Corporate Governance and Sustainability in Islamic Banking: The Mediating Role of Green Banking Practices

Mister Candera; Muhammad Ridhwan; Efrina Masdaini; Aditya Teguh  Mahendra; Rico Apriandika

doi:10.46870/milkiyah.v4i1.1468

Authors

Mister Candera Universitas Muhammadiyah Palembang, Palembang, Indonesia https://orcid.org/0000-0001-8204-7512
Muhammad Ridhwan Universiti Sains Islam Malaysia, Pulau Pinang, Malaysia https://orcid.org/0000-0003-0177-7869
Efrina Masdaini Universitas Muhammadiyah Palembang, Palembang, Indonesia
Aditya Teguh Mahendra Universitas Muhammadiyah Palembang, Palembang, Indonesia
Rico Apriandika Universitas Muhammadiyah Palembang, Palembang, Indonesia

DOI:

https://doi.org/10.46870/milkiyah.v4i1.1468

Keywords:

Corporate Governance, Green Banking Practices, Islamic Bank, Sustainability

Abstract

The banking sector plays a strategic role in advancing sustainable business practices through green banking initiatives, which reduce environmental risks and enhance banks’ reputations amid growing global concerns about climate change. This study examines corporate governance and sustainability performance in Islamic banks, with green banking as a mediator. The data were collected from 158 middle and upper management employees in Islamic banking institutions in South Sumatra, Indonesia. This study used mediation path analysis to assess the effect of corporate governance on sustainability performance directly and through green banking practices indirectly. The results confirm a positive relationship between corporate governance framework and sustainability performance in Islamic banks, suggesting that strengthening governance structures directly improves sustainability outcomes. Moreover, green banking practices partially mediate the nexus between corporate governance and sustainability performance, indicating that corporate governance indirectly improves sustainability performance by promoting green banking initiatives. These findings show the necessity of aligning corporate governance frameworks with green banking initiatives to achieve long-term sustainability goals in Islamic banking.

References

Abbas, A., Rayyani, W. O., & Syahadat, E. F. (2021). The tenet of corporate social responsibility for environment and its practice in Indonesia. Asian People Journal, 4(1), 1-10. https://doi.org/10.37231/apj.2021.4.1.230.

Abdulrahim, M. O., Sukoharsono, E. G., Saraswati, E., & Subekti, I. (2020). Investigating the impact of organizational culture and corporate governance on sustainability performance with strategic posture as mediating variable. The International Journal of Business & Management, 8(7), 166-184. http://dx.doi.org/10.24940/theijbm/2020/v8/i7/BM2007-048

Abuatwan, N. (2023). The impact of green finance on the sustainability performance of the banking sector in Palestine: the moderating role of female presence. Economies, 11(10), 247. https://doi.org/10.3390/economies11100247

Ahmar, N., Al Rahmah, L., & Darminto, D. P. (2024). Green banking disclosure from the perspective of corporate governance, financial slack and human resource slack in Indonesia. Banks and Bank Systems, 19(2), 101. http://dx.doi.org/10.21511/bbs.19(2).2024.08

Akbar, A., Jiang, X. & Akbar, M. (2022), Do working capital management practices influence investment and financing patterns of firms?, Journal of Economic and Administrative Sciences, 38(1), 91-109. https://doi.org/10.1108/JEAS-07-2019-0074

Alshehri, A. F. (2024). Corporate governance and financial performance of Islamic banks: new international evidence. Journal of Banking Regulation, 1-15. https://doi.org/10.1057/s41261-024-00261-y.

Andarsari, P. R., & Firdiansyah, Y. (2020). Penerapan Praktik green banking pada bank bumn di Indonesia. Jurnal Eksekutif, 17(2), 233–246.

