Commitment of the Islamic Banking Industry to ESG in Selected Countries: Evaluation from the Maqāṣid Al-Sharīʿah Pyramid Perspective

Purpose — This study examines the Islamic banking industry’s commitment to ESG (environmental, social and governance principles) in selected countries by assessing it from the maqāṣid al-Sharīʿah (objectives of Islamic law) pyramid perspective. Design/Methodology/Approach — A rigorous quantitative study was conducted using the REFINITIV database, which covered 12 countries from 2020 to 2024, resulting in 497 observations. Findings — The study finds statistically significant evidence that the Islamic banking industry sets a high standard of ESG for Islamic banks to comply with at the country level. In the long run, the rate of commitment of the Islamic banking industry to each component of the ESG score is explained by the industrial environmental index score (7.21%), the social index score (25.43%), and the governance index (17.98%), respectively. This parameter provides information about the proportion of the ESG score to which there is a greater commitment than for the others. This suggests that the Islamic banking industry pays more attention to the social index score, followed by governance and the environment. It can therefore be deduced that the Islamic banking industry pays substantial attention to the social aspects as ḍarūriyāt (essentials), followed by strengthening governance factors as ḥājiyyāt (needs) and the environmental factor as taḥsīniyyāt (embellishments). On average, the commitment of Islamic banks to ESG at the country level is statistically significant (49.73%). However, there is still scope for Islamic banks at the country level to increase their commitment. Since ESG commitment varies among Islamic banks, the number of Islamic banks with low ESG commitment contributes to the average being driven down. Therefore, the Islamic banking industry is expected to have a standardised industry benchmark for each ESG component and the combined ESG. Originality/Value — This study adds value to the body of knowledge by exploring the Islamic banking industry’s commitment to ESG through the three levels of maqāṣid al-Sharīʿah—a first in this area that is not found in previous studies on ESG. Research Limitations/Implications — The availability of data imposed certain constraints on including more countries beyond the selected Muslim nations. Nonetheless, the findings offer valuable insights for Islamic banks in countries not covered in this study. Practical Implications — This study provides Islamic banks with a clear understanding of the extent of their contributions to ESG within the framework of maqāṣid al-Sharīʿah. Therefore, each Islamic bank could re-strategise its approach as necessary. Social Implications — These findings present Islamic banks with the opportunity to examine the environment in which they operate and adhere to the most essential aspects of maqāṣid al-Sharīʿah that are pertinent to that location, thus making their contribution significant to the local community.