Sustainability in Malaysian Sukuk Issuers: Financial vs. Non-financial Firms via Machine Learning
Drawing upon Resource Dependency and Resource-Based theories, corporate social sustainability (CS) is understood as a method of stakeholder management critically influenced by a firm's resources. Firms possessing more long-term resources are positioned to exhibit better CS performance. These theories further suggest that differences in available resources lead to differentiated CS performance between financial institutions (FI) and non-financial institutions (NFI). Sukuk, a prime long-term tool in Islamic finance, aligns with Islamic principles. Hence, Sukuk issuance (SI) may thus serve as an instrument to enhance CS. This study aims to provide empirical findings demonstrating sukuk as an instrument of CS and to compare the CS performance between financial and non-financial sukuk issuers in Malaysia. The study focused on Malaysian sukuk issuers, recognized as global sukuk hubs, using long-term data from 2010 to 2022. Data on CS performance were gathered through content analysis of annual reports. To compare FI and NFI in terms of CS, the study employed Logit regression, K-Means clustering (with Dendrograms), and Random Forest techniques, enabling a comprehensive, multi-dimensional examination of the data. The results indicate that while sukuk issuers enhance their efforts to report CS performance, the scope of this effort remains limited, often omitting approximately three-fourths of the Global Reporting Initiative (GRI) variables for CS. Non-financial issuers were found to perform moderately better in overall CS activities. The CS component appeared more appropriate for the business strategy of sukuk issuers. In the comparison between firm types, financial issuers performed better in the economic dimension of CS, whereas non-financial issuer’s demonstrated better performance in social CS. Machine learning analysis suggested that high CS performance was more strongly associated with quantitative descriptions of indicators than qualitative ones. The study provides empirical support for the potential of sukuk as an instrument facilitating CS efforts among issuers, although the current extent and focus of CS reporting are restricted. Significant distinctions in CS performance and reporting exist between financial and non-financial sukuk issuers, highlighting the varied approaches to sustainability integration influenced by firm type and strategy.