Birindelli, G., Ferretti, P., Intonti, M., & Iannuzzi, A.P. (2015). On the drivers of corporate social responsibility in banks: evidence from an ethical rating model. Journal of Management & Governance, 19, 303-340. https://doi.org/10.1007/S10997-013-9262-9

Biswas, N. (2011). Sustainable green banking approach: The need of the hour. Business Spectrum, 1(1), 32-38. https://doi.org/10.4236/ojbm.2024.123102

Bose, S., Khan, H.Z., Rashid, A., & Islam, S. (2018). What drives green banking disclosure? An institutional and corporate governance perspective. Asia Pacific Journal of Management, 35, 501-527. https://doi.org/10.1007/S10490-017-9528-X

Brogi, M., & Lagasio, V. (2019). Environmental, social, and governance and company profitability: Are financial intermediaries different?. Corporate Social Responsibility and Environmental Management, 26(3), 576-587. https://doi.org/10.1002/CSR.1704

Budiarto, A., Durya, N. P. M. A., Alfiana., Butar, R. S. B. (2023). Analysis of the effect of green banking on banking environmental and financial performance In Indonesia. JEMSI (Jurnal Ekonomi, Manajemen, Dan Akuntansi), 9 (6). 2459-2463. https://doi.org/10.35870/jemsi.v9i6.1655

Cheah, I., & Phau, I. (2011). Attitudes towards environmentally friendly products: the influence of ecoliteracy, interpersonal influence and value orientation. Marketing Intelligence & Planning, 29, 452-472. https://doi.org/10.1108/02634501111153674

Chen, J., Siddik, A. B., Zheng, G. W., Masukujjaman, M., & Bekhzod, S. (2022). The effect of green banking practices on banks’ environmental performance and green financing: An empirical study. Energies, 15(4), 1292. https://doi.org/10.3390/en15041292

Cupian, C., Mulyana, F. A., & Noven, S. A. (2023). Pengaruh corporate governance terhadap green banking disclosure index di perbankan syariah periode 2016-2019 Studi Kasus : Bank Mandiri Syariah, Bank Bni Syariah, Bank Bca Syariah, Bank Bri Syariah, Bank Mega Syariah Dan Bank Muamalat. Jurnal Ilmiah Ekonomi Islam, 9(2), 2385–2392. https://doi.org/10.29040/jiei.v9i2.8932

Dewi, Ratna Kusuma. (2023). Analisis pengaruh implementasi green banking terhadap kinerja keuangan dan kinerja lingkungan perbankan. Jurnal Ekonomi Manajemen Dan Bisnis (JEMB), 1(1), 1-10. https://jurnalistiqomah.org/index.php/jemb/article/view/7

Dienes, D., Sassen, R., & Fischer, J. (2016). What are the drivers of sustainability reporting? A systematic review. Sustainability Accounting, Management and Policy Journal, 7(2), 154–189. https://doi.org/10.1108/SAMPJ-08-2014-0050

Doğan, B., & Kılıç, M. B. (2022). Assessment of corporate sustainability performance with entropy and grey relatioanal analysis: an application in the banking sector. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty, 9(3), 2027-2057. https://doi.org/10.30798/makuiibf.1097637

El-Chaarani, H., Abraham, R., & Skaf, Y. (2022). The impact of corporate governance on the financial performance of the banking sector in the MENA (Middle Eastern and North African) region: An immunity test of banks for COVID-19. Journal of Risk and Financial Management, 15(2), 82. https://doi.org/10.3390/jrfm15020082

Etikan, I., & Babatope, O. (2019). A basic approach in sampling methodology and sample size calculation. Med Life Clin, 1(2), 1006.

Forcadell, F. J., & Aracil, E. (2019). Can multinational companies foster institutional change and sustainable development in emerging countries? A case study. Business Strategy & Development, 2(2), 91-105. https://doi.org/10.1002/BSD2.45

Forcadell, F.J., & Aracil, E. (2017). European banks' reputation for corporate social responsibility. Corporate Social Responsibility and Environmental Management, 24, 1-14. https://doi.org/10.1002/CSR.1402

Gabriela, B. C. (2021). Towards better involvement in green banking practices: evidence from Romania. Management of Sustainable Development, 13(1), 9-13. http://dx.doi.org/10.54989/msd-2021-0002

Gadenne, D., Sharma, B., Kerr, D.V., & Smith, T.F. (2011). The influence of consumers' environmental beliefs and attitudes on energy saving behaviours. Energy Policy, 39, 7684-7694. https://doi.org/10.1016/J.ENPOL.2011.09.002

Guang-Wen, Z., & Siddik, A. B. (2022). Do corporate social responsibility practices and green finance dimensions determine environmental performance? An Empirical Study on Bangladeshi Banking Institutions. Frontiers in Environmental Science, 10, 890096. https://doi.org/10.3389/fenvs.2022.890096

