A PROJECT ON

IMPACT OF ESG ON THE GOAL ATTAINMENT OF TOP 32

BUSINESSES IN INDIA

SUBMITTED BY
CHRISELLE D’SOUZA

SUBMITTED TO XAVIER’S INSTITUTE OF MANAGEMENT AND

RESEARCH

IN PARTIAL FULFILMENT OF MASTERS OF MANAGEMENT

STUDIES OF THE UNIVERSITY OF MUMBAI [YEAR ex: 2022-2024]

UNDER THE GUIDANCE OF

Dr. SAMEER LAKHANI
HEAD OF DEPARTMENT OF FINANCE
XIMR
 DECLARATION

I, Chriselle D’souza, student of Xavier’s Institute of Management and Research

affiliated to Mumbai University, hereby declare that this project report titled “Impact

of ESG on the goal attainment of top 32 businesses in India” carried out under the

guidance of “Dr. Sameer Lakhani” at Xavier’s Institute of Management and

Research is the record of authentic work carried out by me during the period 2022-

2024.

_______________________ ________________________
Chriselle D’souza Dr. Sameer Lakhani
 CERTIFICATE OF APPROVAL

The following project titled

Impact of ESG on the goal attainment of top 32 businesses in India

at

Xavier’s Institute of Management and Research

Is hereby approved as a certified study in the management carried out and presented
in the manner satisfactory to warrant its acceptance as a prerequisite for the award of
Masters of Management Studies (MMS) for which it has been submitted. It is
understood that by the approval, the undersigned do not necessarily endorse or
approve any statement made, opinion or conclusion drawn therein but approve the
project report for the purpose it is submitted.

________________________
Dr. KN Vaidyanathan
Director
XIMR
 ACKNOWLEDGEMENT

It is an honor and pleasure to express my gratitude to everyone who has inspired,

supported and assisted me in the making of this dissertation.
First and foremost, I would like to convey my gratitude to Dr. Sameer Lakhani, Head
of the Department of Finance at XIMR, for giving me the privilege to carry out this
dissertation in this prestigious institution under his leadership. I wholeheartedly
express my gratitude to him for his valuable contribution, constant support,
supervision, guidance and valuable advice for my work that made him the backbone
of this project. It was his unflinching encouragement and support that helped me
through this entire project.
I would also like to express my sincere thanks to the Department of
Marketing/Finance/Human Resources and the Administrative Office for taking the
trouble towards ensuring that I had all the necessary requirements to carry out this
project. My gratitude goes out to all members for their valuable inputs and forever-
willing and prompt technical assistance.
I thank my college for their continuous cooperation and support throughout the
project. I express my deepest gratitude to Dr. Vaidyanathan, Director of Xavier
Institute of Management and Research, and Dr. (Fr.) Conrad Pesso, S.J., Chairman of
Xavier Institute of Management and Research who allowed me to carry out this
project at XIMR.
I would also like to thank everyone else who has helped me. I do express my apology
that I cannot mention each one personally.
Last but not the least; I would like to thank my family, for their undying support
towards the completion of my dissertation.
 TABLE OF CONTENTS
SR. NO. TITLE PAGE NO.
1. EXECUTIVE SUMMARY 1
2. INTRODUCTION
2.1. Introduction
2.2. Statement of the Problem 5
2.3. Purpose and Scope of the Study

3. LITERATURE REVIEW
3.1 Impact of ESG 8
3.2. ESG and Firm Performance - Korea & India
3.3. ESG factors on financial efficiency
4. RESEARCH METHODOLOGY
4.1. Research Design
4.2. Variables
4.3. Hypothesis 14
4.4. Research Method
4.4.1. Instruments
4.4.2. Data collection
5. RESULTS AND DISCUSSIONS
5.1. Analysis of Data 20
5.2. Discussions and Interpretations
6. LIMITATIONS, RECOMMENDATIONS AND 41
DIRECTION FOR FUTURE STUDY
6.1. Limitations
6.2. Recommendations and Future Scope of Research
7. CONCLUSION 44
8. REFERENCES 46
9. ANNEXURE A
Part 1 - Charts, Diagrams, Figures 49
 CHAPTER 1

EXECUTIVE SUMMARY

The topic of ESG and its relationship with financial performance has been studied by

researchers for the last decades. The growing investor interest in ESG practices

reflected the view that environmental, social and corporate governance issues –

including risks and opportunities can affect the long-term financial performance of

companies and should therefore be given appropriate consideration in important

decisions of firms. While definitions differ regarding the form of weightage of ESG

risks, broadly speaking ESG investing is an approach that is needed to incorporate

environmental, social and governance practices into asset allocation and risk

decisions, so as to attain stainable, long-term financial returns. Thus, the extent to

which the ESG approach incorporates forward-looking financially-material

information into expectations of returns and risks to companies, and the extent to

which it can affect a company’s financial performance, is the focus of this study. This

project explores the relationship between environmental, social, and governance

(ESG) practices and the financial performance of Indian companies. For this

objective, we use a longitudinal data including 32 listed Indian companies that do

ESG ratings regularly. This research follows a quantitative research design using

secondary data taken from the CRISIL ESG Scores & Refinitiv database. The study

investigates the relationship between variables over the year 2021 to 2022 in the form

of a panel data study. Panel data has the advantage to take into consideration both

cross-sectional variations and variations over time in a time series dimension. Not

only is it more informative than the one-dimensional method, but results can also

1
more easily be generalized as it minimized the possible effects of temporal errors that

could affect the data. The collected data was edited, classified and analyzed using

panel data regression technique, with the three pillars E, S, and G and their variables

used as independent variables. We evaluate financial success using two distinct

approaches: accounting-based and market-based for which two dependent variables

Return on Assets (ROA), Return on Equity (ROE), Market capitalization and Total

Assets were used. While evaluating the relationship between firm performance and

sustainable performance, we incorporate elements from the literature reviewed. We

have thus added additional variables that were found to affect our dependent variables

(ROA, ROE, Market capitalization and Total Assets) when predicting performance of

the firm.

My findings reveal that when Regression is performed and subsector are all dependent

variables for the ESG score has a negative impact on financial performance on the

Indian Companies as evaluated by ROA, ROE, Market capitalization and Total

Assets. The result of study showed a statistically significant negative impact of

aggregated ESG score of selected companies on both ROA, ROE, Market

capitalization and Total Assets. Individually E, S and G factors had a negative

association with financial performance. When fixed effects were used, the result

found a negligible negative effect of ESG on ROA, ROE, Market capitalization and

Total Assets.

Other studies confront a similar robustness issue when quantifying the association

between ESG and financial performance. This is compatible with earlier studies in

this field, which also confirms the relatively least impact of ESG practices. The sign

of the ESG coefficient is negative in all statistically meaningful OLS calculations.

2
The sign is negative regardless of whether the financial performance is ROA, ROE,

Market capitalization or Total Assets.

In all forms of ESG, see table 5 for aggregated scores and tables 6, 8, 10 and 12 for

disaggregated scores. Thus, my findings are initially negative for enterprises in the

Indian market pursuing ESG strategy development. My findings, however, should not

be taken as indicating that ESG efforts have no positive effect on business financial

performance. The result gave support to the fact that ESG practices have a

relationship with the financial performance of the companies.

I, however, can’t conclusively determine if the underlying connection between ESG

practices and financial performance of companies is linear or non-linear, that is,

whether financial results decline at the same rate for each new unit of ESG score or

whether they decline at a rising or decreasing speed. As a result, we do exclude our

hypotheses.

This can be because to many reasons. One reason could be because to ESG practices

is not a good proxy for ESG scores, as it does not measure performance of business,

just reporting. Accordingly, the results contribute to the literature by emphasizing the

xii implications of different ESG measurements. Aggregated and disaggregated

measurements of ESG need to be assessed carefully as they are influencing the

relationship between CSPCFP and the control variables. Different measurement

approaches contain financially material information and cannot replace but

complement each other. Although proper attention has been given to the study, it is

still subject to some limitations like the sample for the study consists of the 32 Indian

companies for only a 1-year time span.

