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Focusing on Environmental, Social, and Governance (ESG) issues has emerged as a move towards long-term sustainability by companies aspiring to bring about positive societal change along with profit-making. There is a tendency among firms now a days to adopt ESG-oriented policies to show their commitment to sustainable development. The general finding of the extant literature on this is that ESG improves Firm Performance (FP), although there are a few studies that report mixed and inconclusive results varying with FP-criteria, the country where the research is carried out, and the periods of observation. The present study aims to investigate the relationship between ESG scores and the FP of Indian-listed firms. Adopting a longitudinal research design and accessing secondary data for thirteen years from 2009-10 to 2021-22, we chose 585 firms listed in the Nifty 100 Index. Applying panel data regression, this study has observed a significant negative impact of ESG on FP measured by Return on Assets (ROA) and Return on Equity (ROE), which supports the Trade-off theory; however, when the performance measure was changed to Tobin's Q (the ratio of the firm's market value to its book value), the relationship was positive and significant which supports the Stakeholder theory. The paper concludes with the acknowledgement of limitations, discussions on policy implications, and suggestions for future research.
Key Words: ESG, Firm performance, Inferential statistics, Nifty 100 Index, Stakeholder theory, Trade-off theory
(ProQuest: ... denotes formulae omited.)
1. INTRODUCTION
Focusing on Environmental, Social, and Governance (ESG) issues has emerged as a move towards long-term sustainability by companies aspiring to bring about positive societal change and profit-making. There is a tendency among firms nowadays to adopt ESG-oriented policies to show their commitment to sustainable development. ESG has commenced as a sustainable move, but firms are currently using ESG as a sustainable strategy to attract stakeholders and build reputations. Research has shown that firms with good ESG performance have lower business risk, and a good reputation, which ultimately creates a brand image (Garcia and Orsato, 2020). ESG score is an aggregation of environmental, social, and governance factors, which allows investors to select appropriate sustainable investment opportunities. To assess the ESG activities of firms, different rating providers like Bloomberg and S&P Global design ESG scores considering several quantitative and...