ESG INTEGRATION AND FINANCIAL OUTCOMES IN EMERGING MARKETS: A PANEL DATA ANALYSIS
DOI:
https://doi.org/10.48165/iitmjbs.2024.SI.8Keywords:
ESG factors, financial performance, sustainability, corporate governance, environmental regulationsAbstract
Over the past two decades, the significance of responsible investing has surged, prompting a focus on understanding the interaction between Environmental, Social, and Governance (ESG) factors. This study investigates the relationship between stock returns, investment performance, and ESG considerations as investors increasingly prioritize sustainability in their decision-making processes. By analyzing a sample of NIFTY 50 companies listed on the National Stock Exchange (NSE), this research delves into how ESG factors influence stock returns and financial performance. Employing a comprehensive methodology, this study expands on previous research by incorporating financial performance metrics alongside stock returns. It seeks to shed light on the nuanced dynamics between ESG performance and financial outcomes within the context of NIFTY 50 companies. The FEM regression method was employed to examine how ESG rating affected corporate financial performance and stock returns. Notably, the findings underscore the substantial impact of environmental sustainability on stock returns and financial performance, reinforcing previous research in this area. Furthermore, the study highlights the significance of individual ESG components, including corporate governance standards and environmental regulations, in shaping investment outcomes. By elucidating the intricate relationship between ESG factors and financial performance, this research contributes valuable insights to the body of knowledge surrounding sustainable investing.
References
1. Atan, R., & Razali, A. (2016). Environmental, Social and Governance (ESG) Disclosure and Its Effect on Firm’s Performance: A Comparative Study. International Journal of Economics and Management Journal homepage, 10(S2). Retrieved from http://
www.econ.upm.edu.my/ijem
2. Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22, S119–S127. https://doi.org/10.1016/j.
bir.2022.11.006
3. Barko, T., Cremers, M., & Renneboog, L. (2022). Shareholder Engagement on Environmental, Social, and Governance Performance. Journal of Business Ethics, 180(2), 777–812. https://doi.org/10.1007/
s10551-021-04850-z
4. Bodhanwala, S., & Bodhanwala, R. (2023). Environmental, social and governance performance: influence on market value in the COVID-19 crisis. Management Decision, 61(8), 2442–2466. https://doi.org/10.1108/
MD-08-2022-1084
5. de Vincentiis, P. (2023). Do international investors care about ESG news? Qualitative Research in Financial Markets, 15(4), 572– 588. https://doi.org/10.1108/QRFM-11- 2021-0184
6. Ellili, N. O. D. (2022). Impact of ESG disclosure and financial reporting quality on investment efficiency. Corporate Governance: The International Journal of Business in Society, 22(5), 1094–1111. https://doi.
org/10.1108/CG-06-2021-0209
7. Gavrilakis, N., & Floros, C. (2023). ESG performance, herding behavior, and stock market returns: evidence from Europe. Operational Research, 23(1), 3. https://doi.
org/10.1007/s12351-023-00745-1
8. Kaiser, L., & Welters, J. (2019). Risk mitigating effect of ESG on momentum portfolios. The Journal of Risk Finance, 20(5), 542–555. https://doi.org/10.1108/JRF-05- 2019-0075
9. Kalia, D., & Aggarwal, D. (2023). Examining impact of ESG score on financial performance of healthcare companies. Journal of Global Responsibility, 14(1), 155–176. https://doi.
org/10.1108/JGR-05-2022-0045
10. Kevser, M., Tunçel, M. B., Gürsoy, S., & Zeren, F. (2023). The impact of environmental, social and governance (ESG) scores on stock market: evidence from G7 countries. Journal of Global Responsibility. https://doi.org/10.1108/JGR
04-2023-0070
11. Kulal, A., Abhishek N., Dinesh, S., & M.S., D. (2023). Impact of Environmental, Social, and Governance (ESG) Factors on Stock Prices and Investment Performance. Macro Management & Public Policies, 5(2), 14–26. https://doi.
org/10.30564/mmpp.v5i2.5659
12. Lapinskienė, G., Gedvilaitė, D., Liučvaitienė, A., & Peleckis, K. (2023). How Does Environmental Data from ESG Concept Affect Stock Returns: Case of the European Union and US Capital Markets. Emerging Science Journal, 7(2), 410–427. https://doi.
org/10.28991/ESJ-2023-07-02-08
13. Lee, S.-P., & Isa, M. (2023). Environmental, social and governance (ESG) practices and financial performance of Shariah-compliant companies in Malaysia. Journal of Islamic Accounting and Business Research, 14(2), 295–314. https://doi.org/10.1108/JIABR-06-
2020-0183Maji, S. G., & Lohia, P. (2023). Environmental, social and governance (ESG)
performance and firm performance in India. Society and Business Review, 18(1), 175–194. https://doi.org/10.1108/SBR-06-2022-0162
14. Miralles-Quirós, M. M., Miralles-Quirós, J. L., & Redondo-Hernández, J. (2019). The impact of environmental, social, and governance performance on stock prices: Evidence from the banking industry. Corporate Social Responsibility and Environmental Management, 26(6), 1446–1456. https://doi.
org/10.1002/csr.1759
15. Moalla, M., & Dammak, S. (2023). Corporate ESG performance as good insurance in times of crisis: Lessons from the US stock market during the COVID-19 pandemic. Journal of Global Responsibility, 14(4), 381–402. https://doi.org/10.1108/
JGR-07-2022-0061
16. Naseer, M. M., Guo, Y., & Zhu, X. (2024). ESG trade-off with risk and return in Chinese energy companies. International Journal of Energy Sector Management, 18(5), 1109–
1126. https://doi.org/10.1108/IJESM-07- 2023-0027
17. Said, M. T., & ElBannan, M. A. (2024). Do ESG ratings and COVID-19 severity score predict stock behavior and market perception? Evidence from emerging markets. Review of Accounting and Finance, 23(2), 222–255. https://doi.org/10.1108/RAF-03-2023-0083
18. Samy El-Deeb, M., Ismail, T. H., & El Banna, A. A. (2023). Does audit quality moderate the impact of environmental, social, and governance disclosure on firm value? Further evidence from Egypt. Journal of Humanities and Applied Social Sciences, 5(4), 293–322. https://doi.org/10.1108/JHASS-11-2022- 0155
19. Sood, K., Arijit, K., Pathak, P., & Purohit, H. C. (2023). Did ESG portfolio augment investors’ wealth during Covid19? Evidence from the Indian stock market. Sustainability Accounting, Management and Policy Journal, 14(5), 922–944. https://doi.org/10.1108/
SAMPJ-02-2022-0087
20. Suttipun, M., & Yordudom, T. (2022). Impact of environmental, social, and governance disclosures on market reaction: An evidence of Top50 companies listed from Thailand. Journal of Financial Reporting and Accounting, 20(3/4), 753–767. https://doi.org/10.1108/
JFRA-12-2020-0377
21. Torre, M. La, Mango, F., Cafaro, A., & Leo, S. (2020). Does the ESG index affect stock return? Evidence from the Eurostoxx50. Sustainability (Switzerland), 12(16). https://
doi.org/10.3390/SU12166387
22. Waddock, S. A., & Graves, S. B. (1997). The Corporate Social Performance-Financial Performance Link. Management Journal, 18(4). https://about.jstor.org/terms