3
Thus, the findings cannot be generalized to the non-listed firms in India. Also, since,

the ESG measurement is based on the ESG rating on CRISIL ESG Scores & Refinitiv

of the companies, the information disclosed by the companies may be biased.

The current research aim is to contribute a comprehensive perspective on ESG

practices and financial performance in the context of Indian companies, also look into

how ESG is shows a value addition and contribute crucial and valuable information

which can be advantageous to investors, government, and business managers in

different aspects.

Further, efforts are required to strengthen ESG practices so that they are consistent

and comparable with those at the global level involving policy-makers, investors, the

financial industry and other stakeholders that are helping to shape ESG practices.

Business managers, board members and shareholders should take care of their current

business strategies and make secure the implementation of these activities into the

core business plan, and companies should also use ESG disclosure as a strategic tool

for their business rather than perceiving it as a cost to the business.

Lastly, my study may help increase focus on sustainability to build trust and

transparency among stockholders to improve their image and reputation.

4
 CHAPTER 2

INTRODUCTION

2.1. INTRODUCTION

In only a decade, environmental, social, and governance, or ESG, issues have moved

from the margins to the center of global investment choices. At the heart of ESG-

based investment is an increasing realization that businesses do not operate in a

vacuum. They deplete the environment, employ people, and have an impact on lives

other than those they directly serve. The mere functioning of a corporation, as

evaluated by financial indicators, has an influence on both the business's sustainability

and the society in which it operates. As a result, a company's sustainable, responsible,

and ethical activities will undoubtedly be evaluated alongside its financial

performance. Investors are paying attention, and ESG has become a must for

everyone to follow. For their part, an increasing number of businesses have begun

include ESG-related information in their yearly reports and are attempting to assess

their exposure to ESG risks. ESG has simply grown too large to ignore.

The Covid-19 pandemic has amplified calls for embracing sustainability and made a

compelling case for corporates, lenders, investors and policymakers the world over to

consider environmental, social and governance (ESG) factors in their decisions has

rapidly taken root in India as well, and can only grow from here, refer Diagram 1.

ESG adoption in India has advanced in recent years, thanks to backing from the

government, investors, shareholders, and corporations. Government priorities. The

most pressing environmental issues include climate change, pollution, and

biodiversity protection. The government has attempted to address these issues in a

5
variety of ways, including encouraging increased use of electric cars and renewable

energy sources through incentives and subsidies, as well as implementing legislation

for improved waste management.

Some social programmes include cheap housing, rural development (electricity,

internet, and telecom access), free education for children, and women's

empowerment. On the governance front, tightening norms and the formation of

committees such as the Kotak Committee on Corporate Governance, as well as the

disclosure of business responsibility and sustainability reports (BRSRs), have helped

the country adopt a more transparent and credible approach to disclosures and

management behaviour. India is the only G20 country whose efforts are on pace to

achieve the Paris Agreement's aim of keeping global warming to 20 degrees Celsius.

India has lowered its emission intensity relative to GDP by 24% since 2005, against a

target of 33-35%. Over the past six years, the country has seen the fastest pace of

Renewable energy capacity in big economies rose 2.5 times (solar energy surged

more than 13 times).

2.2. STATEMENT OF THE PROBLEM

1) To assess the relationship between ESG factors and ROA, ROE, Market

capitalization & Total Assets

2) To evaluate the effectiveness of ESG ratings in predicting ROA, ROE, Market

capitalization & Total Assets

3) To identify the specific ESG factors that have the most significant impact on ROA,

ROE, Market capitalization & Total Assets

6
2.3. PURPOSE AND SCOPE OF THE STUDY

The New horizons in ESG is that it is raining down sustainable investments. Globally,

ESG funds received $51.1 billion in net new money from investors in 2020, with total

ESG assets reaching $37.8 trillion at the end of March 2021. Between 2018 and 2020,

more than $100 billion was invested in specialist ESG funds throughout the world4.

ESG investments are predicted to exceed $100 trillion by 2030, according to a

Deutsche Bank prediction issued in September 2019.Asia (excluding Japan) saw

relatively small net inflows of $7.9 billion in sustainable funds in 2020, up from $810

million in 2019. Refer chart 1.

Another measure is the number of PRI signatories. Between 2006 and 2020, it

increased by around 27%, reaching 4,000 and represented over $110 trillion in assets

under management (AUM). Emerging markets accounted for half of global growth in

2020. This implies that there is a growing understanding of the need of taking ESG

concerns into account when making financial decisions, particularly in emerging

economies.

Green bonds surpassed $1 trillion. - Green bonds are fixed-income instruments issued

specifically to fund climate and environmental projects, with a focus on energy

efficiency, pollution prevention, sustainable agriculture, fishery and forestry, aquatic

and terrestrial ecosystem protection, clean transportation, clean water, and sustainable

water management. While they had a slow start when they were launched in 2007,

demand for these bonds increased dramatically after 2016 and topped $1 trillion by

the end of 2020.

7
 CHAPTER 3

LITERATURE REVIEW

3.1. Impact of ESG

A Study on the Impact of ESG Greenwashing on Listed Companies -- A Case Study

of Volkswagen Group, presented that governments and the public are paying more

and more attention to environmental issues and the concept of sustainable

development, and ESG (environment, society and governance) issues are gradually

coming into public view. At the same time, investors will also evaluate the

implementation of ESG value concepts of enterprises before making choices, which

can reduce environmental risks on the one hand. On the other hand, it can also show

that it is making responsible investment. However, the prevalence of ESG values has

also allowed some enterprises to find opportunities, and the greenwashing

problem has been derived accordingly. The majority of market participants, scholars

and government regulators attach great importance to enterprise greenwashing, but

most of them only pay attention to the macroeconomic issues of greenwashing

behavior, and there are not many combined analyses of the specific causes

of enterprise greenwashing and its economic consequences. The case study object of

this paper is Volkswagen Group. Through the case study method, the motivation of

Volkswagen Group's greenwashing behavior is analyzed, and the impact of its

greenwashing behavior on the market in the short term after exposure is analyzed.

8
According to the Impact of ESG Ratings on Risk & Return of Firms –

In order to examine the impact of ESG on risk & return, we investigate this

relationship in the stock and options market. Previous empirical research has

presented inconclusive evidence regarding the positive or negative e ffects of ESG on

these metrics. We contribute to this research with insulated pillar e ffects, an extensive

sample, and an additional view from the option markets. We analyze returns, factor

risk premiums, realized- & implied volatility, and perceived tail risk in an extensive

panel of US firms based on Refinitiv’s ESG scores using the Fama-French and Fama-

MacBeth procedure, as well as panel regressions. The results concerning returns

suggest that (i) high ESG rated firms do not out- or underperform their lower-rated

counterparts, and (ii) the governance factor exhibits a negative risk premium. In the

context of risk, our findings imply that (i) on portfolio-level high ESG rated portfolios

are exposed to significantly less realized volatility relative to low-rated ones.

Including information from the option markets, (ii) the same e ffect holds for implied

volatility, and (iii) the perceived tail risk is negatively affected by the governance

rating. We conclude that ESG ratings can be useful in portfolio risk management and

the governance ratings, in particular, even for firms. The risk-steering aspect is

of greater importance for large firms and firms exposed to higher risk.

3.2. ESG and Firm Performance - Korea & India

According to the paper ESG and Firm Performance: Focusing on the Environmental

Strategy - This study, we investigate whether firms’ eco-friendly strategies affect their

value. For the analysis, we study 210 firms in the Republic of Korea. These firms

were listed on the Korea Composite Stock Price Index and the Korea Securities

Dealers Automated Quotations during 2017–2021. We measure the dependent

9
variable by return on assets, return on equity, and Tobin’s Q as firm value and use the

ordinary least square estimation. The results show that firms’ eco-friendly strategies

have a positive effect on firm value. Additionally, we examine the effect of eco-

friendly strategies on performance by industry and by duration. In the nonservice

industry, there is a positive effect of environmental strategy on firm value for a 5-year

window, but not for a 3-year window. In the service industry, in contrast, eco-friendly

strategies have no effect on firm value for the 5-year window but have positive effects

for the 3-year window. In the robustness check, for the endogeneity issue, we perform

a two-stage least squares analysis. This study demonstrates that environmental actions

are reflected in firm value and that the performance varies by industry. Thus, these

results provide critical insights for managers and policy makers who consider the

environmental issues of firms.

