Dynamic Triangulation between Shariah Compliance, ESG Transparency, and Firm Profitability

Abstract

Environmental, social responsibility, and good governance (ESG) ethics are becoming more important to businesses. Long-term sustainability is a goal. Ethical conduct, sustainability, and financial performance are increasingly studied. Thus, more research on this topic has been conducted. Islamic corporate finance, which is growing in popularity, raises the question of whether Shariah and ESG screening criteria improve or hurt financial performance. This study compares Shariah-compliant stocks with high-scoring (ESG-Leaders) and low-scoring ESG ratings to add new insights to the literature (ESG-Laggards). Shariah-compliant firms may suggest high ESG risk even when they are Shariah-compliant. This study uses panel regression models to assess how ESG practises affect performance. This study examines ESG practises and corporate performance. Panel data from a sample of companies is analysed using regression models. The results will reveal how ESG practises affect corporate performance. This study will add to the literature on ESG practises and business performance and will attract policymakers, policymakers, and practitioners. This study employs panel regression models to examine how environmental, social, and governance (ESG) policies and Shariah screening affect Malaysian Islamic enterprises' financial performance from 2017 to 2021. This study found a link between Shariah-compliant organisations' financial success and ESG criteria, notably social ones. This study shows that ESG leaders, firms with higher ESG scores, perform better financially than enterprises with lower ESG scores. This observation suggests that if ethical involvement delivers low scores, the company's valuation may decline. If not handled properly, ethical issues can cost money. Thus, ethical factors should be thoroughly assessed and integrated into the company's strategy to avoid damaging its valuation.

Keywords: Environmental, Social and governance (ESG), Financial performance, Shariah-compliant, Malaysia