Sustainable investing and corporate performance: evidence from Shariah-compliant companies in Malaysia

Norashikin Ismail, Farha Ghapar, Mohamad Azwan Md Isa, Ruziah A. Latif and Yuslizawati Mohd Yusoff

Chapter 14 in Islamic Finance and the Pursuit of Sustainable Prosperity, 2025, pp 322-338 from Edward Elgar Publishing

Abstract: Sustainable investing with a focus on Environmental, Social and Governance (ESG) factors has gained significant attention in the capital markets. The study delves into the influence of corporate sustainability practices on the financial performance of Shariah-compliant firms in Malaysia, motivated by the development of the FTSE4Good Bursa Malaysia Shariah index. Our sample consists of 27 Shariah-compliant companies listed in Bursa Malaysia over the period 2010–2021. This study employs the System Generalized Method of Moments (SGMM) to reduce bias and achieve more specific parameter estimation. The results confirm that Shariah-compliant companies with higher ESG scores are positively correlated with corporate financial performance. ESG integration with Shariah-based investing would provide higher returns and lower risks for Muslim investors. Essentially, integrating ESG and Shariah-compliant companies leads to better financial performance. The study recommends enhancing investors’ emphasis on ESG's role in investment decisions, providing insights to encourage more companies to adopt ESG practices based on an additional faith-based ethical standard.

Keywords: Sustainable investing; Shariah-compliant; Corporate performance; ESG; Malaysia; Islamic capital market (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035349678
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