The impact of ESG factors on financial efficiency: An empirical analysis for the

selection of sustainable firm portfolios Environmental, Social, and Governance (ESG)

factors are increasingly at the center of corporate and investment decisions. In this

context, the aim of the paper was to test whether ESG factors impact on financial

efficiency of a sample of firms belonging to different European sectors. This study

enriches the literature of the field through a multi ‐sectoral analysis. The Data

Envelopment Analysis was widely considered in empirical and financial studies.

Research findings showed that ESGs impact on firm efficiency differently over

sectors: some of them are more sensitive than others to ESG factors. Furthermore, for

most sensitive sectors the risk‐return characteristics related to ESGs were represented

in order to provide insights for investors aiming to construct efficient and sustainable

firm portfolios to invest in.

10
According to The Effects of Environment, Society and Governance Scores on

Investment Returns and Stock Market Volatility- research paper published in

International Journal of Energy Economics and Policy, 2020

Sustainability reporting and disclosure in India have received a significant attention

over the most recent few years propelled to a large extent by investors and policy

makers. The sustainable business leadership forum (SBLF) has been closely working

with many rms, owners of the companies and policy makers to single out the

relationship between investment and environmental, social and governance (ESG)

disclosure. Besides that, SBLF has had a coordinated conversation about the

anticipations, concerns, difficulties and realities surrounding ESG estimation. This

ESG criteria refers to three important elements which are considered by investors with

regards to an ethical impact of rms and sustainable practices. As per the literature

companies with higher ESG scores are better investment picks. This paper attempts to

assess the volatility and returns of Indian companies and to measure the impact of

ESG scores on returns and volatility with the help of panel regression

In India, ESG has not yet grasped the importance as it has gained worldwide. In order

to popularize the concept of ESG, the Ministry of Corporate Affairs published the

“National Voluntary Guidelines on Social, Environmental and Economic

Responsibilities of Business” in 2011. From 2012, the top 100listed companies

according to market capitalization are depicting business responsibility reports in their

final reports. This paper is an attempt to single out the relationship between the scores

of ESG elements, returns on stock and volatility of stock. Moreover, this study is also

an attempt to know the scores of each element of ESG given in the sustainability

reports could become significant explanatory variables in predicting the volatility and

11
returns of the stocks of companies in NIFTY 100 Enhanced ESG. For asset managers

the application of ESG measures to reflect corporate social performance has received

a growing attention and is currently demanded by most financial investors (Lee et al.,

2013)

3.3. ESG factors on financial efficiency

According to the research paper, the impact of ESG factors on financial efficiency:

An empirical analysis for the selection of sustainable firm portfolios: - Environmental,

Social, and Governance (ESG) factors are increasingly at the center of corporate and

investment decisions. In this context, the aim of the paper was to test whether ESG

factors impact on financial efficiency of a sample of firms belonging to different

European sectors. This study enriches the literature of the field through a multi‐

sectoral analysis. The Data Envelopment Analysis was widely considered in empirical

and financial studies. Research findings showed that ESGs impact on firm efficiency

differently over sectors: some of them are more sensitive than others to ESG factors.

Furthermore, for most sensitive sectors the risk‐return characteristics related to ESGs

were represented in order to provide insights for investors aiming to construct

efficient and sustainable firm portfolios to invest in.

Certain research studies indicated that “both high ESG scores and low volatility

positively affect returns on stock, but the ESG effect is independent of the low-

volatility effect, and ESG is a positive contributor in its own right” (Raza, 2018).

There are high expectations on the stability of ESG scores during the period in which

they are reported. “The market placed a more stabilized pricing penalty on firms with

lower ESG scores than it awarded firms with higher ESG scores” (Kersten’s son and

12
Nygren, 2019). Other researchers suggested that “companies that in corporate ESG

factors reflects lower volatility in their stock performances than their competitors in

the same industry, that each industry is stimulated differently by factors of ESG, and

that ESG companies bring higher returns” (Friede et al., 2015).On the other hand,

certain researchers suggested that “the presence of institutional investors decreases

market information asymmetry because there is a propensity for institutional owners

to unfairly used the private information related to ESG gained through their position”

(Siew et al., 2016). Moreover, other empirical studies stated that “public sentiment

affects investor opinion about then leu of corporate sustainability activities and

thereby both the price paid for sustainability of corporate and the returns on

investments of portfolios that consider ESG data” (Nag yet al., 2013). Emerging stock

markets like India are featured by some attributes, such as systemic vulnerability,

lofty volatility, embryonic trading mechanisms, problems related to financial

regulation, non-liquidity, inadequate transparency, challenging task to access all

information that are available, meagre volume trading, opportunities of

diversification, different risk categories and unpredictable situations. However, some

researchers argued that, “modern investors can earn more returns by taking advantage

of over and under reaction without bearing extra risk” (Verheijen al., 2016). The

objectives of this paper - is to examine whether he scores given to the various

elements of ESG mentioned in the sustainability reports of Indian Companies could

become significant variables that affects the volatility and returns of stocks, to

determine whether a reliable model could be developed to predict the volatility and

returns with the help of ESG Scores and to validate whether the companies with better

ESG Scores should become the investment picks for investors.

13
 CHAPTER 4

RESEARCH METHODOLOGY

4.1. RESEARCH DESIGN

The data for this study will be collected from sources, including: ESG data providers,

such as CRISIL ESG Scores & Market screener to obtain ESG ratings and scores for

the companies in the sample.

Financial databases, such as CMIE and Capitaline, obtain financial data and stock

prices for the companies of India in the sample.

Industry reports, such as the GRI Sustainability Reporting Standards and the SASB

Standards, obtain industry-specific ESG metrics.

The sample will consist of publicly-traded companies in India across various

industries. The data collected for the last one year (2021-22). The sample selection

criteria will include the following:

● Companies that have publicly available ESG ratings and scores from at least two

ESG data providers.

● Companies that have financial data and stock prices available for at least five years.

● Companies that are not in the, utility, or real estate sectors, as these sectors have

specific regulatory and accounting frameworks that may affect their ESG performance

and financial performance.

14
4.2. VARIABLES

1) ESG: This stands for Environmental, Social, and Governance factors, which

are used to evaluate the sustainability and ethical impact of a company's

operations and practices.

2) E: This likely refers to the environmental aspect of ESG, which involves

factors such as a company's carbon footprint, energy efficiency, waste

management practices, and environmental policies.

3) S: This likely refers to the social aspect of ESG, which involves factors such

as labour practices, employee relations, diversity and inclusion policies,

community engagement, and human rights issues.

4) G: This likely refers to the governance aspect of ESG, which involves factors

such as corporate governance structure, board diversity, executive

compensation practices, and transparency in financial reporting.

Refer Diagram 2, 3, 4, 5 – for ESG Parameters

5) Return on Asset (ROA): This is a financial metric that measures a company's

profitability relative to its total assets. It is calculated by dividing net income

by average total assets.

6) Return on Equity (ROE): This is a financial metric that measures a company's

profitability relative to its shareholders' equity. It is calculated by dividing net

income by average shareholders' equity.

7) Market Value: This refers to the total market capitalization of a company,

which is calculated by multiplying the current stock price by the total number

of outstanding shares.

8) Total Assets: This is a financial metric that represents the total resources

controlled by a company, including both tangible and intangible assets.

15
 9) These variables can be used to analyze the financial performance and

sustainability practices of a company, as well as its market valuation.

4.3. HYPOTHESIS

H0. There is no relation between ESG Score and financial performance of

Indian Companies.

H1. There is no relation between E Score and financial performance of

Indian Companies.

H2. There is no relation between S Score and financial performance of

Indian Companies.

