In today’s increasingly challenging era, the financial sector has a significant role in catalysing the global transition to sustainable development and shared prosperity. Sustainability can be practiced from the inside (financial institutions’ internal operation) to the outside (financial institutions’ financing and investment). Yet, can banks do well while doing good? Does a bank that improves its economic, environmental, social and governance performance increase, decrease, or leave unchanged its financial performance? Is the banking sector up to the challenge as the steward of long-term capital, preserving and enhancing different types of capital in the value creation process?

Islam offers a sustainable and comprehensive development model for humanity that can be systematically categorised as the means as well as the ideal outcome of achieving Maqasid (objectives) of Shari'ah (Islamic law). As a rule-based religion, Islam's prescription for development goes well beyond market regulations and includes rules necessary to maintain a dignified life; in order that the faithful can maximise their intellectual capacity, preserve and promote their health and education, and have equal opportunity for employment and partnership in the economic and social development of society, and unhampered by practices of fraud, cheating, corruption, or property abuse, among others. In practice, however, there is dichotomy between Islam's prescription and the current state of affairs in Muslim countries. In order to develop a better understanding of the factors contributing to this divergence, this paper provides the design of a benchmark for the monitoring of adherence to and compliance with Maqasid al-Shari'ah. This benchmark is intended to serve as a self-inspection tool for policy makers to monitor economic, social and policy development within the scope of Maqasid, and to serve as a benchmark for the progress and performance of OIC member countries

The slides "Building "true value" in a changing world: are we expecting the unexpected?" presented by Dr. Adam Ng Boon Ka at Enhancing Sustainability of Global Businesses: Role of The Islamic Capital Market, at Kuala Lumpur, Malaysia.

The slides outline: 1) the importance of social and environmental sustainability in Malaysia; 2) strengthening the roles and impact of Islamic finance through "value-based intermediation".

Given the devastating effects of global warming, the problem of human-induced climate change, and in particular carbon dioxide emissions, has been high on the global policy agenda. In this study, we examine the relationship between national culture, carbon dioxide emissions, and economic growth in the framework of the Environmental Kuznets Curve (EKC). Applying system GMM panel estimator across 69 developed and developing countries, we confirm the existence of EKC and show that culture significantly affects the income-emission relationship. Moreover, the effects of the six cultural dimensions on EKC can be collapsed into two: (i) masculinity, power distance and indulgence move the EKC upward and shift the income turning point to the left; and (ii) individualism, uncertainty, and long-term orientation move the EKC downward while shifting the income turning point to the right. The impact of culture on EKC remains also robust for alternative specifications. Future policy and global initiatives in sustainable development should incorporate the multidimensional impact of culture on national behavior towards environment and economic growth, a relationship that has been largely ignored in economic decision-making models.

Applying the General-to-Specific modelling on World Bank Enterprise Survey data for 266 economies, this paper models five performance indicators based on 80 potential factors derived from firm characteristics, finance, informality, infrastructure, innovation, technology, regulation, taxes, trade and workforce concerning small and medium enterprises (SMEs). We find that the factors vary regarding statistical significance and magnitude between small and medium enterprises. For example, the percent of firms using e-mail to interact with clients/suppliers has a positive effect on the annual employment growth of medium enterprises, but not the case of small enterprises. The proportion of investments financed by equity or stock sales has an adverse impact on small enterprises, while there is no such effect on medium enterprises. We find that more drivers explained the annual employment growth and the percent of firms buying fixed assets compared to capacity utilization, annual labor productivity growth, and real annual sales growth.

Since small and medium-sized enterprises (SMEs) are drivers of economic growth and job creation in the emerging and developing economies, it is important to develop an evidence-based understanding of factors that drive small and medium-sized enterprises (SMEs) performance to provide an effective supply-side support. Applying the General-to-Specific modeling on World Bank Enterprise Survey data of 266 economies, this paper models five performance indicators based on 80 potential factors derived from firm characteristics, finance, informality, infrastructure, innovation and technology, regulation and taxes, trade and workforce concerning small and medium-sized enterprises (SMEs). We find that the factors vary regarding statistical significance and magnitude between small and medium enterprises.

The microfinance industry can reach the poor in large scale and yet attain profitability. To maintain these two objectives which is known as double bottom line, microfinance institutions (MFIs) have to find the right balance between financial sustainability and social performance. However, there have been considerable debates on whether the goals of the double bottom line have been compromised. It is argued that to attain profitability, MFIs have allegedly shifted away from its mandate of serving the poorest borrowers in pursuit of financial sustainability. This phenomenon is described as "mission drift" ...

