Does ESG really create value? Evidence from profitability, dividend policy, and CSR in Islamic banking

Purpose This study aims to analyze the influence of profitability, corporate social responsibility (CSR) and dividend policy on the value of Sharia Bank companies with Environmental, Social and Governance (ESG) performance as a mediation variable. Design/methodology/approach The method used in this study is Structural Equation Modeling with Ordinary Least Squares (OLS) multiple linear regression. The data used were obtained from the company’s annual report, selected through purposive sampling. Findings The analysis indicates that profitability and dividend policy have a positive, statistically significant impact on the company’s value. However, profitability can undermine ESG considerations, whereas a dividend policy can enhance ESG. Additionally, ESG has been shown to have a positive, significant effect on a company’s value. Another important finding is that ESG plays a significant mediating role in the relationship between profitability and dividend policy on company value. This suggests that the greater a company’s attention to ESG factors, the greater the impact on its value. Research limitations/implications This research suggests that companies must strike a balance between financial performance and sustainability commitments to create more optimal long-term value. ESG can be a crucial strategy for building a reputation and enhancing investor confidence. Originality/value The researchers used a more representative sample of 12 Islamic banks in Indonesia, given the industry’s diverse characteristics and regulations. Research that specifically examines the role of ESG as a mediating variable in Islamic banking. The researcher examines how dividend policies affect the ESG performance of Islamic banks, given the importance of social and environmental factors in their operations. Researchers used more complex statistical methods, such as OLS in SPSS or panel data analysis, to analyze the relationships between variables in more depth. With this, it is hoped that a more comprehensive understanding of the factors that affect the value of Islamic bank companies, as well as the role of ESG in this context, can be obtained.