11.vol 0003www.iiste.org call for paper no 2 pp 160-179

Issues in Social and Environmental Accounting
Vol. 3, No. 2 Dec 2009/Jan 2010
Pp 160-179

Sustainability Disclosure among Malaysian
Shari’ah-Compliant listed Companies:
Web Reporting
Rapiah Mohammed
College of Business
Universiti Utara Malaysia

Kasumalinda Alwi
Faculty of Economics and Muamalat
Universiti Sains Islam Malaysia

Che Zuriana Muhammad Jamil
College of Business
Universiti Utara Malaysia
Abstract

This paper advances previous research of sustainability disclosure by focusing on information
disclosed in the companies’ web site rather than through annual reports. Despite looking at the
listed companies in general, this study attempts to consider the practice of disclosing sustain-
ability information in the Malaysian Shari’ah-Compliant listed companies, which represented
87% of the total listed securities or 64.3% of the market capitalization on Bursa Malaysia web
site. This study used Islamicity Disclosure Index consists of Shari’ah Compliance Indicator,
Corporate Governance Index and Social/Environmental Index, and the data is analysed using a
content analysis. The results of the study suggest that the sustainability disclosure by Malaysian
Shari’ah-compliant listed companies fall significantly on corporate governance index themes,
followed by social/environmental index themes. However, Malaysian Shari’ah-compliant listed
companies did not clearly disclose the items under Shari’ah compliance index. Contrary to our
expectation, most of the companies disclose the items measured in the annual reports linked to
the companies’ web site and are thus not fully in the web site.

Keywords: Sustainability disclosure; corporate social responsibility; internet reporting;
shari’ah-compliant listed companies

Rapiah Mohamed (CMA) is a Senior Lecturer at UUM College of Business (Accountancy), Universiti Utara Malaysia.
Kasumalinda Alwi (CMA) is a Senior Lecturer at Faculty of Economics and Muamalat, Universiti Sains Islam Malay-
sia. E-mail: kasuma@usim.edu.my. Che Zuriana Muhammad Jamil (Phd, CMA) is a Senior Lecturer at UUM College
of Business (Accountancy), Universiti Utara Malaysia. E-mail: zuriana@uum.edu.my

161 R. Mohammed et. al. / Issues in Social and Environmental Accounting 2 (2009/2010) 160-179

Introduction ‘corporate social responsibility’,
‘corporate citizenship’ and
The corporate environment is changing ‘environmental, health and safety’. Ac-
more rapidly than ever before, competi- cording to Aras & Crowther (2008) the
tive pressures are increasing and stake- term sustainability is a controversial
holders i.e. shareholders, investors, gov- topic because it means different things to
ernment and regulators demand more different people. Similarly, Marrewjick
information from organisation not only & Werre, (2003) view that there is no
on the financial aspects but also on non specific definition of corporate sustain-
financial issues like corporate social re- ability and each organisation needs to
sponsibility. In order to remain competi- devise its own definition to suit its pur-
tive in the new environment, organisa- pose and objectives. However, they
tion needs to include social, environ- agree that corporate sustainability and
mental, corporate governance and stake- corporate social responsibility are syn-
holders’ concern into corporate strategy. onymous and based upon voluntarily
Technology is enabling an organisation activity which includes environmental
to communicate information to its stake- and social concerns. Recently, the term
holders in a new and faster way, through ‘sustainability’ has started being used
the internet. The demand of information by many organisations in their reporting,
on sustainability is increasing. A grow- generally referring to non financial and
ing number of writers over the last quar- social objectives, but sometimes using
ter of century have recognized that the the term to encompass both financial and
activities of an organisation impact upon social objectives. The terms of corporate
the external environment and have sug- sustainability and corporate social re-
gested that such an organisation should sponsibility have been used inter-
therefore be accountable to a wider audi- changeably in this report.
ence than simply its shareholders (Aras
& Crowther, 2008). Although, the research on corporate so-
cial responsibility has gained a wide at-
The challenge for organisation today is tention in developed countries such as
not only to create value to the sharehold- Europe and United States, previous stud-
ers but also need to consider the impacts ies have found that the level of corporate
of its activities to the society as well as social responsibility of Malaysian public
the environment. There is a continuing listed companies is still generally low
debate pertaining to the role of corporate (Nik Nazli, Maliah, & Siswantoro, 2003;
in the society. Sustainability or corporate Dawkins & Ngunjiri, 2008). In addition,
social responsibility involves a new way the reporting of corporate social respon-
of doing business that extends legal and sibility in Asian countries is much less
economic responsibilities to satisfy the comprehensive than in most advanced
legitimate social and environmental ex- Western countries. Asian companies
pectations of multiple groups of stake- remain very cautious about disclosure of
holders (Cresti, 2009). information to outsiders on matters re-
lated to corporate social responsibility
Various terms are used for the goals de- (Debroux, 2006). The prior literatures on
sired or intended by organisations that corporate social responsibility disclosure
relate to sustainability, including focused more on the annual report dis-

