Assessing National Climate Metrics and the Impact on ESG Performance of Sharīʿah-Compliant Firms in Malaysia

Purpose — This study examines the link between Malaysia’s climate action and climate risk perception and the ESG (Environmental, Social and Governance) performance of Sharīʿah-compliant firms. The study further investigates the relationship between national climate indicators and firm-level ESG outcomes, and finally identifies ESG and climate practices benchmarked against leading firms in Asia and Europe. Design/Methodology/Approach — The analysis combines the method of benchmarking best practices between Malaysia’s ESG and climate actions and leading firms in Asia and Europe, along with descriptive statistics and multiple regression, covering 72 Malaysian Sharīʿah-compliant firms in the energy, plantation, and construction sectors from 2021 to 2023. Findings — Results show that ESG performance of Sharīʿah-compliant companies in Malaysia has improved modestly but remains significantly lower than Asian and European benchmarks. Regression analysis reveals a statistically significant positive relationship between Climate Change Performance Index (CCPI) and ESG performance of Sharīʿah-compliant firms, with the environmental pillar showing the strongest response. Originality/Value — This study links national climate indicators to firm-level ESG performance among Sharīʿah-compliant firms in Malaysia. Prior studies have predominantly focused on firm-specific ESG drivers in developed economies. This study extends the literature by incorporating country-level factors within an emerging market context and provides cross-regional ESG benchmarking. Research Limitations/Implications — This study focuses on Malaysian Sharīʿah-compliant firms in environmentally sensitive sectors, which may limit the generalisability of the findings. Future research could extend the analysis to include a larger sample of Sharīʿah-compliant firms across different sectors in global markets. Practical Implications — The findings indicate that national climate policies and global benchmarks influence ESG practices in Sharīʿah-compliant firms, while reinforcing Malaysia’s commitment to the Sustainable Development Goals (SDGs) and the positive integration of ESG and Islamic finance.