 2010 to 2021. Data were sourced from annual reports, the Bursa Malaysia 2022 Shariah securities list, and Thomson Reuters. A panel data analysis tested the impact of ESG, size, and leverage on performance. ESG had no significant effect on market performance (Tobin’s Q). From an accounting perspective (ROA), the environment had the most significant impact, followed by size and leverage. Companies should assess environmental policies, workplace social factors, and governance through transparency and leadership practices.

References

Alam, A., Banna, H., & Hassan, K. (2022). ESG activities and bank efficiency: Are Islamic banks better? Journal of Islamic Monetary Economics and Finance, 8(1), 65–88. DOI: https://doi.org/10.21098/jimf.v8i1.1428

Alareeni, B., & Hamdan, A. (2020). ESG impact on performance of US S&P 500-listed firms. Corporate Governance, 20(7), 1409–1428. DOI: https://doi.org/10.1108/CG-06-2020-0258

Bartlett, R., & Partnoy, F. (2018). The misuse of Tobin’s Q. The Harvard Law School Forum on Corporate Governance. DOI: https://doi.org/10.2139/ssrn.3118020

Buallay, A. (2022). Sustainability reporting in food industry: An innovative tool for enhancing financial performance. British Food Journal, 124(6), 1939–1958. DOI: https://doi.org/10.1108/BFJ-01-2021-0053

Caratas, M. A., Trandafir, R. A., Iftene, C., Spatariu, E. C., & Gheorghiu, G. (2021). The impact of sustainability disclosure on companies’ performance in the healthcare industry. Transformations in Business & Economics, 20(2a), 593–613.

Chin, P. N. (2022). ESG rating and firm performance: Comparison among Singapore, Malaysia, Brunei, Indonesia, and Thailand. International Journal of Accounting, Finance and Business, 7(43), 155–164.

Danis, A., Rettl, D., & Whited, T. (2014). Refinancing, profitability, and capital structure. Journal of Financial Economics, 114(3), 424–443. DOI: https://doi.org/10.1016/j.jfineco.2014.07.010

Dybvig, P. H., & Warachka, M. (2010). Tobin’s Q does not measure performance: Theory, empirics, and alternative measures. Retrieved from http://ssrn.com/abstract=1562444 DOI: https://doi.org/10.2139/ssrn.1562444

Energy Watch. (2023). Malaysia needs a flexible system to deal with rising energy costs, climate action. Energy Watch. Retrieved from https://www.energywatch.com.my/malaysia-needs-a-flexible-system-to-deal-with-rising-energy-costs-climate-action/

Giannopoulos, G., Fagerne, E. M., & Hossain, K. (2022). The ESG disclosure and the financial performance of Norwegian listed firms. Journal of Risk and Financial Management, 15(6), 237. https://doi.org/10.3390/jrfm15060237 DOI: https://doi.org/10.3390/jrfm15060237

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/su1508689207 DOI: https://doi.org/10.3390/su15086892

Hasnu, N., & Muhammad, I. (2022). Environmental issues in Malaysia: Suggestion to impose carbon tax. Asia-Pacific Management Accounting Journal, 17(1), 65–95. https://doi.org/10.24191/APMAJ.V17i1-03 DOI: https://doi.org/10.24191/APMAJ.V17i1-03

Hung, C. V., Vinh, T. P., & Thai, B. D. (2021). The impact of firm size on the performance of Vietnamese private enterprises: A case study. Problems and Perspectives in Management, 19(2), 243–250. DOI: https://doi.org/10.21511/ppm.19(2).2021.20

Ibhagui, O. W., & Olokoyo, F. O. (2018). Leverage and firm performance: New evidence on the role of firm size. The North American Journal of Economics and Finance, 45, 57–82. DOI: https://doi.org/10.1016/j.najef.2018.02.002

Ishaq, M., Islam, Y., & Ghouse, G. (2021). Tobin’s Q as an indicator of firm performance: Empirical evidence from manufacturing sector firms of Pakistan. International Journal of Economics and Business Administration, IX(1), 425–441. DOI: https://doi.org/10.35808/ijeba/683

Jalil, A., & Mohamad, M. (2021). High-profile corruption, lack of transparency could affect Malaysia’s governance score. The Malaysian Reserve. Retrieved from https://themalaysianreserve.com/2021/05/24/high-profile-corruption-lack-of-transparency-could-affect-malaysias-governance-score/

Layne, R. (2023). Are companies actually greener—or are they all talk? HBS Working Knowledge. Retrieved from https://hbswk.hbs.edu/item/are-companies-actually-greener-or-are-they-all-talk-esg-greenwashing

Lee, S. P., & Isa, M. (2020). Environmental, social, and governance (ESG) practices and performance in Shariah firms: Agency or stakeholder theory? Asian Academy of Management Journal of Accounting and Finance, 16(1), 1–34. https://doi.org/10.21315/AAMJAF2020.16.1.1 DOI: https://doi.org/10.21315/aamjaf2020.16.1.1

Liu, H., Wu, K., & Zhou, Q. (2022). Whether and how ESG impacts corporate financial performance in the Yangtze River Delta of China. Sustainability, 14(24), 16584. https://doi.org/10.3390/su142416584 DOI: https://doi.org/10.3390/su142416584

Ma’in, M., Asmuni, S., Junos, S., Rostam, A. N., Azmi, N. H. A., & Sahidza, K. R. (2022). Impact of environmental, social, and governance (ESG), profitability, and macroeconomic indicators on firm performance. Journal of Entrepreneurship, Business and Economics, 10(2), 1–17.

Mustafa, F., & Sharma, V. (2022). Factors enabling pervasiveness of belief- and ethics-based marketing practice: An interpretive structural modeling approach. Journal of Islamic Marketing, 13(4), 1759–0833.

Pulino, S. C., Ciaburri, M., Magnanelli, B., & Nasta, L. (2022). Does ESG disclosure influence firm performance? Sustainability, 14(13), 7595. https://doi.org/10.3390/su14137595 DOI: https://doi.org/10.3390/su14137595

Shaikh, I. (2022). Environmental, social, and governance (ESG) practices and firm performance: An international evidence. Asian Journal of Accounting Research, 23(2), 218–237. DOI: https://doi.org/10.3846/jbem.2022.16202

Toh, B. (2017). Accountability still lacking in Malaysia despite progress. Retrieved from http://www.theedgemarkets.com/article/accountability-still-lacking-msia-despite-progress

Ying, Y. (2022). How ESG impacts firms’ performance: Evidence from China. Business, Economics and Management, 4, 175–182. DOI: https://doi.org/10.54097/hbem.v4i.3445