R. Mohammed et. al. / Issues in Social and Environmental Accounting 2 (2009/2010) 160-179 162

closure and gave less attention to the into five sections. The second section
disclosure through corporate web site reviews the literature. The third section
(Al Arussi, Mohamad Hisyam, & describes the methodology which is then
Mustafa, 2009; Williams & Pei, 1999). followed by the discussion of the results
For example, Williams & Pei (1999) in section four. Finally, the last section
mention that empirical investigations presents the conclusion.
examining the influence of internet dis-
closure practices is still very much in its
infancy. However, for the past few years Sustainability/corporate social respon-
the study of corporate social responsibil- sibility disclosure
ity reporting through the internet has
started to receive attention in the Asian Over the last decade, sustainable issues
context (for example Fukukawa & have become increasingly significant to
Moon, 2004; Thompson & Zakaria, policy makers in both the political and
2004; Chapple & Moon, 2005; Al the business world (Avila & Bradley,
Arussi, Mohamad Hisyam, & Mustafa, 1993; Ladd Greeno, 1994). As men-
2009). This study aims to fill this knowl- tioned by Elliot & Elliot (1998), the area
edge gap by examining the sustainability of green accounting is probably more
disclosure through corporate web sites popular than pure social accounting be-
among Malaysian Shari’ah-Compliant cause of high profile of green issues in
listed companies. general. Based on their study, the green
accounting issues are specifically classi-
This paper reports the preliminary re- fied under sustainability and environ-
sults on the sustainability disclosure in mental pollution. On the other hand,
the corporate web sites. The themes of government and statutory requirements
sustainability disclosure used in this also force manufacturers to improve
study are categorized into three: shari’ah their environmental performance, for
compliance indicator, corporate govern- example, waste minimization, pollution
ance index and social and environmental prevention, energy conservation and
index. The main objective of this study other health and safety issues (Pun et al.,
is to investigate how shari’ah compliant 2002).
listed companies in Malaysia present
their corporate social responsibility of For example, the Association of Char-
the three themes mentioned earlier in tered Certified Accountants Malaysia
their corporate web sites. This study ad- Sustainability Reporting Awards
dresses the following research questions: (ACCA MaSRA), previously known as
Is corporate sustainability presented on ACCA Malaysia Environmental and
corporate web sites? What types of Social Reporting Awards (ACCA
themes i.e., shari’ah compliance index, MESRA) was first introduced in Malay-
corporate governance index and social/ sia in 2002, with the aim to encourage
environmental index are presented on the uptake of sustainability (or corporate
the web sites? How is corporate social social responsibility) reporting among
responsibility presented on the web companies in Malaysia. Through the
sites? awards, businesses are encouraged to
report on the impact of their business
The remainder of this report is divided operations to the environment and soci-


ety they operate in. By enlarging the of the poor. Further, Mohd Rizal, Rus-
awards to embrace sustainability, ACCA nah & Kamaruzaman (2006) suggest
hopes to encourage corporate Malaysia that the tawhidic approach be used for
to examine and account for their “big corporate social responsibility disclo-
picture” consequences on society, econ- sure. The tawhidic approach consists of
omy and environment. By focusing on three relationships, which are to Allah,
sustainability reporting, organisations human and environment. They explain
will be able to differentiate themselves that based on the axiom of Tawhid, the
from other reporters and this will give main objectives of social responsibility
them the edge to compete in the global should be to demonstrate responsibility
arena. not only to Allah and human beings, but
also to environment. Hence, the leaders
Not only it is important for companies to in Islamic business organisations are
engage in favourable sustainability is- required to practise corporate social re-
sues, but they also need to report those sponsibility essentially from the princi-
activities. According to Kolk, van ple of Tawhid. It must be remembered
derVeen & Hay (2002), KPMG pub- that all possessions, wealth, expertise,
lished an International Survey of Corpo- abilities, positions and power belongs to
rate Sustainability Reporting to docu- Allah. Mankind is only trustees to them.
ment all the activities of the companies. As trustees, it is imperative that people
As mentioned in most published articles, manage these possessions to the best or
such as Dawkins & Ngunjiri (2008), their abilities to create a maximum
companies’ disclosure with regard to added value in corporate social responsi-
sustainability information can lead to bility by intention of creating benefit to
favorable perceptions of corporate gov- the ummah (community).
ernance and Poitevin (1990) and Ravid
& Saring (1991) mentioned that this in- According to Mohd Rizal, Rusnah &
formation will be used by investors to Kamaruzaman (2006), in Islam, the con-
make decisions. According to Dawkins cept of corporate social responsibility
& Ngunjiri (2008), disclosures on corpo- disclosure of Islamic business organisa-
rate social responsibilities are one way tions should include a different set of
that companies demonstrate their legiti- requirement from the conventional west-
macy to stakeholders. ern format. The main objective of Is-
lamic corporate social responsibility dis-
From Islamic perspective, social respon- closure is to show compliance with Is-
sibility is resulted from the concept of lamic Shari’ah, i.e. to demonstrate ac-
brotherhood and social justice (Mohd countability to Allah. Disclosure from an
Rizal, Rusnah, & Kamaruzaman, 2006). Islamic perspective of accounting means
The practice of social justice will pre- disclosing information that would aid
vent Muslims from doing harm and is economics as well as religious decision-
strengthened through the concept of uk- making. The implications of this is that
huwwah (brotherhood). Brotherhood Islamic business organisations should
makes Muslims responsible to each disclose all information necessary to
other. The commitment of Islam to jus- advise the Islamic ummah about their
tice and brotherhood demands that Mus- operations, even if such information
lim society take care of the basic needs would work against the firm itself. They


