Purpose : This study analyzed the effect of environmental, social, and governance (ESG) performance and its individual components on the financial performance of Indian companies.

Methodology : A sample of 141 Indian companies across various sectors was analyzed for the time period 2019–2024. On the basis of the Hausman test, this study used fixed effects panel regression to test the stated relationships. The study estimated the effect of one-year lagged ESG scores (Environmental score, social score, and governance score) on financial outcomes: Return on assets (ROA) and market-to-book (MTB) value.

Findings : The results indicated that ESG performance negatively impacted short-term profitability and earnings, measured by ROA. However, it was positively correlated with market valuations, reflecting investor confidence in the long-term sustainability of these companies, measured by MTB.

Practical Implications : The study drew policy implications with special reference to Indian policy instruments such as the Securities and Exchange Board of India’s ESG mutual fund regulations and tax-free issuance of green bonds. It is also recommended that the Government provide grants, awards, subsidies, or tax incentives to companies to encourage business sustainability.

Originality : Most of the previous Indian studies focused on analyzing the effect of the overall ESG performance of the current period on financial performance. In contrast, this study investigated the effect of one-year lagged ESG performance and its individual components (E, S, and G) on financial outcomes.

1. Agarwal, B., Gautam, R. S., Jain, P., Rastogi, S., Bhimavarapu, V. M., & Singh, S. (2023). Impact of environmental, social, and governance activities on the financial performance of Indian health care sector firms: Using competition as a moderator. Journal of Risk and Financial Management, 16(2), Article no. 109. https://doi.org/10.3390/jrfm16020109
2. Agarwala, N., Jana, S., & Sahu, T. N. (2024). ESG disclosures and corporate performance: A non-linear and disaggregated approach. Journal of Cleaner Production, 437, Article ID 140517. https://doi.org/10.1016/j.jclepro.2023.140517
3. Ahmad, N., Mobarek, A., & Roni, N. N. (2021). Revisiting the impact of ESG on financial performance of FTSE350 UK firms: Static and dynamic panel data analysis. Cogent Business & Management, 8(1), Article ID 1900500. https://doi.org/10.1080/23311975.2021.1900500
4. Aydoğmuş, M., Gülay, G., & Ergun, K. (2022). Impact of ESG performance on firm value and profitability. Borsa Istanbul Review, 22(Suppl_2), S119–S127. https://doi.org/10.1016/j.bir.2022.11.006
5. Baid, C., Baid, D., & Bhuyan, A. K. (2024). Exploring organizational performance: A multidimensional construct. Prabandhan: Indian Journal of Management, 17(4), 29–42. https://doi.org/10.17010/pijom/2024/v17i4/173426
6. Bala, M. (2022). ESG practices and financial performance–Empirical evidences from Indian companies. Journal of Research in Business and Management, 10(2), 58–68. https://www.questjournals.org/jrbm/papers/vol10-issue2/Ser-2/H10025868.pdf
7. Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
8. Bodhanwala, S., & Bodhanwala, R. (2018). Does corporate sustainability impact firm profitability? Evidence from India. Management Decision, 56(8), 1734–1747. https://doi.org/10.1108/MD-04-2017-0381
9. Brock, E., Nelson, J., & Brackley, A. (2023). Rate the raters 2023: ESG ratings at a crossroads. The ERM International Group Limited. https://www.erm.com/insights/rate-the-raters-2023/
10. Chakrabarti, P., & Gupta, S. (2025). Does ESG reporting matter for shareholder value?—Evidence on mandatory ESG regulations in India. Journal of Business Finance & Accounting, 52(5), 2438–2463. https://doi.org/10.1111/jbfa.70005
11. Chauhan, Y., & Kumar, S. B. (2019). The value relevance of nonfinancial disclosure: Evidence from foreign equity investment. Journal of Multinational Financial Management, 52–53, Article ID 100595. https://doi.org/10.1016/j.mulfin.2019.100595