H3. There is no relation between G Score and financial performance of

Indian Companies

4.4. RESEARCH METHOD

4.4.1. INSTRUMENTS

1) ANOVA (Analysis of Variance) Table:

ANOVA is a statistical technique used to analyze the variation between groups and

within groups in a dataset. It is often used to compare the means of three or more

groups to determine if there are statistically significant differences between them. The

ANOVA table summarizes the results of the ANOVA analysis, including the sources

of variation, degrees of freedom, sum of squares, mean squares, F-statistic, and p-

value.

16
2) Regression Analysis:

Regression analysis is a statistical method used to examine the relationship between

one dependent variable (often denoted as Y) and one or more independent variables

(often denoted as X). It helps in understanding how the value of the dependent

variable changes when one or more independent variables are varied. Linear

regression is one of the most common types of regression analysis, where the

relationship between variables is modeled using a linear equation. Regression analysis

provides coefficients for each independent variable, indicating the strength and

direction of their relationship with the dependent variable.

3) Correlation Analysis:

Correlation analysis is a statistical method used to measure the strength and direction

of the relationship between two continuous variables. The correlation coefficient

(usually denoted as r) quantifies the degree of association between the variables. It

ranges from -1 to +1, where:

 +1 indicates a perfect positive correlation,

 -1 indicates a perfect negative correlation, and

 0 indicates no correlation.

Correlation analysis helps in understanding the direction and strength of the

relationship between variables but does not imply causation. These instruments are

commonly used in financial analysis, social science research, environmental studies,

and various other fields to analyze data and derive meaningful insights from it. They

can be applied to the variables you've listed to explore relationships, test hypotheses,

and make informed decisions.

17
 4.4.2. DATA COLLECTION

1) CRISIL ESG Scores:

CRISIL is a leading global analytical company providing ratings, research, and risk

and policy advisory services. CRISIL ESG Scores provide assessments of companies'

environmental, social, and governance performance. These scores help investors and

stakeholders evaluate the sustainability and ethical practices of companies, guiding

investment decisions and risk management strategies.

2) Market Screener:

Market screeners are tools or platforms that allow users to filter and analyze financial

data of publicly traded companies. They provide access to a wide range of financial

metrics, ratios, and other indicators, which can be used for investment research and

analysis. Users can screen companies based on specific criteria such as market

capitalization, industry sector, financial performance, ESG metrics, and more.

3) Capital Line:

Capital Line is a financial research and analysis platform that offers comprehensive

data, insights, and analysis on publicly traded companies. It provides access to

company profiles, financial statements, historical data, analyst reports, and other

relevant information. Capital Line helps investors, analysts, and researchers make

informed decisions by providing timely and accurate financial data and analysis.

4) CMIE (Centre for Monitoring Indian Economy):

CMIE is an independent economic research organization based in India, known for its

comprehensive database and analysis of economic and financial data. It provides data

on various aspects of the Indian economy, including macroeconomic indicators,

industry trends, corporate performance, and more. CMIE's databases and reports are

18
widely used by policymakers, researchers, investors, and businesses for decision-

making and analysis. These data sources and platforms play a crucial role in data

collection, analysis, and decision-making processes related to investments, risk

management, corporate governance, and sustainable development. Researchers,

analysts, investors, and other stakeholders rely on these sources to access reliable and

relevant information for their respective purposes.

19
 CHAPTER 5
RESULTS AND DISCUSSIONS

5.1. ANALYSIS OF DATA

Building ANOVA Table -
The table 1 for analysis is given below, includes values for ROA, ROE, Market value,

Total Asset & their respective ESG scores for the 32 companies.

Mkt
Return on
Sectors Company Return on equity cap.(in Total Asset ESG E S G
assets
Crs)
Automobile 1 0.0610 0.1760 48904.53 22,591.63 81 89 90 56
2 0.0970 0.1328 387853.30 83,179 50 38 46 63
3 0.0391 0.1074 325529.11 61,771 56 46 50 68
4 0.0479 0.1751 233715.03 75,779.81 61 59 48 70
FMCG 5 0.1386 0.1983 532276.4 71825.00 64 53 61 76
6 0.2279 0.2985 510679.35 82261.74 61 57 55 68
7 0.2970 1.0852 240856.1 13518.2 56 38 47 77
8 0.1575 0.3413 181745.74 8514.21 50 36 42 66
NBFC 9 0.0129 0.1466 418280.57 491146.75 54 51 47 62
10 0.0475 0.1998 184200.59 216524.75 54 52 45 62
11 0.0293 0.1732 92943.99 203663.86 60 48 55 72
12 0.0235 0.1935 91468.42 113515.51 60 56 62 63
Airlines 13 0.517 -0.6601 136831.38 768.45 43 56 65 55
14 -0.1462 0 4080.9 10279.77 27 27 55 38

15 -0.0058 -1.9197 586.05 56042.68 43 56 65 55

16 -0.1779 0 176.4 5632.02 29 37 65 40

IT 17 0.3263 0.4819 1388441.09 119827 78 72 78 76

18 0.2296 0.3433 616007.49 101337 77 69 81 76

19 0.2147 0.2754 419871.83 53360 69 65 77 71

20 0.1075 0.1582 246726.19 85307.6 77 67 77 75

Heavy Engineering 21 0.0074 -0.0219 84579.32 846.15 46 61 66 58
22 0.0535 0.0748 49897.3 6151.31 35 45 65 50

23 0.1439 0.2075 17260.72 1148.92 29 37 63 45

24 0.1593 0.2 36626.49 6315.46 47 45 68 55
DFI-Listed 25 0.026 0.1782 127136.42 444833.06 43 56 63 54
26 0.0237 0.2056 117310.13 464877.13 53 63 72 63
27 0.0492 0.2199 65864.08 45545.56 39 56 72 56
28 -0.0322 -0.8565 10192.89 7676.52 48 50 42 46
Hotels 29 0.083 0.178 27465.99 4930.42 39 45 56 48
30 0.109 0.0418 17935.83 3544.36 46 41 65 52
31 0.0532 0.0075 12165.36 3853.28 26 28 63 41
32 0.0483 0.1004 10513.11 1661.98 46 45 65 53

20
With the ANOVA 2-way table 2, gives us the result for this test,
ANOVA
Source of Variation SS df MS F P-value F crit
Sample 1.985E+11 7 28357211660 4.727459064 5.85696E-05 2.052155592
Columns 1.31981E+12 8 1.64976E+11 27.50337058 3.31304E-29 1.981448872
Interaction 1.48225E+12 56 26468776913 4.412636222 1.72635E-15 1.391351112
Within 1.29566E+12 216 5998404487

Total 4.29622E+12 287

For testing the 1st Hypothesis,

H0: No difference between the mean scores of the sectors

We know that in sample’s column, F value is bigger to F critical, hence, the

hypothesis H0 is rejected.

For testing the 2nd Hypothesis,

H1: No Difference between the mean of the criteria’s - Roe, Roa, Market value &

Total asset

We know that in column’s column, F value is bigger to F critical, hence, the

hypothesis H1 is rejected.

For testing the 3rd Hypothesis,

H2: No interaction between criteria’s & sectors

We know that in interaction’s column, F value is bigger to F critical, hence, the

hypothesis H2 is rejected.

21
The next table 3, given below, includes Sectors, E, S, G & their combined ESG

Scores.

Sectors Company ESG E S G

Automobile 1 81 89 90 56
2 50 38 46 63
3 56 46 50 68
4 61 59 48 70
FMCG 5 64 53 61 76
6 61 57 55 68
7 56 38 47 77
8 50 36 42 66
NBFC 9 54 51 47 62
10 54 52 45 62
11 60 48 55 72
12 60 56 62 63
Airlines 13 43 56 65 55
14 27 27 55 38
15 43 56 65 55
16 29 37 65 40
IT 17 78 72 78 76
18 77 69 81 76
19 69 65 77 71
20 77 67 77 75
Heavy Engineering 21 46 61 66 58
22 35 45 65 50
23 29 37 63 45
24 47 45 68 55
DFI-Listed 25 43 56 63 54
26 53 63 72 63
27 39 56 72 56
28 48 50 42 46
Hotels 29 39 45 56 48
30 46 41 65 52
31 26 28 63 41
32 46 45 65 53

22
With the ANOVA 2-way table 4, gives us the result for this test,
ANOVA
Source of Variation SS df MS F P-value F crit
Sample 6090.6 7 870.0857 12.89732 2.77684E-12 2.08677
Columns 42783.44 4 10695.86 158.5453 6.51255E-47 2.447237
Interaction 9405.963 28 335.9272 4.979466 2.66931E-10 1.57025
Within 8095.5 120 67.4625

Total 66375.5 159

For testing the 1st Hypothesis,

H0: No difference between the mean scores of the sectors

We know that in sample’s column, F value is bigger to F critical, hence, the

hypothesis H0 is rejected.

