Faith‐Based Insights: Exploring the Impact of Islamic Values on <scp>ESG</scp> Performance

ABSTRACT We examine how religiosity shapes firms' environmental, social, and governance (ESG) performance using a global panel of 72,240 firm‐year observations across 41 countries from 2000 to 2022. We measure religiosity using World Values Survey indicators and find that it is negatively associated with ESG performance. This relationship shifts in Muslim‐majority countries, where firms demonstrate significantly higher ESG engagement, particularly in the environmental and social pillars, whereas governance practices show no comparable improvement. The moderating effect is strongest among larger firms and those with established corporate social responsibility (CSR) structures. One plausible explanation is that institutionalized expressions of Islamic obligations, such as stewardship, public welfare, and community responsibility, translate into more visible and measurable environmental and social initiatives. In contrast, conventional governance indicators may fail to capture Shariah‐based oversight mechanisms or may be constrained by country‐specific regulatory structures. Our results remain robust across multiple alternative specifications and statistical tests. Overall, we provide systematic evidence that religious institutional contexts shape corporate sustainability behavior in a meaningful and quantifiable manner.