Shariah Governance and Sustainability Accounting Quality in Indonesian Islamic Banks

Abstract

Indonesia’s Islamic banking industry surpassed IDR 1,028 trillion in assets in 2025 while simultaneously facing stronger demands for Shariah governance, sustainable-finance reporting and sustainability-related financial disclosure. This study examines why formal compliance does not automatically produce decision-useful and Shariah-aligned sustainability information and develops an integrated accounting response. A structured integrative review is combined with comparative regulatory analysis of recent peer-reviewed evidence, OJK sustainable-finance requirements, Indonesian Sustainability Disclosure Standards, IFRS S1–S2, GRI and AAOIFI Shariah governance standards. The synthesis identifies five recurring capability gaps: Shariah-materiality alignment, sustainability measurement, financial connectivity, governance accountability and assurance readiness. To address them, the study proposes an Integrated Shariah Sustainability Accounting (ISSA) framework that links maqasid-based governance, dual materiality assessment, controlled physical and monetary measurement, interoperable reporting and assurance to financing and risk decisions. The framework is operationalized into a 25-item diagnostic instrument and five testable propositions. The study concludes that Islamic banks can move beyond symbolic disclosure when sustainability metrics are governed with accounting-quality controls and are explicitly connected to Shariah oversight, financing allocation and measurable environmental and social outcomes. The proposed framework provides a practical basis for bank implementation, regulatory guidance and subsequent empirical testing in Indonesia.