The IUP Journal of Corporate Governance
ESG and Corporate Financial Performance: A Panel Study of Indian Companies

Article Details
Pub. Date : Jan, 2019
Product Name : The IUP Journal of Corporate Governance
Product Type : Article
Product Code : IJCG41901
Author Name : Karishma K Dalal and Nimit Thaker
Availability : YES
Subject/Domain : Management
Download Format : PDF Format
No. of Pages : 16

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Abstract

The importance of sustainable and responsible investment strategies has significantly risen due to the increasing cognizance concerning environmental stability and socioeconomic development of countries. Responsible investment strategies take Environmental, Social and Governance (ESG) aspects into investment consideration to enhance risk management and generate sustainable yields for investors. Therefore, the purpose of this paper is to examine the influence of ESG factors on the performance of Indian public limited companies in terms of profitability and the value of the firm through multiple measures of return on asset and Tobin’s Q ratio. The authors used annual ESG data of 65 Indian firms listed on the NSE 100 ESG Index database, covering the period from 2015 to 2017. Random effect panel data regression analysis was used to test the influence of ESG factors on the economic performance of the firms. The findings of the study indicate that good corporate ESG performance enhances financial performance evaluated through accounting as well as marketbased measures. The findings have practical implications for corporates, investors, regulators, as well as policymakers. The study highlights the need for adoption of sustainability reporting, including disclosure of ESG scores. This would go a long way in improving sustainable business practices and long-term viability of the shareholders’ wealth.


Description

For some decades now, scholars have been researching the link between economic growth and its impact on the ecosystem. The Environmental Kuznets Curve (EKC) hypothesis is one of the central theories in this field. It proposes that initially economic growth causes negative ecological impact and increases as the economy grows, until a turning point, after which the environmental damage stabilizes and begins to fall while economic growth continues (Kuznets, 1955). According to the forecasts of the Asian Development Bank, the Indian economy is expected to be the fastest growing economy in Asia with a 7.3% rise in GDP in the current fiscal and projected to advance to 7.6% in FY20 (Economic Times, 2018). It can be said that India has some decades to go to reach this turning point where the environmental damage due to the economic activities stabilizes. In the past decade, the world was a witness to the lack of governance during global financial crisis, increasing threat from global warming and activism on social issues. These instances have brought about a consensus towards awareness on environmental stability, socioeconomic development, adherence to ethical standards, importance of holistic growth and responsible investment.

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