This study offers a novel contribution by extending the green banking literature from a predominantly macro-level ESG perspective to a micro-operational disclosure approach within Islamic Commercial Banks. Unlike prior studies that generally assume that green banking improves firm value through enhanced profitability, this study provides empirical evidence that operational green disclosure strengthens firm value without generating significant short-term profitability gains. By demonstrating that profitability (ROA and ROE) does not mediate the relationship between green banking disclosure and firm value, this study reveals an alternative non-financial value creation mechanism, emphasizing the role of sustainability signaling and stakeholder perceptions in Islamic banking. This study aims to examine the effect of green banking disclosure on profitability, measured by Return on Assets (ROA) and Return on Equity (ROE), and firm value, as well as to assess whether profitability mediates the relationship between green disclosure and firm value. A quantitative research design was employed using secondary data from 12 Islamic Commercial Banks (ICBs) for the period 2022–2024. Data were analyzed using regression and path analyses supported by classical assumption tests to ensure model validity and reliability. The results reveal that green banking disclosure has a minimal effect on profitability, contributing only 4% to ROA, with no significant impact on ROE. In contrast, green disclosure has a substantial effect on firm value, contributing 52.7%. Water, fuel, and paper usage significantly influenced firm value, whereas electricity usage had no significant effect. Furthermore, profitability (ROA and ROE) does not mediate the relationship between green banking disclosure and firm value. The findings of this study indicate that green banking activities may not immediately enhance financial performance but play an essential role in strengthening firm value through improved sustainability perception among stakeholders. These insights offer practical guidance for Islamic banks and regulators to integrate environmental responsibility into their long-term value creation strategies.
Andriani et al. (Wed,) studied this question.