ESG Factors in Company Valuation: A Comparative Study of Islamic and Non-Islamic Banks

<p>This research examines how non-financial Environmental, Social, and Governance (ESG) variables influence the valuation of Islamic and non-Islamic banks and how it is comparably addressed in Abu Dhabi Islamic Bank (ADIB) and other key institutions in the region. Even though the traditional models of valuation use financial indicators like P/E, P/B, ROA, and ROE, there is increasing evidence that ESG performance is a major determiner of long-term risk, investor confidence, and sustainable growth.&nbsp;<span>The current study examines ESG scores, and financial data of 40 banks (20 Islamic and 20 non-Islamic) obtained through MSCI, Refinitiv and Bloomberg and annual reports through a quantitative positivist approach. Findings reveal that the mean ESG score of the two banking categories is similar, but the non-Islamic banks have higher Refinitiv ratings because they have better disclosure practices. Islamic banks are more profitable, as they have higher ROA, ROE, whereas non-Islamic banks have greater market capitalization and better ESG profitability relations.&nbsp;</span><span>According to correlation analysis, there is very little effect of ESG improvements on the Islamic bank valuation and very high effects on the financial performance metrics in non-Islamic banks. The research finds that stronger ESG reporting is needed in Islamic banks to reflect the actual value of sustainability in these banks, and that non-Islamic banks need to reinforce the connection between ESG activities and shareholder value. The recommendations are aimed at enhancing standards of disclosure, implementing ESG into financial decision making, and enhancing sustainable finance programs.</span></p>