For testing the 2nd Hypothesis,

H1: No Difference between the mean of the criteria’s – ESG & E, S, G.

We know that in column’s column, F value is bigger to F critical, hence, the

hypothesis H1 is rejected.

For testing the 3rd Hypothesis,

H2: No interaction between criteria’s & sectors

We know that in interaction’s column, F value is bigger to F critical, hence, the

hypothesis H2 is rejected.

23
Correlation Matrix –

Table 5 - Pearson correlation matrix.

Correlation
Return on assets Return on equity Mkt cap.(in Crs) Total Asset ESG E S G
Return on assets 1 0.216101405 0.49379555 -0.15016319 0.38143023 0.26151815 0.178984564 0.489510091
Return on equity 0.216101405 1 0.330560595 0.119633965 0.283219111 -0.017430103 0.018775938 0.396354616
Mkt cap.(in Crs) 0.49379555 0.330560595 1 0.190865159 0.624964721 0.397563428 0.154035733 0.664049386
Total Asset -0.15016319 0.119633965 0.190865159 1 0.188240386 0.245494936 -0.066316079 0.241315344
ESG 0.38143023 0.283219111 0.624964721 0.188240386 1 0.780629915 0.334599519 0.831460761
E 0.26151815 -0.017430103 0.397563428 0.245494936 0.780629915 1 0.625857217 0.488749626
S 0.178984564 0.018775938 0.154035733 -0.066316079 0.334599519 0.625857217 1 0.04907617
G 0.489510091 0.396354616 0.664049386 0.241315344 0.831460761 0.488749626 0.04907617 1

It is seen that there is negative correlation of total assets with RoA, E with RoE & S

with total assets. However, a positive correlation is seen with the rest of the remaining

variables. Thus, establishing the fact that there is a linear correlation between these

factors.

Thus, we need to test the strength of these factors, by running a regression in the

SPSS tool, for each of the factors- ROE, ROA, Market value & Total Asset.

Regression Analysis -
For ROA Analysis, Table 6 & Chart 2, gives us the result for this Regression test,

ROA Normal Probability Plot

Return on assets

SUMMARY OUTPUT 0.6

0.4
Regression Statistics
0.2
Multiple R 0.535548488
0
R Square 0.286812183
0 20 40 60 80 100 120
Adjusted R Square 0.181154728 -0.2
Standard Error 0.119911383 -0.4
Sample Percentile
Observations 32

ANOVA
df SS MS F Significance F
Regression 4 0.156127 0.039031773 2.714547538 0.05081091
Residual 27 0.388226 0.01437874

Total 31 0.544353

Coeffi cients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept -0.44537197 0.190187 -2.341758724 0.026821031 -0.835603375 -0.055140564 -0.835603375 -0.05514

ESG -0.002561264 0.004087 -0.626752523 0.53608543 -0.010946199 0.005823671 -0.010946199 0.005824

E -0.000360482 0.003431 -0.105061346 0.91710375 -0.007400632 0.006679669 -0.007400632 0.00668

S 0.002891263 0.002482 1.164760085 0.254304426 -0.002201959 0.007984486 -0.002201959 0.007984

G 0.008551286 0.003936 2.17284983 0.038737648 0.000476274 0.016626299 0.000476274 0.016626

24
  So, only 28.68% of the data can be explained through this model, which is

very less.

 The significance F is 0.05, which testifies that it still is not a good model.

 The relationship between X dependent variables with Y independent: -

ESG has negative relationship with Roa

E has negative relationship with Roa

S has positive relationship with Roa

G has positive relationship with Roa

 Amongst all other P-values, G is 0.03 < 0.05, the alpha value, which indicates

that only G is a good variable in this model.

 Thus, it means that, by removing ESG, E, S dependent variable, we will get a

better model.

Table 7 & Chart 3, gives us the result for the corrected Regression test,
Roa
SUMMARY OUTPUT
Normal Probability Plot
Regression Statistics 0.6
Return on assets

Multiple R 0.489510091 0.4

R Square 0.239620129 0.2
Adjusted R Square 0.214274134 0
Standard Error 0.117461357 -0.2 0 20 40 60 80 100 120
Observations 32 -0.4
Sample Percentile
ANOVA
df SS MS F Significance F
Regression 1 0.130437952 0.130438 9.453963948 0.004462261
Residual 30 0.413915113 0.013797
Total 31 0.544353065

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -0.247524685 0.112606291 -2.19814 0.03579338 -0.477497412 -0.017551958 -0.477497412 -0.017551958
G 0.005701304 0.001854245 3.07473 0.004462261 0.001914429 0.009488178 0.001914429 0.009488178

 So, only 23.95% of the data can be explained through this model, which is

very less.

 The significance F is 0.004, which testifies that it a good model.

 The relationship between X dependent variables with Y independent: -

25
G has positive relationship with Roa

 The P-value, G is 0.004 < 0.05, the alpha value, which indicates that only G is

a good variable in this model.

Therefore, Reject - H0 - No relationship between G & ROA

Accept - H1- There is linear relationship between G & ROA

For ROE Analysis, Table 8 & Chart 4, gives us the result for this Regression test,

roe
SUMMARY OUTPUT Normal Probability Plot
2
Regression Statistics
Return on equity

1
Multiple R 0.543910444
0
R Square 0.295838571
0 20 40 60 80 100 120
Adjusted R Square 0.191518359 -1
Standard Error 0.427773559 -2
Observations 32 -3
Sample Percentile

ANOVA
df SS MS F Significance F
Regression 4 2.075746 0.518936 2.835870118 0.043853886
Residual 27 4.940736 0.18299

Total 31 7.016482

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept -0.981241823 0.678476 -1.44624 0.159618224 -2.373358845 0.4108752 -2.373358845 0.410875

ESG 0.014875654 0.014578 1.020386 0.316602055 -0.015036883 0.0447882 -0.015036883 0.044788

E -0.027239783 0.01224 -2.22541 0.034598429 -0.052354916 -0.002125 -0.052354916 -0.00212

S 0.012700939 0.008855 1.434271 0.162976489 -0.005468695 0.0308706 -0.005468695 0.030871

G 0.015230465 0.01404 1.084821 0.287592939 -0.013576449 0.0440374 -0.013576449 0.044037

 So, only 29.58% of the data can be explained through this model, which is

very less.

 The significance F is 0.04, which testifies that it a good model.

 The relationship between X dependent variables with Y independent: -

ESG has positive relationship with Roe

E has negative relationship with Roe

S has positive relationship with Roe

26
G has positive relationship with Roe

 Amongst all other P-values, E is 0.03 < 0.05, the alpha value, which indicates

that only G is a good variable in this model.

 Thus, it means that, by removing ESG, S, G dependent variable, we will get a

better model.

Table 9 & Chart 5, gives us the result for the corrected Regression test,

ROE Normal Probability Plot

SUMMARY OUTPUT
2
Return on equity

Regression Statistics 1

Multiple R 0.01743 0
R Square 0.000304 -1 0 20 40 60 80 100 120

Adjusted R Square -0.03302 -2

Standard Error 0.483541 -3
Observations 32 Sample Percentile

ANOVA
df SS MS F Significance F
Regression 1 0.002132 0.002132 0.009117 0.924566066
Residual 30 7.01435 0.233812
Total 31 7.016482

Coefficients
Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 0.108385 0.346606 0.312704 0.756669 -0.599479363 0.816250082 -0.599479363 0.816250082
E -0.00062 0.006538 -0.09548 0.924566 -0.013977108 0.01272853 -0.013977108 0.01272853

 So, only 0.03% of the data can be explained through this model, which is very

less.