12. Chelawat, H., & Trivedi, I. V. (2016). The business value of ESG performance: The Indian context. Asian Journal of Business Ethics, 5(1), 195–210. https://doi.org/10.1007/s13520-016-0064-4
13. Dalal, K. K., & Thaker, N. (2019). ESG and corporate financial performance: A panel study of Indian companies. IUP Journal of Corporate Governance, 18(1), 44–59. https://www.researchgate.net/publication/371177996
14. Dayal, S., Soni, T. K., Aggarwal, R., & Hotwani, R. (2024). Linking ESG disclosure to firm performance and risk: An international perspective. Indian Journal of Finance, 18(11), 36–55. https://doi.org/10.17010/ijf/2024/v18i11/174641
15. De Lucia, C., Pazienza, P., & Bartlett, M. (2020). Does good ESG lead to better financial performances by firms? Machine learning and logistic regression models of public enterprises in Europe. Sustainability, 12(13), Article ID 5317. https://doi.org/10.3390/su12135317
16. Desai, R. (2024). Analysing the firm value effects of environmental, social and governance disclosure: Empirical study of Indian firms. NMIMS Management Review, 32(1), 58–67. https://doi.org/10.1177/09711023241264679
17. Dua, P., & Nainwal, N. (2024). Does the market reward corporate environmentalism? Evidence from Indian IT firms. Indian Journal of Finance, 18(6), 46–61. https://doi.org/10.17010/ijf/2024/v18i6/173968
18. Duque-Grisales, E., & Aguilera-Caracuel, J. (2021). Environmental, social and governance (ESG) scores and financial performance of multilatinas: Moderating effects of geographic international diversification and financial slack. Journal of Business Ethics, 168(2), 315–334. https://doi.org/10.1007/s10551-019-04177-w
19. Dwibedi, P., Pahi, D., & Mishra, A. P. (2025). Corporate environmental, social, and governance disclosure and performance dynamics: An empirical analysis of BRICS nations. Indian Journal of Finance, 19(2), 27–44. https://doi.org/10.17010/ijf/2025/v19i2/174769
20. Fang, H., & Yang, J. J. (2025). Foreign institutional investor herding and ESG ratings. Pacific-Basin Finance Journal, 90, Article ID 102692. https://doi.org/10.1016/j.pacfin.2025.102692
21. Farooq, O. (2015). Financial centers and the relationship between ESG disclosure and firm performance: Evidence from an emerging market. Journal of Applied Business Research, 31(4), 1239–1244. https://doi.org/10.19030/jabr.v31i4.9298
22. Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman Publishing.
23. Garcia, A. S., & Orsato, R. J. (2020). Testing the institutional difference hypothesis: A study about environmental, social, governance, and financial performance. Business Strategy and the Environment, 29(8), 3261–3272. https://doi.org/10.1002/bse.2570
24. Gidla, S., & Kumar, P. R. (2024). Impact of ESG on financial performance: An empirical study on Indian listed firms. European Economic Letters, 14(2), 163–173. https://doi.org/10.52783/eel.v14i2.1284
25. Goyal, A., Mishra, U. S., Mishra, S., & Ray, M. (2024). Effect of strategic orientation on firm performance: A mediation analysis. Prabandhan: Indian Journal of Management, 17(4), 58–75. https://doi.org/10.17010/pijom/2024/v17i4/173428
26. Gupta, S., Singh, G., & Chandel, A. (2024). Firm value and mandatory risk disclosure: An empirical investigation of listed companies under Ind-AS107 in India. Indian Journal of Finance, 18(11), 24–35. https://doi.org/10.17010/ijf/2024/v18i11/174640
27. Gupta, V. (2024). Corporate governance and credit risk: Evidence on Indian firms using mixed method. Prabandhan: Indian Journal of Management, 17(7), 8–22. https://doi.org/10.17010/pijom/2024/v17i7/173633
28. Guru, S., & Panda, P. (2024). Financial sustainability: The influence of internal efficiency in Indian commercial banks. Prabandhan: Indian Journal of Management, 17(10), 37–55. https://doi.org/10.17010/pijom/2024/v17i10/173995
29. Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 46(6), 1251–1271. https://doi.org/10.2307/1913827
30. Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
31. Jha, M. K., & Rangarajan, K. (2020). Analysis of corporate sustainability performance and corporate financial performance causal linkage in the Indian context. Asian Journal of Sustainability and Social Responsibility, 5(1), Article no. 10. https://doi.org/10.1186/s41180-020-00038-z
