Environmental, Social and Governance (ESG) Score Impact on Firm Performance: A Cross-Sectional View in Indian Companies

This paper explores the impact of Environmental, Social, and Governance (ESG) performance on the financial outcomes of Indian corporations. Drawing on cross-sectional data from 2022, taking 43 industrial and capital goods companies in India, it assesses how both combined and individual ESG indicators, such as Environmental, Social, and Governance, correlate with key financial ratios such as Return on Assets (ROA), Return on Equity (ROE), and Return on Capital Employed (ROCE). Here, the Environmental (ENV) scores, Social (SO) scores, Governance (GOV) scores, and ESG scores are taken as independent variables, and return on assets (ROA), return on equity (ROE), and return on capital employed (ROCE) are taken as the predicted variables. The analysis indicates that ESG efforts do not demonstrate a statistically significant effect on short-term profitability measures. However, broader trends and scholarly insights suggest ESG strategies may contribute to long-term value creation. By employing the correlation, we found a negative correlation between ROA and ENV scores, while ROA has a positive correlation with SO, GOV, and ESG scores. Similarly, ROE has a positive correlation with SO and ESG scores while finding an inverse correlation with ENV and GOV scores. However, ROCE has a positive correlation with ENV, SO, GOV, and ESG scores. This research enriches the literature on ESG in emerging markets and offers insights relevant to corporate leaders, investors, and regulatory bodies in India moving towards sustainable growth.