 The significance F is 0.924, which testifies that it is not a good model.

 The relationship between X dependent variables with Y independent: -

E has negative relationship with Roe

 Amongst all other P-values, E is 0.92 > 0.05, the alpha value, which indicates

that E is still not a good variable in this model.

Therefore, Accept - H0 - No relationship between E & ROE

Reject - H1- There is linear relationship between E & ROE

27
For Market value Analysis, Table 10 & Chart 6, gives us the result for this Regression
test,

Market value
SUMMARY OUTPUT Normal Probability Plot
1500000

Mkt cap.(in Crs)

Regression Statistics
1000000
Multiple R 0.683262508
R Square 0.466847655 500000
Adjusted R Square 0.387862122
0
Standard Error 218038.3427 0 20 40 60 80 100 120
Observations 32 Sample Percentile

ANOVA
df SS MS F Significance F
Regression 4 1.12397E+12 2.80992E+11 5.910546393 0.00149955
Residual 27 1.2836E+12 47540718870

Total 31 2.40757E+12

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept -800887.4924 345822.4584 -2.31589208 0.028397806 -1510456.566 -91318.41891 -1510456.566 -91318.41891

ESG 5571.440918 7430.71655 0.749785149 0.459867924 -9675.130059 20818.01189 -9675.130059 20818.01189

E -3113.044546 6238.970367 -0.49896768 0.621843348 -15914.35434 9688.265245 -15914.35434 9688.265245

S 2861.943047 4513.605837 0.63407022 0.531370759 -6399.21115 12123.09724 -6399.21115 12123.09724

G 11815.34772 7156.06363 1.651095957 0.110304597 -2867.682009 26498.37746 -2867.682009 26498.37746

 So, only 46.68% of the data can be explained through this model, which is

good.

 The significance F is 0.0014, which testifies that it a good model.

 The relationship between X dependent variables with Y independent: -

ESG has positive relationship with Market Value

E has negative relationship with Market Value

S has positive relationship with Market Value

G has positive relationship with Market Value

 All the P-values, are not less than 0.05, the alpha value, which indicates that

there are no good variables for this model. Only G seems to be close to 0.1

 Thus, it means that, by removing ESG, E, S dependent variable, we will get a

better model.

28
 Table 11 & Chart 7, gives us the result for the corrected Regression test,

Market value Normal Probability Plot

SUMMARY OUTPUT
1500000

Mkt cap.(in Crs)

Regression Statistics 1000000
Multiple R 0.664049386 500000
R Square 0.440961587
Adjusted R Square 0.422326973 0
0 20 40 60 80 100 120
Standard Error 211811.3803
Sample Percentile
Observations 32

ANOVA
df SS MS F Significance F
Regression 1 1.06164E+12 1.06E+12 23.66358 0.00
Residual 30 1.34592E+12 4.49E+10
Total 31 2.40757E+12

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -763392.8345 203056.5161 -3.75951 0.000736 -1178089.564 -348696.1045 -1178089.564 -348696.1045
G 16265.28419 3343.655109 4.864522 0.00 9436.629459 23093.93892 9436.629459 23093.93892

 So, only 44.09% of the data can be explained through this model, which is

good.

 The significance F is 0.00, which testifies that it a good model.

 The relationship between X dependent variables with Y independent: -

G has positive relationship with Market value

 The P-value, G is 0.00003 < 0.05, the alpha value, which indicates that only G

is a good variable in this model.

Therefore, Reject - H0 -No relationship between G & Market Value

Accept - H1- There is linear relationship between G & Market Value

29
For Total Assets Analysis, Table 12 & Chart 8, gives us the result for this Regression

test,
Total Assets
SUMMARY OUTPUT
Normal Probability Plot
Regression Statistics 600000
Multiple R 0.432689123

Total Asset
400000
R Square 0.187219877
Adjusted R Square 0.066808007 200000
Standard Error 130857.9955 0
Observations 32 0 20 40 60 80 100 120
Sample Percentile
ANOVA
df SS MS F Significance F
Regression 4 1.06498E+11 26624605572 1.554829083 0.214832322

Residual 27 4.62343E+11 17123814998

Total 31 5.68841E+11

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0%Upper 95.0%

Intercept -59903.97737 207548.9713 -0.288625749 0.775072127 -485759.2904 365951.3 -485759.29 365951.3

ESG -5523.169258 4459.622383 -1.238483617 0.226196927 -14673.55855 3627.22 -14673.5586 3627.22

E 7548.98255 3744.383426 2.016081606 0.053841201 -133.8576288 15231.82 -133.857629 15231.82

S -3898.128308 2708.887828 -1.439014295 0.161639427 -9456.30702 1660.05 -9456.30702 1660.05
G 4792.932055 4294.786555 1.115988418 0.274261122 -4019.242061 13605.11 -4019.24206 13605.11

 So, only 18.72% of the data can be explained through this model, which is

very low.

 The significance F is 0.21, which testifies that it is not a good model.

 The relationship between X dependent variables with Y independent: -

ESG has negative relationship with Total Asset

E has positive relationship with Total Asset

S has negative relationship with Total Asset

G has positive relationship with Total Asset

 Amongst other P-values, E is 0.05, the alpha value, which indicates that there

are no good variables for this model.

 Thus, it means that, by removing ESG & G dependent variable, we will get a

better model.

30
 Table 13 & Chart 9, gives us the result for the corrected Regression test,

Total Asset
SUMMARY OUTPUT Normal Probability Plot
600000
Regression Statistics

Total Asset
Multiple R 0.245494936 400000
R Square 0.060267763 200000
Adjusted R Square 0.028943356
0
Standard Error 133486.4071
0 20 40 60 80 100 120
Observations 32
Sample Percentile

ANOVA
df SS MS F Significance F
Regression 1 3.43E+10 3.43E+10 1.923987 0.175637808
Residual 30 5.35E+11 1.78E+10
Total 31 5.69E+11

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -38990.09437 95684.27 -0.40749 0.686544 -234403.4391 156423.2504 -234403.4391 156423.2504
E 2503.596484 1804.942 1.387079 0.175638 -1182.586676 6189.779644 -1182.586676 6189.779644

 So, only .06% of the data can be explained through this model, which is very

less.

 The significance F is 0.17, which testifies that it is not a good model.

 The relationship between X dependent variables with Y independent: -

E has positive relationship with Total Assets

 The P-value, E is 0.17 > 0.05, the alpha value, which indicates that E is not a

good variable in this model.

Therefore, Accept - H0 - no relationship between E & Total Asset

Reject - H1- there is linear relationship between E & Total Asset

31
5.2. DISCUSSIONS AND INTERPRETATIONS

The following section summarizes and analyses our findings. We conclude this part

by summarizing & evaluating our hypotheses. The results of the ANOVA test for

endogenous variables were described, as well as the instruments utilized in this

investigation. Following that, results of the Regressions are presented in this section.

Finally, the closing part will discuss whether or not the empirical analysis results

support the hypotheses.

Accept - H1- There is linear relationship between G & ROA

Accept - H1- There is linear relationship between G & Market Value

When fixed effects (Roa, Roe, Market capitalization & Total Assets) are used, as in

Table 1, we observe a negligible negative effect of ESG on ROA & other factors.

When time constant effects are removed, our results are no longer robust since they

are significant, in regression. Other studies confront a similar robustness issue when

quantifying the association between ESG and financial performance.

For example, Barnett and Salomon (2012) discover significant findings when

estimating ESG performance in connection to ROA using an OLS model but

insignificant results when using a Fixed Effects model. The results corroborate

McKinnish's (2000) claim that non-significant results from a Fixed Effects model

should not be regarded as the absence of an impact because these models tend to lead

coefficient estimates to become "considerably smaller, and frequently insignificant"

(ibid.). Freeman (1984) and Baker, Benjamin, and Stanger (1999) further demonstrate

that models such as Fixed Effects tend to estimate smaller effects than models such as

OLS. We propose that our Fixed Effects model outcome results from measurement

32
errors in the ESG variables combined with temporal persistence in our independent

variables.

