ESG Disclosure Practices and Performance of Islamic Banks: Moderating Roles of Board Independence, Gender Diversity, and Institutional Ownership

This study explores the relationship between environmental, social, and governance (ESG) disclosure and the financial performance and risk profile of fully Islamic banks, with a focus on the moderating roles of board independence, gender diversity, and institutional ownership. Drawing on cross-sectional data from 30 publicly listed, independently managed Islamic banks in Asia for the years 2018 and 2023, the analysis examines the effects of ESG disclosure on return on assets (ROA), return on equity (ROE), Tobin’s Q, and the capital adequacy ratio (CAR). The findings reveal that ESG disclosure positively influenced ROA in 2018; however, this effect did not persist in 2023. No significant associations are observed between ESG disclosure and ROE, Tobin’s Q, or CAR in either year. Board independence is found to amplify the positive effect of ESG disclosure on ROA in 2018 and on CAR in 2023, while gender diversity enhances the risk-mitigating effect of ESG disclosure only in the later period. Institutional ownership, by contrast, does not exhibit a consistent moderating effect. These results underscore the pivotal role of board composition in unlocking the benefits of ESG disclosure in Islamic banking, while also indicating limited responsiveness from market valuation metrics. The study contributes to the ESG literature by highlighting the time-sensitive influence of governance mechanisms and provides actionable insights for enhancing ESG outcomes through board-level reforms.