Corporate Social Responsibility in Muslim Banks

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In his article, Ahmed Khattak analyzes corporate sustainability and corporate social responsibility (CSR) through the banks in Muslim economies. When conducted properly, sustainability performance (SP)practices can improve the company’s performance and gains through reputation building. SP has become more practiced in recent decades, but the majority of companies do not report their SP. Thus, the article looks at SP’s influence on businesses, whether it improves the banks’ financial performance, and how significant its impact is.

Due to the rising awareness of stakeholders, there are growing concerns about companies’ impact on the world. The global business communities have seen the rise of terms such as SP and CSR to signify the relationship between a company and society’s social and environmental aspects. When it comes to the relation between financial profit and SP, opinions on the matter are divided. While some argue that SP is an “unjust taxation on the firms,” others propose that SP practices make the companies grow more prominent and profitable. Friede, Busch, and Bassen performed a research study that combined 2200 individual studies, and the result demonstrated that over 90% had a positive or neutral ESG-performance link.

On the other hand, Becchetti, Ciciretti, and Hasan discuss the Shift of Focus: a practice when the cash-rich companies lower social expenditures to gain private short-term goals during financially stable periods. Lambertini and Tampieri highlight that when a firm invests in building its reputation through SP practices, it gains an advantage over other companies, making it more successful.

Under the author’s model, he analyzes the MSCI’s database to see how SP practices impact the business’s performance. Ahmed Khattak’s research employs Morgan Stanley Capital International’s (MSCI’s) Intangible Value Assessment database as it has one of the largest data banks on SP practices in the world. It gathered the necessary data for 13 countries and 43 banks over the 2007-2016 period to analyze the subject. The data demonstrate that elevated SP leads to higher financial gain and success for the companies. The benefits that SP brings outweigh the extra expenditures needed for SP practices. The author brings up governmental support as one of the main reasons behind this statistic.

The study noted a connection between the level of institutional moderation and financial benefits. When businesses practice SP-building strategies, it strengthens them: this is demonstrated across the data, but the most efficient examples come from developed countries and countries with strong institutional involvement. The institutions with established and active systems benefit the companies that participate in SP programs developed around social and environmental responsibility practices.

This combination improves the banks’ efficiency, activities, and financial performance on a large scale. The sustainability study on the relationship between banks’ performance and SP demonstrates that despite some advocating against extra expenditures on SP, the benefits outweigh the negatives and help companies be more profitable in the long run. The reputation allows them to gain trust from stakeholders, as well as governmental support. The countries with strong institutions tend to be more beneficial for the companies that partake in SP practices. The banks in the researched countries that demonstrate awareness of this matter outperform their competitors and take a higher spot in the economic world.

I find the article informative: it clearly demonstrates the connection between SP and the financial effectiveness of businesses with plentiful data, addresses opposing views, and is easy to read and grasp. I appreciate the data presented as it makes it obvious how SP practices benefit companies in the long run despite some extra expenditures. It is a valuable article that helped me to understand the SP subject in much better detail.

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