The aim of this paper is to investigate the determinants of ESG disclosure in the OIC banking sector. This study considers bank specific, governance specific and macro variables as potential determinants. By analysing 98 banks using Random Login model, the study suggests that asset size and capitalization are significantly positively associated with the disclosure of environmental and social indicators Banks with higher loan to total asset ratio are most likely to disclose their environmental and social indicators. Lower profitable banks perform better environmental and social activities compare to the higher profitable banks.

Sustainability has become an emerging topic that shapes how firms strategize to secure better business opportunities and financial performance. The recent increase in the number and market share of Environmental Social and Governance (ESG) and sustainable oriented firms whether large or small has intensified competition in this new industry. However, whether it pays to be sustainable in all market types is yet to be determined. The term 'one size fits all' does not apply to sustainability, since there are complexities that require addressing. The complexity of developing a model that is suitable enough to be called sustainable and legitimate enough to matter still requires intense deliberation by major stakeholders. Sustainability can unlock global business potential of approximately USD 12 trillion by 2030. Yet, OIC countries still lag in the SDG index and are trapped in survival entrepreneurship. This thesis aimed to shed light on the significance of developing a model that addresses the material issues according to market and firm types. The thesis also examined the relationship between embedding sustainability practices in the social, environmental and economic realms and financial performance. The study also focused on the indirect outcomes of embedding sustainability such as productivity and competitiveness. The thesis used structural equation modeling (SEM) confirmatory Factor Analysis (CFA) to investigate whether the relationships are evident.

The slides outline: 1) strengthening the impact of Islamic finance through "value-based intermediation"; 2) promoting risk sharing through investment account and platform; 3) harnessing the power of technology to enhance socially sustainable financing (MSMEs).

The linkage between the financial performance of microfinance institutions (MFIs) and comprehensive ESG (Environmental, Social and Governance) performance has been ignored by researchers till date albeit this tie may serve as a primary objective for MFIs. This paper aimed at studying whether ESG performance influence MFIs' financial performance based on an annual dataset covering 5 years, 34 countries and 62 MFIs. Econometric evidence of panel data analysis reveals that ESG performance positively affects financial performance for the periods under review yet sub-models (of ESG) documented mixed results ...

In view of the increasing contributions of social capital in financial development, we examine the relevance of social capital in stock market development by applying Bayesian model averaging on 37 variables across 60 countries from 2000 to 2006. The results demonstrate that trust is a robust and positive determinant of stock market depth and liquidity, and that trust is the most relevant component of social capital in market development. Macroeconomic instability in the form of inflationary changes has a dampening effect on trust in the trading of stock. Further, social capital and its components, particularly trust, are more relevant to stock market development in countries with weak rule of law, non-Organization for Economic Co-operation and Development (non-OECD) and Organization of Islamic Co-operation (OIC) countries that are generally characterized by lower formal institutional quality. Our results seek to reinforce the relevance of social capital in complementing the much needed reform of stock markets globally.

Sustainability trends present risks and opportunities for companies and various stakeholders. Profits can be derived from doing good: Islamic sustainability equity in vesting offers competitive risk-return profiles at the levels of individual asset and portfolio of global assets particularly during economic expansion, equity bullish and subprime crisis periods. Islamic finance industry should proactively drive main stream sustainability investing.

In the aftermath of the Global Financial Crisis of 2008-2009 , there has been increased scrutiny in the way that credit rating agencies (CRAs) have conducted credit risk analysis. Through the UN-supported Principles for Responsible Investments (PRJ), a growing number of investors and CRAs have collaborated to enhance the systematic and transparent consideration of environmental, social and governance (ESG) factors in the assessment of corporate creditworthiness. While there exists a burgeoning literature that examines the relationship between corporate social performance (CSP) and credit risk, there are several prevailing issues. Firstly, previous studies of CSP have relied on measures which do not account for the differential materiality of ESG issues across different industries. Taking into consideration ESG issues that are material from a value creation perspective would allow for better integration with financial markets. Secondly, the majority of previous studies exploring the CSP-credit risk relationship have not used market-based measures of credit risk ...

