Iranian Journal of Finance

Reporting under Islamic Practices, a Path forward to Environmental, Social, and Corporate Governance (ESG) Considerations

Document Type : Original Article

Authors

Vahid Ahmadian 1
Roghayeh Namvar 2
Meysam Hamedi 3

1 Assistant Prof., Department of Economics, Management and Accounting, University of Tabriz, Tabriz, Iran.

2 Master of Business Administration, Strategy, Department of Economics, Management and Accounting, University of Tabriz, Tabriz, Iran.

3 Head of the SEO research, Development and Islamic Studies Department; Master of Financial Management, Imam Sadiq University, Tehran, Iran.

10.61186/ijf.2024.433127.1455
Abstract
Islamic principles are heralding a variety of implications for business and accounting. Reflecting upon Islamic practices, this study engages with the notion of ESG conduct and its disclosure in accounting reports. While drawing from key Islamic texts and relevant prior literature, the present research elaborates and discusses fundamental Islamic principles of relevance and delineates what they suggest for ESG reporting. A grounded theory method was used for data collection. Online in-depth semi-structured interviews were deployed to 16 Islamic "finance and accounting specialists." Primary data analysis was done with MAXQDA. In the next step, the three-step encoding method was accomplished. The survey revealed 53 reporting implementation codes in three dimensions comprising environmental, social, and corporate governance. In addition, a comparative view of corporate governance under Islamic and non-Islamic economic schools was illustrated. The execution of ESG accounting practices might be beneficial in overcoming the problem of traditional accounting, which fails to incorporate environmental, social, and ethical hidden costs. The conclusion discusses the perspective of the Islamic view in ESG reporting by incorporating the concept of Tawhid, which provides holistic guidance based on Islamic beliefs, values, and concepts. The obtained framework contributes to Islamic accounting at the intersection of sustainable strategies.

