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Dynamics between islamic banking performance and CO2 emissions: evidence from the OIC countries

Mahmood, Nihal and Masih, Mansur (2018): Dynamics between islamic banking performance and CO2 emissions: evidence from the OIC countries.

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This paper is an humble initial attempt at studying the effects of Islamic Banking performance on CO2 Emissions among OIC countries. Recently, there has been increasing awareness surrounding Sustainability Development Goals (SDG), which is what inspired this study. While SDG data is quite limited, there is a substantial record of CO2 Emissions, which is one of the components in calculating the SDG index. While extensive research has been done on environmental performance and firm profitability in the conventional space, there are limited studies on this area in the Islamic Finance space. The core issue that will be investigated in this paper is to assess if Islamic Banking performance is impacted or influenced by CO2 emissions. Islamic Bank Performance will be measured using aggregate Return on Equity (ROE), and Return on Asset (ROA) figures for all banks in the OIC region. This study employs GMM Panel Technique given the dynamic nature of the data. The main contribution of this paper is it is among the first attempts at examining this unique area. Islamic Finance is not only about Shariah compliant product structures, but also its overall impact on society itself (CO2 emissions serves as a measure of this). The key conclusion is that there is a correlation between Islamic Bank performance and CO2 emissions. However, in some cases the correlation was found to be positive (when examining ROA) and in others negative (when examining ROE). Policy makers need to study the trends in order to provide guidelines that would motivate the Islamic Banking industry to reduce emissions.

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