Does environmental, social, and governance strategy lead to better firm performance: Analysis of NIFTY 500 companies

Abstract

This research examines the correlation between environmental, social, and governance (ESG) score and a firm’s market performance, financial performance, operational performance, and profitability, as well as the influence of control variables such as firm size, leverage, growth, and liquidity. The study focuses on companies listed in the NIFTY 500 index during the years 2021 and 2022, categorized into services and manufacturing groups. Multiple linear regression was employed to analyze the study’s hypotheses. The findings revealed that the ESG score significantly and positively impacts the financial parameters — return on equity (ROE), return on assets (ROA), and earnings per share (EPS) of the services group. However, for the manufacturing group, the ESG score and individual E, S, and G scores did not significantly impact financial performance in most cases, and in some cases, had a negative impact. There is a need for further exploration into how the ESG score and individual parameter scores influence financial performance, which could aid companies in evaluating and improving their ESG initiatives.