Keywords

Islam
Islamic Finance
Accounting
Ethics
ESG
Abdelzaher, D. M., Kotb, A., & Helfaya, A. (2019). Eco-Islam: Beyond the principles of why and what, and into the principles of how. Journal of Business Ethics, 155, 623-643. https://doi.org/10.1007/s10551-017-3518-2
Al-Qari, M. (2008). "Conflicts of interest," Seminar about the Future of Islamic Banking by National Commercial Bank, Jeddah, Saudi Arabia, pp. 1–19.
Al Qattan, A. (2009). The extent of conflicts of interest in the work of Shari’a supervisory boards. In Proceedings of Eighth Annual Conference of AAOIFI, Bahrain (pp. 1-13).
Alawadi, A. (2023). Board diversity in pursuing environmental, social and governance goals: a United-Arab-Emirates-based study (Doctoral dissertation, University of Reading). https://doi.org/10.48683/1926.00113656
Al-Hinai, A. M. Z., Ejohwomu, O., & Abadi, M. (2024). Developing a social value model for Oman’s national infrastructure planning: a hermeneutical approach. Sustainable and Resilient Infrastructure, 9(2), 192-206. https://doi.org/10.1080/23789689.2023.2280741
Alimuddin, S. E., & MM, A. (2021). Ideologi Akuntansi Islam-Rajawali Pers. PT. RajaGrafindo Persada. https://www.google.com/books/edition/_/Wa8hEAAAQBAJ?hl=en&gbpv=0
Alshater, M. M., Hassan, M. K., Khan, A., & Saba, I. (2021). Influential and intellectual structure of Islamic finance: a bibliometric review. International Journal of Islamic and Middle Eastern Finance and Management, 14(2), 339–365. https://doi.org/10.1108/IMEFM-08-2020-0419
Azmi, Z., Nasution, A. A., Wardayani, I. M., Supriyanto, S. R., & Hidayat, R. (2019, November). Grounded Theory in Accounting Research. In ICASI 2019: Proceedings of The 2nd International Conference On Advance And Scientific Innovation, ICASI (Vol. 18, p. 449). https://www.google.com/books/edition/ICASI_2019/4CMNEAAAQBAJ?hl=en&gbpv=0
Corbin, J., & Strauss, A. (2008). Basics of qualitative research (3rd ed.): Techniques and procedures for developing grounded Theory. SAGE Publications, Inc., https://doi.org/10.4135/9781452230153
El-Halaby, S., Aboul-Dahab, S., & Bin Qoud, N. (2021). A systematic literature review on AAOIFI standards. Journal of Financial Reporting and Accounting, 19(2), 133-183. https://doi.org/10.1108/JFRA-06-2020-0170
Ermawati, E., Musyahidah, S., & Nurdin, N. (2021). Muslim society perspective on Islamic banking Corporate Social Responsibility in Indonesia (Based on Qur’an and Hadits economic themes). International Journal of Business and Management Review, 9(3), 29-40. https://ssrn.com/abstract=3901287
Etim, O., Fidelis, O., & Archibong, E. (2022). Spiritual Accounting and Corporate Financial Reporting: A Study of Micro Finance Banks in Delta State, Nigeria. Journal of Accounting and Financial Management, 8(4), 173–180. https://doi.org/10.56201/jafm.v8.no4.2022.pg173.179
Faddad, A. (2008). Conflicts of interest in the work of Shari’a supervisory boards. In Proceedings of a Seminar about the Future of Islamic Banking by National Commercial Bank, Jeddah, Saudi Arabia (pp. 1–13).
Fallah Shayan, N., Mohabbati-Kalejahi, N., Alavi, S., & Zahid, M. A. (2022). Sustainable development goals (SDGs) as a framework for corporate social responsibility (CSR). Sustainability, 14(3), 1222. https://doi.org/10.3390/su14031222
Ghlamallah, E., Alexakis, C., Dowling, M., & Piepenbrink, A. (2021). The topics of Islamic economics and finance research. International Review of Economics & Finance, 75, 145-160. https://doi.org/10.1016/j.iref.2021.04.006
Hartman, L. P., DesJardins, J., & MacDonald, C. (2011). Decision-making for personal integrity and social responsibility. Business Ethics, McGraw Hill International, New York, NY10020. https://www.mheducation.com/highered/home
Hassan, M. K., & Raza Rabbani, M. (2023). Sharia governance standards and the role of AAOIFI: a comprehensive literature review and future research agenda. Journal of Islamic Accounting and Business Research, 14(5), 677-698. https://doi.org/10.1108/JIABR-04-2022-0111
Hidayat, S. E., & Rafiki, A. (2021). Comparative analysis of customers’ awareness toward CSR practices of Islamic banks: Bahrain vs Saudi Arabia. Social Responsibility Journal, 18(6), 1142-1171. https://doi.org/10.1108/SRJ-05-2020-0174
Jan, A., Rahman, H. U., Zahid, M., Salameh, A. A., Khan, P. A., Al-Faryan, M. A. S., ... & Ali, H. E. (2023). Islamic corporate sustainability practices index aligned with SDGs towards better financial performance: Evidence from the Malaysian and Indonesian Islamic banking industry. Journal of Cleaner Production, 405, 136860. https://doi.org/10.1016/j.jclepro.2023.136860
Kamaruddin, M. I. H., & Auzair, S. M. (2020). Measuring 'Islamic accountability in Islamic social enterprise (ISE). International Journal of Islamic and Middle Eastern Finance and Management, 13(2), 303-321. https://doi.org/10.1108/IMEFM-04-2018-0134
