Governance and Performance of Indonesian Islamic Banks: Toward Sustainable Green Finance

Abstract

This study aims to examine the influence of Islamic Corporate Governance (ICG) mechanisms on the financial performance of Islamic banks in Indonesia within the perspective of sustainable green finance. The analysis focuses on seven governance components mandated by regulatory frameworks, namely the Board of Directors (BOD), Audit Committee (AC), Board of Commissioners (BOC), Nomination and Remuneration Committee (NRC), Risk Committee (RC), Sharia Supervisory Board (SSB), and External Audit (EA). This quantitative study uses secondary data from eight Islamic commercial banks in Indonesia for the 2016–2023 period and is analyzed using multiple linear regression in EViews 12. The results show that the BOC has a positive and significant effect on financial performance, indicating the importance of effective supervisory oversight. In contrast, the SSB has a negative and significant effect, suggesting that strict sharia compliance may restrict investment flexibility and reduce short-term profitability. Meanwhile, the BOD, AC, NRC, RC, and EA show no significant influence, indicating that their roles remain primarily administrative rather than strategic. Islamic banks should strengthen the strategic roles of internal governance committees and harmonize coordination between the BOC and SSB to balance sharia compliance with financial performance. Regulators (OJK and IFSB) are encouraged to enhance governance standards that support ethical integrity and financial sustainability. This study integrates all mandatory ICG components into a comprehensive governance-performance model and contextualizes the findings within sustainable and ethical financial practices.