Shari'ah compliance and environmental performance - Evidence from the USA

The United Nations labelled climate change as one of the greatest challenges of all time. The least developed countries could suffer more from the adverse impact of climate change and require financial support from the advanced economies to combat such a global challenge. However, advanced economies are falling short of their pledges to provide financial support to emerging economies under Paris Agreement. Therefore, this study explores the environmental performance of firms listed in the US stock market to explore the current trends in environmental performance. We explore the environmental performance of US-listed non-financial firms under the theoretical lens of Maqasid Shariah. Maqasid Shariah has environmental sustainability embedded within its core values and could guide firms to become more environmentally friendly. This study collects secondary data from REFINITIV databases for four hundred eighty-one non-financial firms listed on the US stock exchange. This study covers a period of five years (2017–2021) and uses an unbalanced panel with 1860 observations. The least-square dummy variable results confirm that Shari'ah-compliant firms have better environmental performance. Such results hold after endogeneity corrected regression. The study findings have practical implications for regulators and promote the role of ethical business models toward mitigating the challenges of climate change. This is unique as it presents empirical evidence of the positive association between Shari'ah compliance and environmental performance in the context of an advanced economy.