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The Influence of Green Financing and Return Dynamics on Environmental, Social, and Governance Performance: Evidence from Indonesia’s Islamic Banking Sector

Al-Muamalat · Vol. 13 No. 1 (2026) · pp. 169–185

DOI
10.15575/am.v13i1.54428
ISSN
2716-0610, 2086-3225
Published
2026-05-01
Publisher
Department of Sharia Economic Law, Faculty Sharia and Law, UIN Sunan Gunung Djati Bandung
Language
eng
License
creativecommons.org/licenses/by-sa/4.0

Abstract

This study aimed to examine the influence of green financing and return dynamics on ESG performance in Indonesia’s Islamic banking sector. The issue was important considering the growing role of Islamic banks in promoting sustainable finance and strengthening institutional resilience within dynamic financial markets. A quantitative method was adopted based on secondary weekly data from six Islamic banks in Indonesia during 2020–2025 (1,878 observations). ESG score was the dependent variable, while green financing and weekly return were independent variables. The analysis applied GARCH model to estimate the association between the variables and to capture volatility persistence over time. The results showed that green financing had a positive and statistically significant effect on ESG performance. Islamic banks that consistently allocated funds to green financing tended to achieve higher and more stable ESG scores. In contrast, short-term return fluctuations did not significantly affect ESG performance, suggesting that sustainability practices were driven more by long-term strategic commitments than by temporary market dynamics. GARCH estimation confirmed the persistence of ESG volatility over time. The results showed that green financing served as a key driver of sustainability performance in Islamic banking and supported long-term institutional stability. Important insights were provided for bank management and regulators to strengthen the integration of sustainable financing strategies in line with Islamic finance principles.

Keywords

Collaboration network of the authors

29 authors · 63 co-authorship links

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  • Malikussaleh University
  • Affiliation unknown
  • Different organisations
  • Same organisation
  • Affiliation unknown
  • Thicker line = more joint articles · bigger circle = more articles
Show as table
Co-authorOrganisationJoint articles
Nurlaila AriantoAffiliation unknown1
AbdullahAffiliation unknown1
Muliani MulianiMalikussaleh University1
SRI WAHYUNIAffiliation unknown1
Lisa AmaliaAffiliation unknown1
Khairun SabriAffiliation unknown1
Asmuni AsmuniAffiliation unknown1
Saparuddin SiregarAffiliation unknown1
ABDUL MANANAffiliation unknown1
Husaini HusdaAffiliation unknown1
IkhwanAffiliation unknown1
Hamdina WahyuniAffiliation unknown1
Emk Alidar Emk AlidarAffiliation unknown1
Harjoni DeskyAffiliation unknown1
Ramadhan RazaliAffiliation unknown1
Early Ridho KismawadiAffiliation unknown1
Annisa Shafira TaniaAffiliation unknown1
M. Irvanni BahriAffiliation unknown1
PurwatiAffiliation unknown1
Farah DibaAffiliation unknown1
. IdhamAffiliation unknown1
HA OramahiAffiliation unknown1
Sofian ZainalAffiliation unknown1
Wahdina .Affiliation unknown1

Affiliations come from OpenAlex; journal OAI-PMH metadata carries none. Authors without an OpenAlex ID are matched by name, which can merge or split people.

Metadata source: OAI-PMH (metadata jurnal) https://journal.uinsgd.ac.id/index.php/mua/oai, first harvested 7 Nov 2026, last seen 8 Nov 2026.
Original metadata (oai_dc) 
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	<dc:title xml:lang="en-US">The Influence of Green Financing and Return Dynamics on Environmental, Social, and Governance Performance: Evidence from Indonesia’s Islamic Banking Sector</dc:title>
	<dc:creator>Iskandar</dc:creator>
	<dc:creator>Jannah, Rauzatul</dc:creator>
	<dc:creator>Burhan Uluyol</dc:creator>
	<dc:creator>Hussein 'Azeemi Abdullah Thaidi</dc:creator>
	<dc:creator>Siti Najma</dc:creator>
	<dc:subject xml:lang="en-US">Islamic Finance</dc:subject>
	<dc:subject xml:lang="en-US">Sharia</dc:subject>
	<dc:subject xml:lang="en-US">Governance</dc:subject>
	<dc:subject xml:lang="en-US">Maqāṣid Al-Sharī‘Ah</dc:subject>
	<dc:subject xml:lang="en-US">Financial Stability</dc:subject>
	<dc:description xml:lang="en-US">This study aimed to examine the influence of green financing and return dynamics on ESG performance in Indonesia’s Islamic banking sector. The issue was important considering the growing role of Islamic banks in promoting sustainable finance and strengthening institutional resilience within dynamic financial markets. A quantitative method was adopted based on secondary weekly data from six Islamic banks in Indonesia during 2020–2025 (1,878 observations). ESG score was the dependent variable, while green financing and weekly return were independent variables. The analysis applied GARCH model to estimate the association between the variables and to capture volatility persistence over time. The results showed that green financing had a positive and statistically significant effect on ESG performance. Islamic banks that consistently allocated funds to green financing tended to achieve higher and more stable ESG scores. In contrast, short-term return fluctuations did not significantly affect ESG performance, suggesting that sustainability practices were driven more by long-term strategic commitments than by temporary market dynamics. GARCH estimation confirmed the persistence of ESG volatility over time. The results showed that green financing served as a key driver of sustainability performance in Islamic banking and supported long-term institutional stability. Important insights were provided for bank management and regulators to strengthen the integration of sustainable financing strategies in line with Islamic finance principles.</dc:description>
	<dc:publisher xml:lang="en-US">Department of Sharia Economic Law, Faculty Sharia and Law, UIN Sunan Gunung Djati Bandung</dc:publisher>
	<dc:date>2026-05-01</dc:date>
	<dc:type>info:eu-repo/semantics/article</dc:type>
	<dc:type>info:eu-repo/semantics/publishedVersion</dc:type>
	<dc:format>application/pdf</dc:format>
	<dc:identifier>https://journal.uinsgd.ac.id/index.php/mua/article/view/54428</dc:identifier>
	<dc:identifier>10.15575/am.v13i1.54428</dc:identifier>
	<dc:source xml:lang="en-US">Al-Muamalat; Vol. 13 No. 1 (2026): January; 169-185</dc:source>
	<dc:source>2716-0610</dc:source>
	<dc:source>2086-3225</dc:source>
	<dc:source>10.15575/am.v13i1</dc:source>
	<dc:language>eng</dc:language>
	<dc:relation>https://journal.uinsgd.ac.id/index.php/mua/article/view/54428/16390</dc:relation>
	<dc:rights xml:lang="en-US">Copyright (c) 2026 Iskandar, Rauzatul Jannah, Brhan Uluyol, Hussein 'Azeemi Abdullah Thaidi, Siti Najma</dc:rights>
	<dc:rights xml:lang="en-US">https://creativecommons.org/licenses/by-sa/4.0</dc:rights>
</oai_dc:dc>