DOES THE ISLAMIC LABEL INDICATE SUPERIOR ESG PERFORMANCE? EVIDENCE FROM SHARIA-COMPLIANT FIRMS IN INDONESIA^S ENERGY SECTOR
Azrul Afrillana Awaludin (a*), Yusril (b), Deky Candra (c), Ari Prasetyo (d)

Universitas Airlangga

Abstract

Discussions on sustainability are increasingly prevalent, with Environmental, Social, and Governance (ESG) factors becoming the main benchmark in assessing a company^s performance and commitment to sustainability principles, especially in the extractive industry. This study aims to compare the ESG performance of sharia-labeled and conventional companies in the energy industry and examine the effect of the sharia label on ESG performance. This study is important because sharia-labeled companies are expected to adhere to Islamic values reflected in good corporate governance, demonstrate social responsibility, and participate in environmental conservation. This study uses a quantitative approach with panel data regression techniques, involving financial and non-financial data from companies listed on ISSI and non-ISSI in the period 2016-2023. This study found that sharia companies in the energy sector have lower sustainability (ESG) performance compared to conventional companies, especially in the environmental dimension. The Islamic dummy variable shows a negative effect on ESG performance, while control variables such as total assets, DER, and leverage play an important role in influencing performance. There is no significant difference in the social and governance dimensions between Islamic and conventional companies. This study recommends that Islamic stock index screening include sustainability aspects more comprehensively.

Keywords: Islamic Label, ESG Performance, Sharia-Compliant Firms, Energy Sector

Topic: Islamic capital market