Sustainability disclosures and financial performance of Islamic banks in Indonesia

Abstract

Sustainability practices and disclosures of Islamic banking in Indonesia are still very low. Currently, the disclosure of sustainability reports has been required by the Financial Services Authority (OJK). This paper measures the level of sustainability disclosures (economic, social, and environmental) based on OJK Regulation No. 51/2017 and investigates its impact on the financial performance of Islamic banks in Indonesia. The study was conducted in Islamic banks during 2018-2020 with a total sample of 12 banks obtained through purposive sampling. The results show that there is no significant effect of the sustainability disclosure dimensions on ROA. On the other hand, there is a significant effect of the sustainability disclosure dimensions on ROE and EPS. These results encourage Islamic banks to consistently issue a sustainability report. In the long term, the sustainability disclosure is expected to have a positive impact on the growth of Islamic banks in Indonesia.