Does Inclusion in the Sharia Stock Index Moderate the Relationship between Sustainability Performance and Profitability?

This study empirically examines the relationship between sustainability performance, assessed through Environmental, Social, and Governance (ESG) scores and individual ESG pillars scores, and firm profitability, proxied by Return on Assets (ROA). Additionally, it enriches the literature by exploring the moderating role of the Sharia stock index on the relationship between sustainability performance and profitability. The analysis was performed using a sample comprising 75 firms in Indonesia and Malaysia, selected through purposive sampling for the period 2018-2022. The panel data regression results indicate a positive relationship between overall ESG scores and profitability, highlighting the positive impact of overall ESG scores on profitability in Indonesian and Malaysian firms. However, the study does not identify a significant positive relationship between individual ESG pillars scores and profitability, nor does it establish that the Sharia stock index moderates the relationship between sustainability performance and profitability, challenging the moderating role of the Sharia stock index.