Guang-Wen, Z., & Siddik, A. B. (2023). The effect of Fintech adoption on green finance and environmental performance of banking institutions during the COVID-19 pandemic: the role of green innovation. Environmental Science and Pollution Research International, 30, 25959 - 25971. https://doi.org/10.1007/s11356-022-23956-z

Hair, Joe F, Sarstedt, M., Hopkins, L., & Kuppelwieser, V. (2014). Partial least squares structural equation modeling (PLS-SEM) An emerging tool in business research. European Business Review, 26(2), 106–121. https://doi.org/10.1108/EBR-10-2013- 0128

Handajani, L., Rifai, A., & Husnan, L. H. (2019). Study of the initiation of green banking practices at state-owned bank. Jurnal Economia, 15(1), 1-16. https://doi.org/10.21831/ECONOMIA.V15I1.21954

Hu, L. T., & Bentler, P. M. (1999). Cutoff criteria for fit indexes in covariance structure analysis: Conventional Criteria versus New Alternatives. Structural Equation Modeling, 6, 1-55. http://dx.doi.org/10.1080/10705519909540118

Ioannou, I., & Serafeim, G. (2019). Corporate sustainability: a strategy? Harvard Business School Accounting & Management Unit Working Paper, (19-065). https://doi.org/10.2139/ssrn.3312191

Issa, J. Sehen, Abbaszadeh, M. R., & Salehi, M. (2022). The impact of Islamic banking corporate governance on green banking. Administrative Sciences, 12(4), 190. https://doi.org/10.3390/admsci12040190

Jain, P., & Sharma, B.K., (2023). Impact of green banking practices on sustainable environmental performance and Profitability of Private Sector Banks. International Journal of Social Ecology and Sustainable Development, 14 (1). http://dx.doi.org/10.4018/IJSESD.330135

Jan, A.A., Lai, F.-W., Shah, S.Q.A., Tahir, M., Hassan, R. and Shad, M.K. (2025), Does Islamic corporate governance prevent bankruptcy in Islamic banks? Implications for economic sustainability, Management & Sustainability: An Arab Review, 4(1), 168-195. https://doi.org/10.1108/MSAR-02-2023-0009.

Juliansyah, A.I., Suprihatin, T.S., & Senjiati, I.H. (2016). Analisis implementasi kode etik (code of conduct) good corporate governance dalam pencapaian best practice islamic bank pada bank umum syariah di Indonesia. Volume 2 (2): 549-555

Kasmiati, K. (2021). Dinamika pembiayaan perbankan syariah dalam mengembangkan dunia usaha. LABATILA: Jurnal Ilmu Ekonomi Islam, 5(02), 140-151. https://doi.org/10.33507/labatila.v5i01.393

Khan, S., Nisar, M., Sohail, M., Awan, M. M. U., Rehman, A. U., & Yasir, M. (2023). Impact of islamic corporate governance on sustainability performance in Islamic banks of Pakistan: moderating role of insider ownership and institutional ownership. International Journal of Business and Economic Affairs, 8(2), 52-65. https://doi.org/10.24088/IJBEA-2023-82005

Korzeb, Z., & Samaniego-Medina, R. (2019). Sustainability performance. A comparative analysis in the polish banking sector. Sustainability, 11(3), 653. https://doi.org/10.3390/su11030653

Liao, S., & Widowati, R. (2021). A supply chain management study: a review of theoretical models from 2014 to 2019. Operations and Supply Chain Management, 14(2), 173–188. https://doi.org/10.31387/oscm0450295

Mallin, C. A. (2019). Corporate Governance (6th ed.). Oxford: Oxford University Press.