suggested that Islamic business organi- State-of-the-art of sustainability dis-
sations should make a disclosure on cor- closure in Malaysia
porate mission statement, information
related to the top management, unlawful ACCA (Nik Nazli, Maliah, & Siswan-
(haram) operations, Shari’ah Advisory toro, 2003) in its Environmental Report-
Board, zakat, employees, products and ing Guidelines for Malaysian Companies
services, community involvement, qard has defined environmental reporting as
al-hasan funds and environment. ‘the disclosure by an entity of
environmentally related data,
Shahul Hameed, Wirman, Alrazi, Mohd verified (audited) or not, regard-
Nazli, & Pramono (2004) argued that the ing environmental risks, environ-
development of the indices to gauge the mental impacts, policies, strate-
performance of Islamic business organi- gies, target, costs, liabilities, or
sations nowadays is seen important as environmental performance, to
there is a growing awareness among the those who have an interest in such
Muslim community to assess how far information, as an aid to enabling
these organisations have successfully their relationship with the report-
achieved their objectives. Further, they ing entity via either, the annual
viewed that most Muslims now are not report and account package, a
only conscious about how much of the standalone corporate environ-
return they can get, but more impor- mental performance report, a site-
tantly, to where their money has been centred environmental statement
invested. While for the non-Muslims or some other medium (e.g. Staff
community such indices are beneficial to newsletter, video, CD-ROM and
them to compare between organisations website) (page 9).
that have performed better, perhaps in
terms of returns as well as the social re- According to the ACCA there is no
sponsibilities. The authors suggested statutory requirement in Malaysia re-
two types of indices – Islamicity Disclo- quiring public-listed companies to dis-
sure Index and Islamicity Performance close environmental information to the
Index. These indices are developed to public except for the legislation such as
help stakeholders i.e. depositors, share- Occupational Safety and Health Act,
holders, religious bodies, government 1994 and associated regulations. Based
etc to evaluate the performance of Is- on the report summary of the ACCA
lamic financial institutions. The Islamic- (2005), the number of companies report-
ity disclosure index is to examine how ing on environmental performance has
well the organisations are disclosing the increased from 25 companies in 1999 to
information that might be useful to the 43 in 2002 and reached 60 companies by
stakeholders. On the other hand, the 2003. Up to 2004, the manufacturing
Islamicity performance index is about sector is the largest sector to be engaged
the performance of the organisation that in environmental reporting, followed by
covers the profit-sharing performance, the plantation sector and then, the trad-
zakat performance and equitable distri- ing and service sectors.
bution performance.