The measurement mistakes are likely to be caused by a subjective quantitative

appraisal of qualitative aspects, a lack of consensus, and a lack of universally

approved ESG performance reporting standards (Graves and Waddock, 1994;

MacLean, 2012; Ullmann, 1985; Carroll, 1979). Thus, caution should be exercised

when concluding our findings. However, because our overall findings strongly

suggest a negative relationship between ESG and financial performance and are

consistent with prior research, we choose to emphasize the results from our OLS

models, which demonstrate a significant negative effect of ESG on financial

performance.

Discussion on the negative Relationship

My findings reveal that ESG performance negatively affects financial success in

selected Indian industries. The sign of the ESG coefficient is negative in all

statistically meaningful Regression calculations. The sign is negative regardless of

whether the financial performance is ROA or other variables. In all forms of ESG, see

table 5 for aggregated scores and tables 6, 8, 10 and 12 for disaggregated scores.

Thus, our findings are initially negative for enterprises 32 in the Indian market

pursuing ESG strategy development.

My findings, however, should not be taken as indicating that ESG efforts have no

positive effect on business financial performance. On the contrary, while the positive

effects described in our theory are true and contribute to increased financial

production, the advantages do not offset the expenses placed on the firm by engaging

in such activities, at least not in this industry and the short run. We believe that

33
environmental initiatives aimed at increasing effectiveness and productivity result in

lower costs for raw materials and waste disposal, which eventually benefits financial

business performance, but not in the short run, as evidenced by our findings.

This is consistent with Sarkis and Cordeiro (2001), who reach similar conclusions and

compare ESG costs to R&D- or TQM-related costs. These expenses have immediate

financial consequences but may result in long-term financial gains for the business

(ibid.). Hart and Ahuja (1996) also find support for the possibility of long-term

financial gains resulting from ESG operations.

Additionally, most research that has established a favorable correlation between ESG

& financial performance has examined sustainability as a component in generating

long-term value (Orlitzky et al., 2003). However, it is beyond the scope of this thesis

to conclude the long-term relationship between ESG & financial performance, which

is why we advise more research examining the long-term association between ESG &

financial performance.

As previously stated, revisionist economic theory asserts that enhanced ESG

performance results in enhanced stakeholder interactions across several marketplaces.

Improved stakeholder connections on the consumer market enable a business to

increase the price of its products or gain market share, which results in increased

revenue (Porter and Kramer, 2011). Additionally, strengthened stakeholder

connections with employers attract the best people and retain them for a longer period

of time, increasing effectiveness and profitability (Sprinkle and Maines, 2010).

Additionally, enhanced stakeholder connections on the financial market result in a

lower cost of capital as risk premiums are decreased (Deutsche Bank, 2012). The

fundamental assumption, however, is that stakeholder connections are enhanced. As a

result, our findings indicate that enterprises in the India are failing to do so. Improved

34
stakeholder relationships result from an increase in the firm's reputation and image.

However, enterprises in the basic materials market are frequently referred to as "dirty"

firms, 20 as they are involved with products and actions that are deemed

unsustainable, unethical, or environmentally damaging. As a result, they are also

perceived to have questionable practices by nature, making it more difficult for

businesses to develop an ESG-focused profile and strengthen stakeholder

relationships.

The business-to-business sector has been demonstrated to be less sensitive to ESG

issues (Sahut and Pasquini-Descomps, 2015), further complicating the task of these

organizations gaining competitive benefits through ESG participation. The majority of

prior research that establishes a significant positive association between ESG and

financial success does so through the use of the cost of capital as a financial

performance metric (see Lee et al., 2009; Goss, 2009; Goss and Roberts, 2011; El

Ghoul et al., 2011; Peylo, 2012).

For instance, Peylo showed in his study that sustainable businesses had a lower cost

of capital than their peers, both in terms of debt and equity, because financiers place a

lower risk premium on these businesses (Peylo, 2012). However, a significant

distinction between Peylo's and our studies is that Peylo examined 30 German

enterprises across multiple industries. Thus, Peylo's research is not confined to

enterprises with 'dubious' qualities, such as basic materials firms, which may explain

why his conclusions about the relationship between financial and ESG performance

differ from ours.

The same explanation could be applied to the other studies demonstrating a positive

relationship, as they use either US samples spanning all industries (see Goss, 2009;

Goss and Roberts 2011; El Ghoul et al. 2011) or global samples spanning all

35
industries (see Goss, 2009; Goss and Roberts 2011; El Ghoul et al. 2011). (see Lee et

al., 2009). Additionally, El. Ghoul et al. (2011) discover that firms engaged in "dirty"

industries face a higher cost of equity, whereas ESG-focused enterprises face a

reduced cost of equity. Thus, the fact that there is a negative correlation between ESG

and financial performance in the selected India industry implies that shareholders

place a bigger premium on the "dirty" aspect than on strong ESG performance in this

industry.

However, it is critical to emphasize that we do not demonstrate that there are no

financial benefits associated with a possible lower cost of capital in this business.

Nonetheless, our findings indicate that even if such gains exist, they do not offset the

expenses associated with ESG measures, at least in the short term. On the other hand,

Thornton, Kagan, and Gunningham (2003) discover a negative correlation between

ESG and financial performance.

Additionally, they looked at firms involved in the 126 basic materials market. This

bolsters our case that the negative impact of ESG on financial performance is

significantly tied to the industry in which we operate. Due to their challenges in

improving their image and stakeholder relations, firms operating in particularly

destructive industries do not earn enough financial gains to offset the costs.

Additionally, Hart and Ahuja (1996) undertook a study similar to ours and discovered

a negative correlation between ESG and financial performance. Additionally, they

evaluate financial success using ratios, including return on equity (ROE), return on

assets (ROA) and return on sales (ROS), and they track ESG performance using time

delays. Thus, because our findings are consistent with previous research, we suggest

that they are credible.

36
Summary and evaluation of hypothesis

I infer from the data in Tables 1 & 2 where Anova table was used to test the

hypothesis. The study tested three hypotheses: H0, H1 and H2, which all had no

significant difference in the mean scores of sectors. The results showed that the mean

of the criteria's - Roe, Roa, Market value & Total asset - did not differ significantly,

and the interaction between criteria's & sectors did not have any significant effect.

I infer from the data in Tables 3 & 4 where Anova table was used to test the

hypothesis. the study tested three hypotheses: H0, H1 and H2, which were rejected

due to the larger F value in the sample's column. H0 was rejected as there was no

difference between the mean scores of sectors. H1 was rejected as there was no

difference between the mean of ESG criteria and sectors. H2 was rejected as there

was no interaction between criteria and sectors.

I infer from the data in Tables 5, where correlation was used to test the relationship

between variables. The study reveals a negative correlation between total assets and

ROA, E with ROE, and S with total assets, but a positive correlation with the

remaining variables, indicating a linear correlation. To test the strength of these

factors, a regression in the SPSS tool is conducted.

I infer from the data in Table 6 & Chart 2, where, regression was used to test the

strength between related variables. The model only explains 28.68% of the data, with

a significance F of 0.05. The relationship between X dependent variables and Y

independent variables is negative, with ESG, E, S, and G having negative, positive,

37
and negative effects. The alpha value is 0.03 < 0.05, indicating that only G is a good

variable. Removing these dependent variables would improve the model.

I infer from the data in Table 7 & Chart 3, where, regression was used to test the

strength between related variables. The model can only explain 23.95% of the data,

with a significance F of 0.004. The relationship between X dependent variables and Y

independent variables is positive, with a P-value of 0.004 < 0.05, indicating that only

G is a good variable. Therefore, the model rejects the hypothesis of no relationship

between G and ROA.

I infer from the data in Table 8 & Chart 4, where, regression was used to test the

strength between related variables. The model only explains 29.58% of the data, with

a significance F of 0.04. The relationship between X dependent variables and Y

independent variables is positive, with ESG, E, S, and G positively influencing Roe.

The alpha value is 0.03, indicating that only G is a good variable. Therefore,

removing ESG, S, and G dependent variables would improve the model.