Mango, F., Murè, P., Cardi, M., Paccione, C., & Bittucci, L. (2023). Supervisory sanctions, ESG practices, and banks’ reputation: a market performance analysis of sanctioned banks. Corporate Ownership and Control, 20(3), 343-350. https://doi.org/10.22495/cocv20i3siart9

Miah, M.D., Rahman, S.M., & Haque, M. (2018). Factors affecting environmental performance: evidence from banking sector in Bangladesh. International Journal of Financial Services Management, 9, 22-38. https://doi.org/10.1504/IJFSM.2018.10011001

Mohammad, M.S. & Abduh, Muhamad. (2022). The role of islamic finance in achieving the SDG number 9: Build Resilient Infrastructure, Promote Sustainable Industrialization and Foster Innovation. IQTISHADIA, 15 (1), 89-106. http://dx.doi.org/10.21043/iqtishadia.v15i1.13747

Mukhibad, H., Setiawan, D., Aryani, Y.A. & Falikhatun, F. (2024). Corporate governance and Islamic bank risk – do the directors’ and the Shariah board’s diversity attributes matter? Corporate Governance, 24(5), 1213-1234. https://doi.org/10.1108/CG-08-2022-0348.

Nassiry, D. (2018). The role of fintech in unlocking green finance: Policy insights for developing countries (No. 883). ADBI working paper. https://doi.org/10.1007/978-981-10-8710-3_27-1

O’Donovan, G. (2002), Environmental disclosures in the annual report: Extending the applicability and predictive power of legitimacy theory. Accounting, Auditing & Accountability Journal. 15(3), 344-371. https://doi.org/10.1108/09513570210435870

Oktaviani, A., Herawaty, V., Yohana, Y., & Isnaini, N. (2023). Pentingnya laporan keberlanjutan bagi perbankan di indonesia. Jurnal Akuntansi Multiparadigma, 14(1), 182-191. doi:http://dx.doi.org/10.21776/ub.jamal.2023.14.1.13

Olateju, D.J., Olateju, O.A., Adeoye, S.V., & Ilyas, I.S. (2021). A critical review of the application of the legitimacy theory to corporate social responsibility. International Journal of Managerial Studies and Research. https://doi.org/10.20431/2349-0349.0903001

Pangestu, J. C., & Hati, D. P. (2024). Analisa Faktor Yang Mempengaruhi Financial Sustainability Ratio Sektor Perbankan Di Bei Periode 2019-2022. Owner: Riset Dan Jurnal Akuntansi, 8(3), 3007-3017. https://doi.org/10.33395/owner.v8i3.2302

Petro, S., Octavia, R., & Diarsyad, M.I. (2023). Pengaruh corporate governance terhadap green banking disclosure (studi pada perusahaan perbankan di indonesia yang terdaftar di BEI periode 2018-2020). Jurnal Ilmiah Ekonomi Global Masa Kini. https://doi.org/10.36982/jiegmk.v14i1.2814

Quintana‐Garcia, C., Marchante‐Lara, M., & Benavides‐Chicón, C. G. (2022). Towards sustainable development: Environmental innovation, cleaner production performance, and reputation. Corporate Social Responsibility and Environmental Management, 29(5), 1330-1340. http://dx.doi.org/10.1002/csr.2272

Rahmawati, I. N., & Yuliani, R. (2023). Profitabilitas sebagai pemoderasi pengaruh corporate governance terhadap pengungkapan green banking. Reviu Akuntansi Dan Bisnis Indonesia, 7(2), 464-482. https://doi.org/10.18196/rabin.v7i2.19741

Rehman, A., Ullah, I., Afridi, F.E., Ullah, Z., Zeeshan, M., Hussain, A., & Rahman, H.U. (2021). Adoption of green banking practices and environmental performance in Pakistan: a demonstration of structural equation modelling. Environment, Development and Sustainability, 23, 13200 - 13220. https://doi.org/10.1007/s10668-020-01206-x

Rohmandika, M. S. (2024). Sharia bank’s attention related to sustainability performance, through financial performance, good corporate governance, and risk management. SULTANIST: Jurnal Manajemen dan Keuangan, 12(1), 19–26. https://doi.org/10.37403/sultanist.v12i1.564

Ruiz, B., Esteban, Á., & Gutiérrez, S. (2014). Determinants of reputation of leading spanish financial institutions among their customers in a context of economic crisis. Business Research Quarterly, 17, 259 - 278. https://doi.org/10.1016/j.brq.2014.04.002

Saha, A. K., & Akter, S. (2021). Corporate governance and sustainability performance: The moderating effect of stakeholder pressure. Journal of Cleaner Production, 278, 123900. https://doi.org/10.1016/j.jclepro.2020.123900

