Maqasid al-Shariah, ESG Practices, and Sustainable Financial Performance: The Moderating Role of Islamic Corporate Governance

Abstract

Islamic financial institutions (IFIs) face growing pressure to demonstrate that Shariah compliance translates into genuine ethical and sustainability outcomes rather than remaining a procedural formality. This study examines the effects of Maqasid al-Shariah implementation and Environmental, Social, and Governance (ESG) practices on sustainable financial performance, and tests whether Islamic Corporate Governance (ICG) moderates these relationships. Grounded in Maqasid al-Shariah Theory, Stakeholder Theory, Agency Theory, Legitimacy Theory, and the Resource-Based View, an integrated conceptual model is developed and estimated using panel data drawn from Islamic banks operating in Indonesia, Malaysia, Brunei Darussalam, and four GCC markets (Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, and Kuwait) over the period 2015–2023. Because harmonized, publicly disclosed Maqasid and ESG indices are not uniformly available across this sample, the empirical illustration relies on a constructed, academically plausible dataset combined with parameters drawn from the reviewed literature; all reported coefficients are illustrative rather than confirmed empirical estimates. The analytical strategy combines a Maqasid al-Shariah Index built on the Abu Zahrah–Mohammed–Razak–Taib framework, third-party-style ESG scoring, and moderated panel regression (fixed-effects, with System-GMM robustness checks). The illustrative results indicate that both Maqasid al-Shariah implementation and ESG practices are positively associated with sustainable financial performance, that the two constructs are mutually reinforcing, and that Islamic Corporate Governance strengthens both relationships, consistent with agency- and legitimacy-based reasoning. The study contributes an integrated Maqasid–ESG–governance framework, offers regulators and standard-setters a template for harmonizing Shariah and sustainability disclosure, and outlines the empirical steps required to validate the framework with audited institutional data