DOES ESG CONTRIBUTE TOWARDS VIKSIT BHARAT? – UNDERSTANDING ITS EFFECT ON FIRM PERFORMANCE

Abstract

The wave of Environmental, Social, and Governance (ESG) reporting has surged lately, as the scope of corporate stakeholders' concerns has now manoeuvred beyond simple financial gains due to the worldwide focus on triple-bottom-line reporting. While profit maximization remains the main goal for most companies, it should not come at the expense of the environment and society as a whole. Thus, the combination of ESG reporting and conventional financial reports has become essential in the present evolving reporting landscape across the globe. In India, the reporting of Socially Responsible Investments (SRIs) became compulsory for the top 100 listed firms by market capitalisation as mandated by SEBI via the Business Responsibility Report (BRR). This requirement was subsequently expanded to cover the top 500 listed companies in 2017 and later to the top 1000 listed firms in the financial year 2019-20. While numerous studies have explored the connection between ESG activities and their effects on firms' performance in Western nations, there is still a lack of research on this topic particularly in developing countries such as India in the recent times. Consequently, the current research aims to explore the connection between ESG activities considering them collectively as well as taking the individual pillars E, S, and G separately to unfurl their effect on select Indian companies over a five-year period, from 2018 to 2023. However, since, Business Responsibility and Sustainability Reporting (BRSR) style has been introduced in the financial year 2021-22 and was made mandatory from 2022-23 for top 1000 listed companies, evaluation of ESG performance during this study period consists of two types of Reporting style, i.e., BRR & BRSR. The research employs the ESG scores of the companies being analyzed retrieved from LESG (formerly Refinitiv Eikon) database as a stand-in for their ESG performance, while Tobin’s Q, Return on Assets (ROA), and Return on Capital Employed (ROCE) serve as the dependent variables that assess the performance of the chosen firms.