Center for Advancing Accounting

Corporate Sustainability Reporting: Pre-Merger Case of Conventional vs Islamic Banks

• In Event: Sustainability Rerporting

Abstract

Corporate sustainability reporting is practiced by Islamic and conventional banks. Islamic banks function just like conventional banks in dominantly Muslim Societies; however, different founding principles and philosophies makes these banks unique. A look at the current practices related to sustainability reporting shows that Islamic banks are adhering and promoting sustainability. This study focuses on Kuwait Finance House (KFH), which is one of largest Islamic banks in the world. Since 2011, KFH advocates environmental, social and governance (ESG), and sustainability, by issuing reports demonstrating that sustainability is one of the pillars of its management philosophy. Recently, KFH completed an acquisition deal with Ahli United Bank (AUB, the largest conventional commercial bank in Bahrain), to merge the two banks via stock swap and converting AUB to an Islamic bank and to create the regions’ second largest Islamic bank with $115 billion in assets. This study provides an opportunity to examine ESG and sustainability reporting practices by an Islamic bank in a pre-merger setting, and how can growth via a merger deal reflect management philosophy and commitment to economic sustainability. This study attempts to investigate whether sustainability will be equally achieved by the acquirer and the target and potential benefits that will be realized by shareholders on both sides. Finally, by examining pre-merger ESG and sustainability disclosures of an Islamic and a conventional bank, we can contribute to the literature by showing Islamic banks sustainability advocacy differs from that of conventional banks.

Author

• Saad A. Alkazemi, Kuwait University