Corporate law and Sharia governance: Empirical insights, risk-based bank rating, and ESG Islamic approach

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Abstract

This study examines the impact of bank soundness ratio (based on the Risk-Based Bank Rating (RBBR) method) on financial performance via the environmental, social, and governance (ESG) framework within Islamic governance and social responsibility in Indonesian Islamic commercial banks (Sharia banks). The sustainability of Islamic banks is attained not solely through corporate performance, dictated by financial ratios, but also by a focus on global concerns, specifically environmental, social, and banking governance (Adu et al., 2024; Pasko et al., 2022). This study utilizes data from all Islamic commercial banks in Indonesia, with a sample for 2018–2022, and employs moderating regression analysis. The findings indicate that liquidity risk, financing, operating, and capital adequacy (RBBR), Islamic social reporting (ISR), and Islamic corporate governance (ICG) significantly impact Sharia banking performance. ICG effectively moderates the relationship between RBBR and ISR on Sharia banking financial performance. ICG can enhance the health of Sharia banks and their awareness of social responsibility, thereby positively influencing their performance. The Financial Authority can use these insights to enhance risk management and ISR regulations in Sharia banks. This study reveals discrepancies with prior studies, where return on equity (ROE) yielded superior outcomes to return on assets (ROA). This study identifies ICG’s significance in enhancing RBBR and ISR impact on banking performance within Sharia banking, a topic unexplored by scholars.

Keywords: Islamic Corporate Governance (ICG), Islamic Social Reporting (ISR), Environmental, Social and Governance (ESG), Bank Performance, Corporate Social Responsibility (CSR), Indonesia

Authors’ individual contribution: Conceptualization — S.M.P., L.N.W., and E.M.; Methodology — S.M.P. and L.N.W.; Investigation — S.M.P., L.N.W., and E.M.; Resources — S.M.P., L.N.W., and E.M.; Data Curation — S.M.P. and L.N.W.; Writing — Original Draft — S.M.P. and L.N.W.; Writing — Review & Editing — L.N.W. and E.M.; Supervision — L.N.W.; Project Administration — S.M.P. and E.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G21, G32, M14, L25

Received: 14.07.2025
Revised: 19.09.2025; 16.12.2025
Accepted: 09.01.2026
Published online: 13.01.2026

How to cite this paper: Pramudena, S. M., Wati, L. N., & Marlapa, E. (2026). Corporate law and Sharia governance: Empirical insights, risk-based bank rating, and ESG Islamic approach. Corporate Law & Governance Review, 8(1), 64–75. https://doi.org/10.22495/clgrv8i1p5