Sharia-supervisory board’s characteristics and green banking disclosure: exploring from Islamic banking in MENA countries

Abstract

Purpose

This study aims to investigate the extent to which the characteristics of Sharia supervisory boards (SSB) in banking institutions impact the disclosure of information pertaining to green banking practices.

Design/methodology/approach

A comprehensive dynamic panel data analysis approach was applied to a data set comprising Islamic banks from 15 countries in the Middle East and North Africa (MENA) region, covering the period from 2012 to 2022. In addition, a series of robustness and endogeneity analyses were conducted to ensure the consistency of the main findings.

Findings

This study shows that the characteristics of the SSB significantly impact the green banking disclosure practices of Islamic banks. Specifically, the proportion of board members who hold multiple SSB positions and the presence of foreign board members exhibit a negative and significant effect on green banking disclosure. Conversely, the size of the SSB is positively and significantly associated with green banking disclosure. Thus, the extent of green banking disclosure in Islamic banks is likely to increase with the size of the SSB. However, an increase in board members’ external commitments and a higher proportion of foreign board members are associated with a decline in green banking disclosure. Further analysis supports these findings, confirming their consistency across different contexts.

Research limitations/implications

The findings of this study highlight the critical role that the composition and characteristics of the SSB play in shaping the green banking practices of Islamic banks in MENA countries. These insights provide valuable guidance for policymakers and Islamic financial institutions aiming to strengthen sustainability practices while adhering to Shariah principles. As green banking becomes increasingly crucial in the global financial landscape, optimizing the SSB’s composition could be a key driver in advancing the environmental goals of Islamic banking in the MENA region.

Practical implications

Islamic banks in the MENA region should focus on optimizing their SSB composition to enhance green banking disclosure. Increasing the size of the SSB can positively influence disclosure practices. However, banks should manage board members’ external engagements to ensure they have sufficient focus on green initiatives. Strategic recruitment of foreign members with a commitment to sustainability, coupled with targeted training programs, can further improve disclosure.

Originality/value

Specific SSB characteristics such as size and foreign board members influence disclosure of green banking, which previous studies did not conduct research on.

Citation

Ardianto, A., Cahyono, S., Noman, A.H. and Sulaiman, N.A. (2024), "Sharia-supervisory board’s characteristics and green banking disclosure: exploring from Islamic banking in MENA countries", International Journal of Ethics and Systems, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOES-06-2024-0171