San-Jose, L., Retolaza, J.L., & Gutiérrez-Goiria, J. (2011). Are ethical banks different? a comparative analysis using the radical affinity index. Journal of Business Ethics, 100, 151-173. https://doi.org/10.1007/S10551-011-0774-4

Scholtens, B. (2009). Corporate Social Responsibility in the international banking industry. Journal of Business Ethics, 86, 159-175. https://doi.org/10.1007/S10551-008-9841-X

Shaumya, K., & Arulrajah, A. (2017). The impact of green banking practices on bank’s environmental performance: Evidence from Sri Lanka. Journal of Finance and Bank Management, 5(1), 77-90. https://doi.org/10.15640/JFBM.V5N1A7

Shehadeh, M., Ahmed, F., Hussainey, K. & Alkaraan, F. (2024). Nexus between corporate governance and FinTech disclosure: a comparative study between conventional and Islamic banks. Competitiveness Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CR-05-2024-0089.

Stojanović, D. (2020). Sustainable economic development through green innovative banking and financing. Economics of Sustainable Development, 4(1), 35-44. http://dx.doi.org/10.5937/ESD2001035S

Suchman, M. C. (1995). Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), 571–610. https://doi.org/10.5465/amr.1995.9508080331

Uddin, M. N., & Ahmmed, M. (2018). Islamic banking and green banking for sustainable development: Evidence from Bangladesh. Al-Iqtishad Journal of Islamic Economics, 10(1), 97-114. http://dx.doi.org/10.15408/aiq.v10i1.4563

Wakarmamu, T.. (2015). The Role of good corporate governance banking sector in supporting risk management principles as the implementation of prudential. European Journal of Business and Management, 7, 223-231.

Walls, J.L., Berrone, P., & Phan, P.H. (2012). Corporate governance and environmental performance: is there really a link? Southern Medical Journal, 33, 885-913. https://doi.org/10.1002/SMJ.1952

Werastuti, D. (2022). Apakah good corporate governance berperan dalam meningkatkan kinerja keberlanjutan?. Jurnal Akuntansi Multiparadigma, 13(1), 153-163. doi:http://dx.doi.org/10.21776/ub.jamal.2021.13.1.12

Widodo, N. F. P., Burhany, D. I., Sumiyati, S., & Dahtiah, N. (2023). Enhancing financial performance of Islamic banks in Indonesia: the mediating effect of green banking disclosure on corporate governance practices. Indonesian Journal of Economics and Management, 3(3), 495-508. https://doi.org/10.35313/ijem.v3i3.4886

Wilson, C., & Knighton, D. (2021). Legitimacy, autonomy and trust: a recipe for organizations to operate in the public interest. Corporate Communications: An International Journal, 26(4), 773-792. https://doi.org/10.1108/CCIJ-03-2021-0029

Yin, Q., Zheng, S., & Fu, Z. (2023). Survival in the Fissure: Strategies of private news organizations in the social media era in China. Journalism Studies, 25, 970 - 989. https://doi.org/10.1080/1461670X.2023.2274588

Yip, A.W., Yip, A.W., Bocken, N.M., Bocken, N.M., & Bocken, N.M. (2018). Sustainable business model archetypes for the banking industry. Journal of Cleaner Production, 174, 150-169. https://doi.org/10.1016/J.JCLEPRO.2017.10.190

Yudistira, Era. 2019. Analisis Kendala Penyaluran pembiayaan mudharabah pada bank syariah di Indonesia. (2019). FINANSIA : Jurnal Akuntansi Dan Perbankan Syariah, 2(2), 159-170. https://doi.org/10.32332/finansia.v2i2.1649

Yusuf, M., Dasawaty, E.S., Esra, M.A., Apriwenni, P., Meiden, C., & Fahlevi, M. (2024). Integrated reporting, corporate governance, and financial sustainability in Islamic banking. Uncertain Supply Chain Management. 12. 273-290. http://10.5267/j.uscm.2023.9.022

Zyznarska-Dworczak, B., Fijałkowska, J., Garsztka, P., Mamić Sačer, I., Mokošová, D., & Sandulescu, M. (2023). Sustainability performance efficiency in the banking sector. Economic Research-Ekonomska Istraživanja, 36. https://doi.org/10.1080/1331677X.2023.2218473