ESG Performance as Determinant of Firm Performance: Accounting and Market - Based Approach

Stakeholders and regulators now consider environmental, social, and governance (ESG) activities as an important metric to measure the firm performance. The present study aims to analyze the impact of ESG performance on the financial performance of Indian firms. Considering a sample of 344 firms, the study employed the cross-sectional regression approach for data analysis. To measure ESG performance, proprietary data from CRISIL India was obtained through the public domain. Further, the current research applied accounting (measured by ROA) as well as market-based (Tobin’s Q ratio) measures to measure financial performance. Based on the results, the findings revealed that ESG performance exerted significant positive effect on the accounting performance of the firm but market-based performance was not affected by the same. The present study provides several suggestions for academicians, managers, and policymakers, by considering a sample of one of the largest emerging economies. Further, it also adds value to the growing literature in the domain of ESG and financial performance.