The ACCA’s report (2005) claimed that place, environment and community di-
the level of awareness among the firms mensions. However, no research reveals
in Malaysia to report their environ- the number of Malaysian Shari’ah-
mental practice is at an early stage. compliant companies which disclosed
Thus, the companies need further expla- the sustainability disclosure in Malaysia.
nation and motivation by the govern-
ment such as granting them incentives
and providing appropriate skills and en- Corporate social responsibility com-
vironmental training programs. Hasnah, munication and web sites
Sofri, Andrew, Sharon, & Ishak (2004)
also found in their study that corporate Previously, researchers used annual re-
social disclosure among Malaysian com- ports as their medium of communication
panies was very low compared to other (Che Zuriana, Kasumalinda, & Rapiah,
countries such as European countries. 2002). As reasons provided by Adam &
Harte (1998), corporate annual reports
Accordingly, Romlah, Takiah, & Nordin can be of interest as much for what they
(2002) investigated the environmental do no report, as for their actual content
reporting practice in the annual reports. and it is main form of corporate commu-
The results of the study indicated that nication and in the case of quoted com-
environmental information was not well panies, is made widely available. How-
published in the annual reports of Ma- ever, recently with the advancements in
laysian companies. The majority of the information and communication technol-
information can be found in the Review ogy, an annual report is no longer the
of the Operation and in the Chairman’s first ranking medium for investors to
Statements. Another study conducted by gather companies’ information. Jones &
Environmental Resources Management Walton (1999) mentioned that environ-
Malaysia (2002) on the current status of mental reporting is now appearing in
environmental reporting in Malaysia different formats and in different com-
demonstrated that there are an increasing munication methods. Jones & Walton
number of Bursa Malaysia main board (1999) stated that the internet should
companies engaging in some form of become an important medium to com-
environmental reporting. The recent municate environmental information
survey done by Bursa Malaysia in 2007 because it is an expanding medium
(Ng, 2008) revealed that Malaysian through which corporate stakeholders
listed companies showed poor under- are increasingly gathering and dissemi-
standing and lack of awareness in incor- nating information about companies’
porating corporate social responsibility activities to global audience.
policies and disclosures in their daily
operations. A breakdown of the results A number of researchers agree that the
show that 11.5% are in the poor cate- internet as an important medium to com-
gory, 28.5% are in the below average municate corporate social responsibility
and 27.5% are in the average categories. information (see for example Chaudhri
The responses were based on the disclo- & Wang, 2007; Wanderly et al., 2008;
sures during their operations in the fi- Akinci Vural & Oksuz, 2009). For ex-
nancial year of 2006 and 2007 and ample, Wanderly et al. (2008) men-
measured based on marketplace, work- tioned that corporate communication is a


much under-investigated area of corpo- broader locality than the traditional print
rate social responsibility. They also ex- medium of annual reports. However, in
plained that internet is increasingly be- Malaysia Williams & Pei (1999) also
coming one of the main tools for corpo- mentioned the disclosures of sustainabil-
rate social responsibility information ity and corporate social information did
disclosure, as it allows companies to not provide any significance differences
publicise more information less expen- either by printed annual reports or by
sively and faster than ever before. website. The study of corporate social
Unlike traditional media i.e. newspapers, responsibility communication on the
magazines, billboards, television and internet has started to receive attention
radio, the internet allows the company to in the Asian context (Thompson & Za-
publicise detailed and up-to-date infor- karia, 2004; Chaudhri & Wang, 2007; Al
mation. Moreover, the information re- Arussi, Mohamad Hisham & Mustafa,
mains permanently available on the web, 2009).
allowing the internet user to choose
which subjects he/she wants to access
and as often as he/she wishes. Corporate Methodology
websites provide an official perspective
regarding corporate social responsibility The Sample
within the corporation for all it stake- The sampling frame for this study is Ma-
holders. laysian Shari’ah-Compliant companies
listed on the main board of Bursa Ma-
In order to prepare an environmental or laysia. As at 28 November 2008, there
sustainability reports, companies likely were 855 Shari’ah-compliant securities
need to have a large amount of environ- as determined by the Shari’ah Advisory
mental or sustainability information, Council (SAC) of the Securities Com-
thus according to Philips et al. (1999), mission (SC). This represented 87% of
internet technology has made the task the total listed securities or 64.3% of the
easier to store and retrieve large quantity market capitalisation on Bursa Malaysia
of environmental or sustainability data (Bursa Malaysia, 2009). The list of the
required. As mentioned by Williams & companies was obtained from Bursa
Pei (1999), the World Wide Web has the Malaysia website, accessed on 5 April
ability to deliver information to a wider 2009. Of the 855 shari’ah compliant se-
spectrum of stakeholders across a curities, this study focuses on the 523
Table 1: Sample Selection
Industrial Sector Number of
Companies in Sample
Consumer Products 16
Industrial Products 19
Construction 16
Trading/Services 26
Properties 20
Plantations 20
Technology 17
Total 134