Koleva, P. (2021). Towards developing an empirical model for Islamic corporate social responsibility: Evidence from the Middle East. Journal of Business Ethics, pp. 171, 789–813. https://doi.org/10.1007/s10551-020-04465-w
Kujala, J., Sachs, S., Leinonen, H., Heikkinen, A., & Laude, D. (2022). Stakeholder engagement: Past, present, and future. Business & Society, 61(5), 1136-1196. https://doi.org/10.1177/00076503211066595
Lee, J. (2001). A grounded theory: integration and internalization in ERP adoption and use (Doctoral dissertation). The University of Nebraska-Lincoln. Available from ProQuest Dissertations and Theses database. (UMI No. 3016318). https://search.proquest.com/docview/275713719
Lee, S. P., & Isa, M. (2023). Environmental, social, and governance (ESG) practices and financial performance of Shariah-compliant companies in Malaysia. Journal of Islamic Accounting and Business Research, 14(2), 295-314. https://doi.org/10.1108/JIABR-06-2020-0183
Lubis, A. Y. (2014). Postmodernisme: Teori dan Metode. Raja Grafindo Persada.
Mehta, N. K., & Moonat. (2017). Spiritual Practices and Accounting Professionals: Emerging Scenario. International Education & Research Journal [IERJ], 3(5), 662-664.
Mohidem, N. A., & Hashim, Z. (2023). Integrating Environment with Health: An Islamic Perspective. Social Sciences, 12(6), 321. https://doi.org/10.3390/socsci12060321
Oriade, A., Osinaike, A., Aduhene, K., & Wang, Y. (2021). Sustainability awareness, management practices, and organizational culture in hotels: Evidence from developing countries. International Journal of Hospitality Management, 92, 102699. https://doi.org/10.1016/j.ijhm.2020.102699
Pratomo, J., & Nugrahanti, T. P. (2022). Analisis Pengaruh Pengungkapan Islamic Social Reporting Pada Bank Umum Syariah. Humantech: Jurnal Ilmiah Multidisiplin Indonesia, 2(Spesial Issues 1), 274-283.
Qoyum, A., Sakti, M. R. P., Thaker, H. M. T., & AlHashfi, R. U. (2022). Does the Islamic label indicate good environmental, social, and governance (ESG) performance? Evidence from Sharia-compliant firms in Indonesia and Malaysia. Borsa Istanbul Review, 22(2), 306-320. https://doi.org/10.1016/j.bir.2021.06.001
Rehman, Z. U., Zahid, M., Rahman, H. U., Asif, M., Alharthi, M., Irfan, M., & Glowacz, A. (2020). Do corporate social responsibility disclosures improve financial performance? A perspective of the Islamic banking industry in Pakistan. Sustainability, Digital Transformation and Fintech, 287, 1-32. https://doi.org/10.3390/books978-3-0365-2740-6
Rizk-Al Qazzaz, H. (2008). "Conflicts of interest and impartiality". www.tiri.org/index.php
Rosenau, P. M. (1992). Post Modernism and the Social Sciences: Insight, Inroads, and Intrusions. Princeton University Press.
Santoso, A. L., Kamarudin, F., Amin Noordin, B. A., & Wei Theng, L. (2023). Islamic ethics commitment and bank outcomes: Evidence in South East Asia. Cogent Economics & Finance, 11(1), 2175458. https://doi.org/10.1080/23322039.2023.2175458
Sulaiman, R., Toulson, P., Brougham, D., Lempp, F., & Haar, J. (2022). The role of religiosity in ethical decision-making: A study on Islam and the Malaysian workplace. Journal of Business Ethics, 179(1), 297–313. https://doi.org/10.1007/s10551-021-04836-x
Tarique, K. M., Islam, R., & Mohammed, M. O. (2021). Developing and validating the components of the Maqasid al-Shari'ah-based performance measurement model for Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 14(2), 366-390. https://doi.org/10.1108/IMEFM-12-2018-0432
Testa, S., Atawna, T., Baldi, G., & Cincotti, S. (2022). The innovation potential of Islamic crowdfunding platforms in contributing to sustainable development. European Journal of Innovation Management, 25(6), 1008-1035. https://doi.org/10.1108/EJIM-11-2021-0547
Triyuwono, I. (2015). Awakening the Conscience Inside: The Spirituality of Code of Ethics for Professional Accountants. Procedia - Social and Behavioral Sciences, 172, 254- 261. https://doi.org/10.1016/j. sbspro.2015.01.362.
Umar, U. H., Besar, M. H. A., & Abduh, M. (2023). Compatibility of the CSR practices of Islamic banks with the United Nations SDGs amidst COVID-19: A documentary evidence. International Journal of Ethics and Systems, 39(3), 629-647. https://doi.org/10.1108/IJOES-12-2021-0221
Velte, P. (2023). The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research. Management Review Quarterly, 73(1), 353–411. https://doi.org/10.1007/s11301-021-00244-7
Iranian Journal of Finance
Volume 8, Issue 4
2024
Pages 82-112

Home

Submit Manuscript

Reviewers

Contact Us

Journal Metrics

Article Processing Charges

Call for Papers