Affiliation:
1. Christ University (Deemed), India
Abstract
This study aims to assess the relationship and impact of Indian power companies' environment, social, governance (ESG) scores on firm performance. Since 2022, CRISIL Ratings Ltd publishes yearly ESG scores for 225 companies in India. The final ‘ESG' score is a composite of individual scores for the three metrics: ‘Environment', ‘Social', and ‘Governance'. This study intends to examine the influence of ESG scores on financial profitability measured by both net profit ratio and return on investment. The existence and degree of association between the variables is measured using correlation and simple linear regression analyses, respectively. The findings suggest that the overall ESG composite score is positively and significantly associated with firm profitability and moderately associated with returns. The ‘Governance' metric stands out which has a strong and positive relationship with profitability in particular. These findings advocate that by investing in ESG initiatives, the chances of better financial performance are improved.
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