shari’ah compliant companies which are first accountability arises through the
listed on the main board of Bursa Ma- concept of Khilafa whereby a man is a
laysia. However, this paper reports the trustee of Allah’s resources. This pri-
preliminary results of the study which mary accountability is transcendent, as it
covers only a part of the total main cannot be perceived through the senses.
board shari’ah-compliant listed compa- However, it is made visible through the
nies. Table 1 illustrates the sample selec- revelation of the Qur’an and Hadith,
tion for the preliminary results of the which are the sources of Islamic teach-
study. ings. The second accountability is estab-
The SAC has applied a standard crite- lished by a contract between an owner or
rion in focusing on the activities of the investor and a manager. To discharge
companies listed on Bursa Malaysia. As the secondary accountability, the com-
such, subject to certain conditions, company should identify, measure and report
panies whose activities are not contrary the socio-economic activities pertaining
to the Shari’ah principles will be classi- to Islamic, social, economic, environ-
fied as Shari’ah-compliant securities. On mental, and other issues to the owner.
the other hand, companies will be classi-
fied as Shari’ah non-compliant securities
if they are involved in the following core Data Collection
activities:
(a) Financial services based on riba Data were collected using the informa-
(interest); tion disclosed in the companies’ web
(b) Gambling and gaming; site. This study used the disclosure via
(c) Manufacture or sale of non-halal web sites because these media are a
products or related products; popular alternative mechanism for dis-
(d) Conventional insurance; seminating accounting information
(e) Entertainment activities that is non- (Williams & Pei, 1999). According to
permissible according to Shari’ah; Williams & Pei (1999) the disclosures
(f) Manufacture or sale of tobacco- via World Wide Web has several advan-
based products or related products; tages. First, the World Wide Web has
(g) Stockbroking or share trading in international implications which are its
Shari’ah non-compliant securities; potential to promote harmonization in
and disclosure practices. Second, the World
(h) Other activities deemed non- Wide Web has the ability to deliver in-
permissible according to Shari’ah formation to a wider spectrum of stake-
holders across a broader locality within
This study focuses on shari’ah- the same time frame with greater regu-
compliant companies because it is ex- larity and lower cost. Further, this study
pected that these companies are more chooses disclosure via World Wide Web
accountable in disseminating informa- since the influence of this medium on
tion to the stakeholders. Islamic account- disclosure practices are still very much
ability is defined by Shahul Hameed, in its infancy (Williams & Pei, 1999; Al
Wirman, Alrazi, Mohd Nazli, & Arussi, Mohamad Hisyam, & Mustafa,
Pramono (2004) as being premised on 2009).
both Islamic/Muslim organisations and
owners with dual accountability. The The screening of the corporate web sites


of the companies reported in these pre- examine how well the organisation is
liminary results was carried out from disclosing the information that might be
April until June 2009. The web sites of useful to the stakeholders. All the items
the shari’ah-compliant listed companies chosen are supported by the literature
were located through the Bursa Malaysia from various authors and sources. De-
web site which provides links to the tails on the items of the Islamicity dis-
companies’ websites. If the companies’ closure index for each theme (15 items
web sites were not found there, the most on shari’ah compliance indicator, 35
widely used search engines such as items on corporate governance index
Google and Yahoo were used to dis- and 14 items on social and environ-
cover it. mental index) are presented in Appendix
1.
Measurement of the Quantity and Na-
ture of Sustainability Disclosure Based on the items of the Islamicity dis-
closure index, a checklist table is pre-
The quantity of sustainability disclosures pared using Excel. Each item was for-
was measured using content analysis. mulated on a simple yes/no basis, en-
Krippendorff (1980) states that content coded as 1 for the disclosure on the cor-
analysis is a research technique for mak- porate web site only and 2 for the disclo-
ing replicable and valid inferences from sure in the annual report linked on the
data according to their context. This corporate web site. However, if no dis-
technique has been readily applied and closure made neither on web sites nor in
widely used in corporate social disclo- the annual report linked on the web site,
sure-based research (see for example 0 was encoded. Further notes were made
Gray, Kouhy, & Lavers, 1995a; 1995b) if the corporate web site was not updated
or the annual report linked on the corpo-
A checklist instrument categorized sus- rate web site could not be opened or the
tainability disclosures into three major placement of CSR information on the
themes: (1) shari’ah compliance indica- corporate web site (home page vs. pri-
tor; (2) corporate governance index; (3) mary/secondary link on its home page).
social and environmental index. This It is very important to reinforce that this
instrument was adopted from the study study only examined the disclosure ap-
carried out by Shahul Hameed, Wirman, peared on the corporate web site or in
Alrazi, Mohd Nazli, & Pramono (2004) the annual report linked on the corporate
with some modification. This instrument web site. If a company did not meet any
is originally called an Islamicity Disclo- of both mentioned situation, then the
sure Index and is developed particularly company is considered to have no dis-
for Islamic financial institution to help closure of corporate social responsibil-
stakeholders i.e. depositors, sharehold- ity. At the end of the coding process,
ers, religious bodies, government, etc to total numbers of disclosures were
evaluate their performance. Shahul summed up separately for the disclo-
Hameed, Wirman, Alrazi, Mohd Nazli, sures on the web sites and in the annual
& Pramono (2004) explained that the reports linked on the corporate web
Islamicity disclosure index is meant to sites.