This study explores innovative solutions largely driven by technology by global benchmarks which can potentially solve the pain points of halal micro and small enterprises (MSEs) as well to enhance their business sustainability across the agricultural and F&B value chain in Malaysia. From stakeholder engagement, this paper attempts to map such solutions to the current landscape of the halal MSEs in the Malaysian food industry, which can prove to be useful to Islamic banks, MSEs and financial authorities as a guidance to, not just enhance the bankability of MSEs, but also to further optimize their potential in terms of their business productivity and growth across the halal food value chain. Ultimately, the study concludes that MSEs in the halal value chain need more than financing to ensure their viability and improve the halal economy; as digitalization is moving at a rapid pace, support from tech players are just as pertinent for the empowerment of halal players.

Based on a sample of 1,872 firm-year observations for 573 global firms over the period 2013-2016, this study aims to provide empirical evidence on how environmental, social and governance (ESG) performance affects corporate creditworthiness as measured by credit default swap (CDS) spreads. The authors use a regression model that accounts for country, industry and time-fixed effects as well as the instrumental-based Generalized Method of Moments (GMM) approach to dynamic panel modeling. This study finds that improvements in ESG performance, especially in its governance pillar, reduce credit risk. Further, the authors uncover evidence suggesting the complementarity between ESG performance and country-level sustainability. The results indicate a stronger risk-mitigating impact of ESG performance in countries with higher sustainability scores. In terms of practical implications, the findings suggest that corporations should strengthen governance frameworks and procedures to reduce credit risk, prior to embarking on environmental and social objectives. Further, the finding that country sustainability is an important determinant of CDS spreads suggests that country-level sustainability initiatives would not only help to preserve natural capital and promote social capital but also be beneficial to businesses and financial stability.

While formal institutional quality has been used to explain the finance-growth nexus, the role of social capital has not been fully addressed. The proposition of “better finance, more growth” is important amidst concerns over the erosion of ethics and trust in finance in the aftermath of the 2007/2008 global financial crisis. Using threshold estimation technique, this study examines whether the growth effect of stock market development differs according to the distinct levels of ethical behavior and trustworthiness in a cross-section of 73 jurisdictions during the post-crisis period. The results demonstrate that the impact of stock market liquidity on gross domestic product (GDP) and total factor productivity (TFP) growth is positive and significant only where there is high level of ethical behavior in firms. Similar effect is discerned in the case of strong trustworthiness and confidence. However, there is mixed evidence when formal institutional quality in the form of regulation and supervision of securities exchanges is considered. In terms of policy implications, this study upholds the “better finance, more growth” proposition and contributes to the identification of thresholds above which ethical behavior and trustworthiness can influence positively the relations between stock market development and macroeconomic performance.

The slides highlight: 1) there is synergy between waqf and social impact bond/partnership (SIP); 2) enterprise waqf fund can support SIP based on venture philanthropy principles; 3) initiatives can be taken to address risks and to facilitate the development of a SIP ecosystem.

The spotlight of this study is to examine whether environmental, social, and governance performance affects the financial performance of microfinance institutions (MFIs). The topic has been of much interest to researchers and policymakers due to increased awareness among stakeholders on the adverse social and environmental impacts of business actions. Using a dataset covering 5 years for 62 MFIs across 34 countries, we find that environmental and governance performance has no impact on the financial performance of MFIs. As for the social-financial performance nexus, our results reveal a positive relationship using the depth of outreach as proxy of social performance. However, when women empowerment is used as a proxy for social performance, evidence suggest presence of negative relationship. The study contributes to the literature by providing new evidence on the relationship between environmental, social, and governance and financial performance from microfinance industry. Our results are robust to a variety of econometric specifications and have significant policy implications for donors, investors, MFIs, and regulators.

Despite the promising evidence of the corporate social and environmental performance-corporate financial performance relations across various business sectors, the findings from banking sector remain limited and inconclusive. This article examines the impact of access to finance and environmental financing on the financial performance of the banking sector globally. Based on cross-sectional linear regression and non-linear threshold regression of 713 banks from 75 countries over the period of 2013-2015, we find that access to finance has significantly positive effects on banks' financial performance in most of the estimation models controlling for both bank specific and macroeconomic variables. The positive impact on financial performance is channelled through loan growth (in both cases) and management quality (in the case of access to finance). We find that banks with total assets of lower than USD 2.07 billion experience significantly positive impact of access to finance on their ROE. Policy implications toward policy and regulatory development in the banking sector are discussed.