Rahayu, Zulfa Nur (2024) THE INFLUENCE OF ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) ON THE PROFITABILITY OF ISLAMIC COMMERCIAL BANKS IN INDONESIA PERIOD 2017-2023 (STUDY IN BANK MUAMALAT INDONESIA). S1 Undergraduate thesis, Universitas Darussalam Gontor.

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Abstract

Economic challenges resulting from practices prohibited in Islam are becoming more evident, particularly in the banking sector, which plays a vital role in measuring the economic progress of a nation. Increasing environmental damage, growing social inequality, and concerns over banking governance have garnered significant attention from economic stakeholders. As a result, the need for sustainable development in banking has emerged as a critical factor in economic growth. This approach goes beyond focusing solely on operational profits and extends to considering environmental, social, and governance (ESG) dimensions. This study investigates the influence of ESG factors on the profitability of Islamic banks in Indonesia, specifically examining the period from 2017 to 2023. The study population consists of 14 Islamic commercial banks registered with Indonesia’s Financial Services Authority (OJK), with Bank Muamalat Indonesia selected as the subject of this research. Using a quantitative approach with an associative method, the study relies on secondary data in the form of time series. The sampling method employed is purposive sampling, focusing on Bank Muamalat Indonesia as the representative sample. The data is analyzed using multiple linear regression with Stata 17 software. The findings show that, individually, the Environmental variable does not significantly impact Return on Assets (ROA), as evidenced by a T-statistic of 1.59 and a p-value of 0.126, both of which fall below the critical thresholds (T-statistic < 2.0686576, p-value > 0.05). Similarly, the Social variable also shows an insignificant effect on ROA, with a T-statistic of -0.27 and a p-value of 0.79, which again do not meet the required significance levels. The Governance variable, too, demonstrates no significant impact on ROA, with a T-statistic of 1.08 and a p-value of 0.291, both below the critical thresholds. When all three ESG variables are tested together, the results show that they do not significantly affect ROA at Bank Muamalat Indonesia for the period under study. The F-statistic of 1.27 and a p-value of 0.3073, which is above the 0.05 significance level, further support this conclusion.

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