Results and discussion information such as the composition of
the board of directors (BOD), recruit-
Figure 1 provides descriptive statistics ment of new directors, remuneration of
for the total sample. Overall, the Malay- directors, the use of board committees,
sian shari’ah-compliant listed companies their mandates and their activities.
do have some disclosures on shari’ah Regarding the disclosure on the corpo-
compliance, corporate governance and rate governance theme, the lowest dis-
social and environmental. Figure 1 closure made by the companies falls on
shows that 56.4 percent of the sample shari’ah board’s representative in BOD
companies were found to have disclo- under the composition on BOD cate-
sure on corporate governance, followed gory. Besides that, none of the compa-
by 43.9 percent on the social and envi- nies made a single disclosure on the
ronmental and 16.3 percent on the shari’ah supervisory board category. The
shari’ah compliance. This is not a sur- possible explanation for this result could
prising result since the corporate govern- be due to the newly-introduced of the
ance is a mandatory disclosure in Malay- stage of the identification of the Malay-
sia (Malaysian Institute of Corporate sian shari’ah compliant companies.
Governance, 2009). The Malaysian In- Shari’ah compliant securities are intro-
stitute of Corporate Governance required duced in 1997, and the list is updated
the Malaysian companies to disclose regularly to keep investors informed the

Figure 1: Overall Sustainability Disclosure

shari’ah status of listed securities based For the shari’ah compliance theme, the
on the latest audited annual report of the items on basic information category
companies (Security Commission An- such as the company’s vision, mission
nual Report 2005). Another possible and objective, and its principal activities
reason to explain the low level of disclo- appeared to be the most favourable items
sure on this item could be because there to be disclosed. Clearly, all these are
was no clear guideline made by either common information that can be found
Bursa Malaysia or the Malaysian Insti- either on the corporate websites or in the
tute of Corporate Governance on the annual report. However, pertaining to
disclosure for this item. the disclosure on the payment of zakat,


(v) Zakat

The Group recognises its obligations towards the payment of zakat on business.
Zakat for the current period is recognised as and when the Group has a current za-
kat obligation as a result of a zakat assessment. The amount of zakat expenses shall
be assessed when a company has been in operation for at least 12 months, i.e. for
the period known as “haul”.

Zakat rates enacted substantively enacted by the balance sheet date are used to de-
termine the zakat expense. The rate of zakat on business, as determined by the Na-
tional Fatwa Council for 2008 is a 2.5% of the zakat base. The zakat base of the
Group is determined based on the profit after tax of eligible companies within the
Group after deducting certain non-operating income and expenses. Zakat on busi-
ness is calculated by multiplying the zakat rate with zakat base. The amount of za-
kat assessed is recognised as an expense in the year in which it is incurred.
Excerpt from the annual report of Pharmaniaga Berhad

only three of the sample companies est level of disclosure for shari’ah com-
made such disclosure. The following is pliance is made by plantations sector
the example of the disclosure on the followed by trading/services, properties,
payment of zakat found in one of the technology, construction, consumer and
companies (see the next page) industrial products. While for the corpo-
rate governance, technology sector dis-
The low level of disclosure on the closed the highest. This is followed by
Shari’ah Compliance theme is inconsis- the plantation, construction, industrial,
tent with the suggestion in the prior lit- properties, trading/services and con-
erature. For example Khan (1994), Sha- sumer products. The technology sector
hul Hameed, Wirman, Alrazi, Mohd also made the highest disclosures on the
Nazli, & Pramono (2004), Mohd Rizal, social and environmental theme. The
Rusnah & Kamaruzaman (2006) sug- plantation sector is the second highest
gested that Islamic business organisa- followed by construction, industrial
tions should disclose additional informa- products, trading/services, consumer and
tion on zakat payable, treatment of the properties.
employees, Islamic and non-Islamic in-
vestments, Islamic and non-Islamic The comparison to the prior studies may
revenue and adherence to the Islamic be difficult to be made due to the differ-
code of ethics. The low level of disclo- ent themes used amongst studies. For
sure particularly on the zakat payment is examples, shari’ah compliance was not
interesting and could trigger a question widely used in the past. Though the
for future research that is whether the study of Shahul Hameed, Wirman, Al-
Islamic business organisations in Malay- razi, Mohd Nazli, & Pramono (2004)
sia pay the zakat but do not disclose the used the shari’ah compliance, the study
information or they do not make the za- only focused on the Islamic financial
kat payment at all. institutions. Consequently, the interpre-
tation of the results in this study should
Referring to the details result presented be carefully made since the sample of
in Table 2 (see the next page), the high- this study only includes the Malaysian


Table 2: Sustainability Disclosure by Industries
Shari’ah Compliance Corporate Social &
Governance Environmental
Industrial Sector
No. of % of No. of % of No. of % of
items disclosure items disclosure items disclosure
Consumer Products 28 11.7 192 34.3 61 27.2
Industrial Products 27 9.5 392 58.9 111 41.7
Construction 30 12.5 354 63.2 97 43.3
Trading/Services 74 19.0 425 46.7 117 32.1
Properties 51 17.0 362 51.7 51 18.2
Plantations 86 28.7 488 69.7 158 56.4
Technology 32 12.5 433 72.8 228 95.8

