Exploring the Nexus of Shariah Principles, Carbon Emissions, and Waste Management: International Evidence

Abstract

This dissertation examines the intersection between religious principles and environmental sustainability in shaping corporate behavior. Specifically, I investigate whether firms that fulfill a Shariah compliance screening criteria are environmentally friendlier in terms of carbon emissions and have better waste management practices. I focus specifically on non-financial firms and use a dual-sample approach for each sustainability area. For my primary sample of 56 countries and 21,194 firm-year observations for the 2012-2023 period, I find strong evidence that Shariah-compatible firms emit less carbon emissions than non-compatible firms. The mediation analysis indicates that environmental innovation accounts for a significant portion of the total effect of Shariah compliance on emissions reductions, suggesting an indirect pathway through which compliance influences environmental outcomes. Separately, we document a positive relationship between Shariah-compliant status and firm value. Meanwhile, moderation analyses indicates that reduction in emissions are stronger in supportive regulatory contexts, such as with firms that operate in countries with high climate performance indices or emissions trading schemes. In my secondary sample of 14,891 firms across 42 countries, I show that being Shariah compatible brings significant benefits to waste management. This set of findings are robust for different measures of waste such as non-hazardous waste and water waste, including sustainability efforts such as recycling. I address heteroscedasticity and endogeneity concerns are addressed while maintaining the significance of my results using instrumental variable regressions, weighted least squares, entropy balancing and Heckman estimation methods. Robustness tests further affirm the negative association between Shariah-compliance and waste across various model specifications, including exclusions of carbon-sensitive industries and pandemic years. Although Shariah compliance is more commonly associated with firms operating in Muslim-majority contexts, my global sample enables broader generalizability. This is because I conceptualize Shariah compatibility not as a strict, intentionally pursued compliance objective, but as an externally assessed firm characteristic; allowing the findings to have universal applicability beyond predominantly Islamic settings. The findings and recommendations provide an economic avenue for firms seeking to operate in a more environmentally sustainable manner while making financial gains. We provide important considerations for policymakers seeking ways to reduce domestic barriers of transition from fossil fuel consumption and/or production while abiding by agreements towards carbon neutrality as well as minimizing concerns of green washing or inadequate waste management.