Can sustainable activities improve current and future financial performance: an empirical study of Islamic banks in Asia

Purpose: This study aims to examine the relationship between sustainable activities and financial performance under the moderation of the Shariah supervisory board (SSB) of Islamic banks (IBs). Design/methodology/approach: The sample consists of IBs in Asia from 2015 to 2018. Sustainable activities were collected from sustainability and annual reports, while additional data were sourced from Orbis, Thomson Reuters, and Euromonitor. Weighted content analysis measures sustainable activities, and general least square regression was used to test the hypothesis. Findings: Sustainable activities are positively correlated to IBs’ financial performance in the current and following year. However, the SSB cannot strengthen this relationship. Practical implications: IBs should integrate sustainable financing or green banking into their strategies and operations, as shareholders are increasingly drawn to investing in banks that demonstrate strong social and environmental responsibility. Social implications: First, policymakers can improve guidelines related to sustainability in IBs in line with Islamic concepts and perspectives. Second, regulation can optimize the role of SSB in terms of sustainability based on maqasid shariah. Originality/value: This study examines sustainable activities per the concept of maqasid shariah. Financial performance testing is carried out not only in the current period but also in one subsequent year. Limited research exists in this area, especially with a large sample in the Asian region.