Figure 2: Comparison of Sustainability Disclosure between Companies’ Web
Sites and Annual Report Linked on Companies’ Web Sites
(Overall Companies)
shari’ah-compliant listed companies nual report linked on companies’ web
added with the use of different themes in sites of overall companies and by indus-
this study. Besides that, this study only tries respectively. Overall, the Malaysian
analyses the companies that have web shari’ah-compliant listed companies dis-
sites and annual reports that linked on closed sustainability information in the
the companies’ web sites. annual report linked on the companies’
web sites compared to disclose directly
Figures 2 and 3 present the results on in the companies website (see Figure 2).
comparison of sustainability disclosure This study also found that 28 companies
between companies’ web sites and an- (21 percent) only disclosed the basic/


minimal information such as the busi- mation system department are more
ness activities and vision and mission on likely to disclose more information
their web sites. These companies also through their web sites. This probably
did not have a link to the companies’ could explain for the lack of information
annual report. Al Arussi, Mohamad Hi- disclosed on the web sites by these com-
syam, & Mustafa (2009) found that the panies. Mostly, the annual reports linked
level of technology is significantly re- on the companies web sites are found
lated to the internet financial and envi- under the investor relation or financial
ronmental disclosure. They expected section. The disclosure of sustainability
that the companies that have the infor- in the companies’ web sites could also

Figure 3: Comparison of Sustainability Disclosure between Companies’ Web
Sites and Annual Report Linked on Companies’ Web Sites
(By Industries)

be found in other sections such as Conclusion
“About us” and “Company Profile”.
There are also companies that have the The main objective of this study is to
separate sections that disclose the infor- investigate how shari’ah compliant listed
mation about corporate governance and companies in Malaysia present their cor-
corporate social responsibility on its porate social responsibility of the three
own. themes (Islamicity disclosure) on their
corporate web sites. It was found that the
From Figure 3, it shows that the technol- format of information provided is di-
ogy industry has the highest sustainabil- verse. Most of the companies disclose
ity disclosure either in the companies’ the items measured in the annual reports
web site or annual report linked to the linked to the companies’ web site and
companies’ web sites. are thus not fully found in the corporate


web site. This study reports the prelimi- The results provide evidence on the level
nary results of 134 companies. Most of accountability of Islamic business
Malaysian Shari’ah-compliant listed organisations to disclose information
companies disclose information related that can help the Muslim community to
to sustainability disclosure fall signifi- make economics and religious decision-
cantly on corporate governance index making. As there is limited empirical
themes, followed by social and environ- evidence on the Shari’ah compliance
mental index themes. However, Malay- disclosure, the findings from this study
sian Shari’ah-compliant listed compa- could be used as a benchmark for future
nies did not clearly disclose the items research. Further, this study also pro-
under Shari’ah compliance index. The vides an indication of the use of elec-
result provides further evidence that tronic media, in particular, World Wide
mandatory rules and regulation to dis- Web, in disclosing information to the
close corporate governance information stakeholders, rather than just traditional
will be one of the motivation factors for print media. The findings contribute to
the companies to disclose such informa- the limited body of knowledge in this
tion. Accordingly, the results of this area.
study provide some preliminary evi-
dence of the growing awareness within The findings have several implications.
the Malaysian Shari’ah-compliant listed First, it appears that without some form
companies of disclosing sustainability of mandatory regulation, voluntary dis-
information, so as to unveil the corpo- closure with regard to sustainability in-
rate image and to be sustained as respon- formation is unlikely to result in either a
sible corporate citizens. high quality of disclosure or sufficiency
of disclosure among Malaysia Shari’ah-
As with any consideration in Islamicity compliant listed companies. Absence of
index to further investigate the shari’ah sustainability disclosure standard is
compliance complied by the listed com- likely to be one of the possible reasons
panies, the results suggested that compa- of lacking in information being dis-
nies in different sectors have their own closed in website or annual report linked
perception in terms of shari’ah disclo- to the website. Second, the disclosure of
sure. This is not surprising given that sustainability information in web site
plantation was the highest ranking in confirms the proposition in the literature
disclosing Shari’ah information because review that suggests the web site will
this type of companies is environmen- easily disseminate information to a
tally-sensitive industries. By assuming global audience. This study shows that
this type of industries does not involve even though the application of web site
in any illegal operation, these results in disseminating information to the in-
provide some implication to the sector terested parties is still at infancy stages,
across industry groups where companies most of the companies relied on the ac-
that declare themselves as Shari’ah- curacy of the website function, where
based companies which categorised as they are likely to include their annual
environmentally-sensitive industries reports that linked to their companies’
may have more concern to disclose sus- website which can be traced and seen by
tainability information according to the outsiders.
Islamic rules.


