The Sustainable Development Goals and Role of Islamic Banks in the Middle Eastern Region : A Bayesian Panel VAR Approach

This research aims to examine the role of Islamic banks in achieving the sustainable development goals while considering the environment, social, and governance (ESG) in the Middle Eastern Region. This research considers the annual data set of a balanced panel of 20 Islamic banks over the period 2014- 2021 while using a Bayesian panel vector autoregression approach. This research considers the variables such as the ESG scores and its subcomponents, Islamic financial development indicator (IFDI) as well as its five elements and set of bank-specific control factors. The estimates reveal that the IFDI and its subcomponents such as quantitative development, corporate social responsibility, awareness, knowledge, and governance have positive and statistically significant long-term impacts on ESG score and its subcomponents. Such findings were further confirmed through the estimation of the Bayesian multivariate regression approach and related tests to ensure the efficiency of estimated parameters, which is validated through trace plots, density plots, and histogram plots. This research provides insights for Islamic financial policymakers to invest in ethical and sustainable activities to improve their ESG score