I infer from the data in Table 9 & Chart 5, where, regression was used to test the

strength between related variable The model only explains 0.03% of the data, with a

significance F of 0.924. The relationship between X dependent variables and Y

independent variables is negative, with an alpha value of 0.92 > 0.05, indicating no

linear relationship between E and ROE.

I infer from the data in Table 10 & Chart 6, where, regression was used to test the

strength between related variable. The model explains 46.68% of the data, with a

38
significance F of 0.0014. The relationship between X dependent variables and Y

independent variables is positive, with ESG, E, S, and G all positively correlated.

However, all P-values are less than 0.05, indicating no good variables. The only

variable close to 0.1 is G, suggesting that removing these variables could improve the

model.

I infer from the data in Table 11 & Chart 7, where, regression was used to test the

strength between related variable. The model explains 46.68% of the data, with a

significance F of 0.0014. The relationship between X dependent variables and Y

independent variables is positive, with ESG, E, S, and G all positively correlated.

However, all P-values are less than 0.05, indicating no good variables. The only

variable close to 0.1 is G, suggesting that removing these variables could improve the

model.

I infer from the data in Table 12 & Chart 8, where, regression was used to test the

strength between related variables. The model only explains 18.72% of the data, with

a significance F of 0.21. The relationship between X dependent variables and Y

independent variables is negative, with E, S, and G having negative and positive

effects respectively. The alpha value is 0.05, indicating no good variables for the

model. Removing ESG and G dependent variables would improve the model.

I infer from the data in Table 13 & Chart 9, where, regression was used to test the

strength between related variables. The model only explains.06% of the data, with a

significance F of 0.17. The relationship between X dependent variables and Y

independent variables is positive, but the P-value for E is 0.17 > 0.05, indicating a

39
negative relationship between E and Total Assets. The model should be rejected as

there is no linear relationship between E and Total Asset.

The study presents findings, evaluating hypotheses, and presenting ANOVA test

results for endogenous variables. Regressions results are also presented. The closing

section discusses the empirical analysis results, confirming the linear relationship

between G and ROA and market value. The findings are summarized and analysed,

ensuring the validity of the hypotheses.

I infer from the data in Tables 7, 9, 11 & 10 that ESG doesn’t have a detrimental

effect on financial performance in the Indian business. As a result, we do exclude our

hypotheses (1). However, we cannot conclusively determine if the underlying

relationship between ESG and financial performance is linear or non-linear, that is,

whether financial results decline at the same rate for each new unit of ESG score or

whether they decline at a rising or decreasing speed. As a result, we do not exclude

our hypotheses. The G factor does have a higher score than social scores in

descriptive statistics, suggesting slower and more costly progress in ESG metric.

40
 CHAPTER 6
LIMITATIONS, RECOMMENDATIONS AND DIRECTION FOR
FUTURE STUDY

6.1. LIMITATIONS

Although proper attention has been given to the study, it is still subject to some

limitations which are as follows:

 The sample for the study consists of the 32 Indian companies’, I have tried to

in cooperate other sector companies. Thus, the findings cannot be generalized

to the non-listed firms in India.

 The current research spans a one-year timeframe. This could not be extended

due to

 numerous reasons including unavailability of time, data, and resources.

 ESG is a multi-dimensional concept; hence the measurement of ESG may not

be extensive.

 ESG measurement is based on the ESG rating of CRISIL ESG Scores of the

companies. The information disclosed by the companies may be biased as per

their requirement. It may result in biased data.

 The study focuses on those ESG areas in which the firms have involvement.

The intensity of each ESG activity has not been checked.

 The study has not controlled for the variables such as interest rate, growth,

research and development, inflation, etc. Such variables may have an impact

on the financial performance of the firms. Despite these limitations, the study

has tried to make some value addition to the existing literature in this area.

41
  The use of ESG ratings and scores may be subjective and may not fully

capture a company’s ESG performance.

 The sample selection criteria may limit the generalizability of the results to

other industries or countries.

 The study may not account for all factors that affect financial performance,

such as macroeconomic conditions or investor sentiment.

6.2. RECOMMENDATIONS AND FUTURE SCOPE OF RESEARCH

In the present study, after considering the previous discussion of the key findings and

conclusions following are the potential ways that can be explored in future research:

 The present study taken into account few parameters of ESG Practices

applicable to companies. One can consider more parameters to form their

study.

 The study used dependent variable as Quality of financial performance. In

future research, other dependent variables can be used for measurement of

impact of ESG impact on the financial performance, for example, impact on

stock prices (i.e., the value relevance), impact on investors in making

investment decisions.

 Further research can be done regarding comparative study between impacts of

ESG Practices impact on compliance in different periods on financial

performance. Researcher can study the impact of ESG Practices on financial

performance in respect of other countries or regions.

 The present study is done by considering BSE grouping system based on

CRISIL ESG Scores. Further research can be possible by taking market

capitalization or indexation or industries as base and one can also solve the

42
 problem of relevant or irrelevant items from index to a particular company and

help companies to score.

 Researcher can focus on the quantitative characteristics of interims such as the

financial ratios and observe the impact of ESG on financial performance of the

companies.

 The practical implications of this study are significant for investors,

policymakers, and companies. For investors, the study suggests that ESG

factors should be considered when making investment decisions. Companies

with strong ESG performance may offer better investment opportunities

compared to those with poor ESG performance. Policymakers can also play a

role in promoting the adoption of ESG practices through regulation and

incentives. Finally, companies can benefit from adopting ESG practices as

they may lead to improved financial performance and increased investor

interest.

 Future research in this area could investigate the mechanisms by which ESG

factors affect financial performance. For example, it would be interesting to

explore how ESG factors impact the cost of capital or affect a company’s risk

profile. Furthermore, future research could explore the relationship between

ESG factors and other measures of financial performance, such as market

value or revenue growth.

 Additionally, future research could investigate the impact of ESG factors on

other aspects of company performance, such as employee engagement,

innovation, or customer satisfaction. Finally, future research could explore the

impact of ESG factors on the performance of different types of investors, such

as institutional investors, retail investors, or socially responsible investors.

43
 CHAPTER 7

CONCLUSION

Thus, I interpret that G - the government factor in ESG, separately has an impact on

ROA & market value.

One reason we see no relationship between environment and firm value could be that

environment related actions may be taking longer time to produce results for firms

compared to social or governance related actions. In fact, some of the environment

related projects could take years to complete before their outcome could have an

impact on firm value. Another reason could be high investment costs associated with

environment action.

We also note that the mean of the governance score is higher than the mean of social

scores in descriptive statistics. This could be also an indication of the slower and more

costly progress in this ESG metric.

There is a push for ESG from the Government’s side & it will take time for the rest of

the factors to catchup with the positive relationship.

Based on the results of the four models where factors – ROA, ROE, Market

capitalization & Total Assets was the dependent variable; we find that ESG combined

score has a negative and highly insignificant relationship with these factors.

Environment (ENV), Social (SOC) and Governance (GOV) all have highly significant

negative relationships with profitability as well.

From a theoretical point of view, these results support the stakeholder theory, in line

with the findings of several researchers in the extant literature.

44
Governments expect the firms to do more on ESG. When they meet and exceed these

expectations, the market most likely rewards them. The positive link between ESG,

firm value and profitability is likely an indication of this.

My findings provide evidence for corporate managers to justify mobilizing more

resources for ESG. I have also provided evidence for policy makers to develop more

policy measures in support of ESG. The dynamics behind this link between ESG

performance, firm value and profitability could be interesting for future research.

I recommend focusing on specific analysis of the causal factors triggering the impact

of ESG on financial performance. For example, how action on emissions, innovation,

resource usage, human rights, workforce, product responsibility, community,

shareholders, management, and corporate social responsibility strategy affect financial

performance.

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 CHAPTER 8

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 CHAPTER 9

ANNEXURE A

PART 1 - CHARTS, DIAGRAMS, FIGURES

Chart 1 – Future forecast of ESG

Diagram 1 – ESG parameters

49
Diagram 2- ESG parameters – Chosen for this project

Diagram 3,4,5 – Specification on the G- Governance part

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51