32. Jyoti, G., & Khanna, A. (2021). Does sustainability performance impact financial performance? Evidence from Indian service sector firms. Sustainable Development, 29(6), 1086–1095. https://doi.org/10.1002/sd.2204
33. Levin, A., Lin, C.-F., & Chu, C. S. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24. https://doi.org/10.1016/S0304-4076(01)00098-7
34. Marshall, A., Rao, S., Roy, P. P., & Thapa, C. (2022). Mandatory corporate social responsibility and foreign institutional investor preferences. Journal of Corporate Finance, 76, Article ID 102261. https://doi.org/10.1016/j.jcorpfin.2022.102261
35. Nadeem, M., & Singh, R. (2024). ESG investing from the perspective of 4Ps of marketing. Prabandhan: Indian Journal of Management, 17(6), 63–77. https://doi.org/10.17010/pijom/2024/v17i6/173561
36. Naeem, N., & Çankaya, S. (2022). The impact of ESG performance over financial performance: A study on global energy and power generation companies. International Journal of Commerce and Finance, 8(1), 1–25. https://www.researchgate.net/publication/362173099
37. Naeem, N., Cankaya, S., & Bildik, R. (2022). Does ESG performance affect the financial performance of environmentally sensitive industries? A comparison between emerging and developed markets. Borsa Istanbul Review, 22(Suppl_2), S128–S140. https://doi.org/10.1016/j.bir.2022.11.014
38. Prasad, R., & Mondal, A. (2025). Nexus between ESG scores and financial performance: Evidence from the Indian banking sector. Asian Journal of Accounting Research, 10(3), 242–257. https://doi.org/10.1108/AJAR-06-2024-0244
39. Ray, R. S., & Goel, S. (2023). Impact of ESG score on financial performance of Indian firms: Static and dynamic panel regression analyses. Applied Economics, 55(15), 1742–1755. https://doi.org/10.1080/00036846.2022.2101611
40. S&P Global. (n.d.). Corporate sustainability assessment. https://www.spglobal.com/esg/csa/
41. Santhi, P., Sasirekha, P., & Anija, J. (2024). A causal linkage between corporate sustainability performance and financial performance of select IT & ITeS companies in India. Indian Journal of Finance, 18(2), 43–59. https://doi.org/10.17010/ijf/2024/v18i2/173520
42. Sharma, D., & Chakraborty, S. (2024). Corporate social responsibility and financial performance: Moderating impact of product market competition. Indian Journal of Finance, 18(7), 8–24. https://doi.org/10.17010/ijf/2024/v18i7/174030
43. Sharma, D., Bhattacharya, S., & Thukral, S. (2019). Resource-based view on corporate sustainable financial reporting and firm performance: Evidences from emerging Indian economy. International Journal of Business Governance and Ethics, 13(4), 323–344. https://doi.org/10.1504/IJBGE.2019.10021060
44. Singh, A., Dutta, S., & Sharma, D. (2024). Mapping the landscape of sustainability reporting: A bibliometric analysis. Prabandhan: Indian Journal of Management, 17(11), 61–77. https://doi.org/10.17010/pijom/2024/v17i11/174023
45. Spence, M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355–374. https://doi.org/10.2307/1882010
46. Tahmid, T., Hoque, M. N., Said, J., Saona, P., & Azad, M. A. (2022). Does ESG initiatives yield greater firm value and performance? New evidence from European firms. Cogent Business & Management, 9(1), Article ID 2144098. https://doi.org/10.1080/23311975.2022.2144098
47. Veeravel, V., Murugesan, V. P., & Narayanamurthy, V. (2024). Does ESG disclosure really influence the firm performance? Evidence from India. The Quarterly Review of Economics and Finance, 95, 193–202. https://doi.org/10.1016/j.qref.2024.03.008
48. Velte, P. (2017). Does ESG performance have an impact on financial performance? Evidence from Germany. Journal of Global Responsibility, 8(2), 169–178. https://doi.org/10.1108/JGR-11-2016-0029
49. Zhao, C., Guo, Y., Yuan, J., Wu, M., Li, D., Zhou, Y., & Kang, J. (2018). ESG and corporate financial performance: Empirical evidence from China's listed power generation companies. Sustainability, 10(8), 2607–2826. https://doi.org/10.3390/su10082607