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This study empirically investigates the effect of an Islamic label on environmental, social, and governance (ESG) performance. Islamic firms in Indonesia and Malaysia that are characterized by lower debt and lower non-sharia compliant income and have a higher ethical standard are expected to make a better contribution to the environment and society. Testing firms in Indonesia and Malaysia, two emerging countries in ASEAN (Association of Southeast Asian Nations), reveals a significant difference in overall environmental and social performance, but not in governance quality. Also, the study documents the significant effect on performance of using Islamic criteria for leverage, accounts receivable, and cash. Overall, after controlling for some variables and splitting the sample into different time horizons and firm sizes, the study consistently reveals that firms labeled as Islamic have better environmental and social performance, but not governance performance. The relevant policies should be adjusted. Jel classifications: G21, G29.

This study empirically investigates the comparative performance of four portfolios— Indonesia Shariah Stock Index (ISSI), socially responsible investing (SRI), conventional, and Islamic-SRI portfolios—in Indonesia, of which the last integrates an Islamic portfolio into an SRI portfolio (henceforth, ISRI or the ISRI portfolio), to test whether the ISRI portfolio matters by addressing the two specific issues: first, the degree to which investment performance from the ISRI portfolio is different from the other portfolios; second, whether the ISRI portfolio has better time-varying performance than the other portfolios. Overall, this study provides evidence that the ISRI portfolio outperforms the other three types. Investing in the ISRI portfolio provides more flexibility in term of investment style. Hence, integrating Islamic screening into SRI/environmental, social, and governance screening is a reasonable way to implement Islamic values in “modern” investment. The relevant policies should be adjusted.