Ashoka M. L., M. S. Divyashree |
Abstract
This study examines the relationship between Environmental, Social, and Governance (ESG) practices and firm financial performance in the Indian corporate context. Using an unbalanced panel dataset of 181 Indian listed companies covering the period 2014–24, the study draws on ESG pillar scores and composite ESG ratings obtained from the LSEG Data & Analytics (formerly Refinitiv) database, along with firm-level financial and risk variables. Return on equity (ROE) is employed as the primary measure of financial performance. The empirical analysis adopts panel econometric techniques, including fixed effects (FE), random effects (RE), and Feasible Generalised Least Squares (FGLS) estimation, to account for unobserved heterogeneity, cross-sectional dependence, and heteroscedasticity. The results indicate that conventional fixed and random effects models fail to capture a statistically significant relationship between ESG practices and firm profitability. However, after addressing econometric violations using FGLS estimation, the findings reveal a dual effect of ESG practices. While individual Environmental, Social, and Governance dimensions exhibit a negative association with short-term financial performance, the composite ESG score demonstrates a positive and statistically significant impact on ROE. This suggests that fragmented ESG initiatives may impose short-term cost pressures, whereas integrated ESG strategies enhance firm profitability by generating long-term value. The study contributes to the growing ESG literature from emerging markets by providing robust evidence from India and highlighting the importance of holistic ESG integration. The findings offer important implications for managers, investors, and policymakers, particularly in the context of India’s evolving sustainability reporting and regulatory frameworks.
Keywords: ESG Practices, Firm Performance, Panel Data Analysis, Refinitiv ESG, Indian Companies, Sustainability Reporting
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