To add to the findings of the present through the Internet by Malay-
study, future work may be undertaken in sian Companies", Asian Review
several areas. First, the research can be of Accounting, Vol. 17, No. 1,
replicated with a bigger sample size to pp. 59-76.
enable the application of some statistical Aras, G., & Crowther, D. (2008)
tests to determine the relationship be- "Governance and Sustainability:
tween the sustainability information and An Investigation into the Rela-
Malaysian Shari’ah-compliant listed tionship between Corporate
companies’ performance. Additionally, Governance and Corporate Sus-
surveys and interviews may be con- tainability", Management Deci-
ducted with those who prepare annual sions, Vol. 46, No. 3, pp. 433-
reports and in-charge to link the reports 488.
to their companies’ web site in order to Avila, J. A., & Bradley, W. W. (1993)
elicit their views of the web site report- "What is Environmental Strat-
ing. Finally, research to determine the egy", The McKinsey Quarterly,
possible underlying theory rather than Vol. 4, pp. 53-68.
just adapting the theory suggested by the Bursa Malaysia Web Site. Retrieved
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Appendix 1
Islamicity Disclosure Index
Shari’ah Compliance Index
1 Shari’ah Supervisory Board (SSB):

a. The appointment of SSB

b. The report of SSB

c. Identification the actual activity conducted

d. The SSB members’ background (Name, Educational background, experiences)

2 Basic of Information

a. The Vision, mission and objectives
b. Principal activity
3 Financial Statement

a. Identification of Islamic investment
b. Identification of non-Islamic investment

c. Identification of Islamic revenue
d. Identification of non-Islamic revenue

e. Provide the statement of sources and uses of funds in Zakat and charity
f. Provide the statement of sources and uses of funds in the qard funds

g. Identification sources of revenue :
a. excluded revenue attributable to depositors
b. excluded revenue attributable to Murabaha financing
h. The adoption of current value whenever it is possible
i. Value added statement

Corporate Governance Index
1 Composition of board of directors

a. The board of directors comprises at least one-third of independent non-executive director
b. The board of directors has representative from Shari’ah board
2 Appointment and Re-appointment
a. The directors retire by rotation once in three years and subsequently eligible for re-
appointment
b. The reappointment of non-executive directors is not automatic
c. The terms of appointment of the non-executive directors are disclosed
3 Board meetings

a. Board meetings were conducted at least four times a year


Appendix 1
Islamicity Disclosure Index (continued)
b. Number of board meetings held in a year and the details of attendance of each individual
director in respect of meetings held are disclosed
c. Directors attend at least 75% of meeting on average
4 Directors’ fees and remuneration

a. Directors remuneration is disclosed

b. Separate figures for salary and performance-related elements, and the basis on which per-
formance is measured are be explained
c. Shareholder approve directors aggregate pay

5 Nomination committee
a. The company has nomination committee

b. The committee should exclusively consists of non-executive directors which majority are
independent
6 Remuneration Committee

a. There is a Remuneration Committee
b. Remuneration consisting wholly or mainly of non-executive directors

c. Membership of the remuneration committee should appear in the directors’ report

7 Audit Committee
a. There is an audit committee

b. The Audit Committee consists of at least three non-executive directors, whom majority are
independent
c. Audit committee include someone with expertise in accounting

d. Audit committee recommends the external auditor at the annual shareholders meeting
e. At least, once a year the committee met with the external auditors without executive board
members present, to review financial statement
f. Details of the activities of audit committees, the number of audit meetings held in a year and
details of attendance of each individual director in respect of meetings are disclosed
g. Audit committee members attend at least 75% of meetings on average
8 Shari’ah Supervisory Board

Include someone with expertise in accounting
SSB meets with audit committee and/or external auditor to review financial statement
Details of the activities of SSB, the number of board meetings held in a year and details of atten-
dance of each individual member in respect of meetings are disclosed
SSB committee members attend at least 75% of meetings on average
SSB is independent body
9 Others
Directors, senior management are qualified persons in terms of educational background, work-
ing experience etc


Appendix 1
Islamicity Disclosure Index (continued)
Chairman and CEO are different persons
There is a Risk Management Committee
English disclosure exists
There is a statement on Corporate Governance
The maintenance of an effective system of internal controls is disclosed
There is director’s report

Social and Environmental Index
1. Policy and objective

Mission statement/statement of environmental policy
Mission statement/statement of social policy
Environmental target and objective
Social target and objective
2. Community issues
Consumer care
Community involvement
3. Employees issues
Health and safety
Employee training
Reporting on other issues
4. Environmental issues
Environmental protection
View on environmental issues
Environmental Management System
Energy saving
Environmental indicators and target

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