Environmental Economics ILC​

Report on ESG Investing and Corporate Financial

Performance

An Integrated Analysis of Financial Implications and

Sustainability Metrics

Group Members:

Sanath L | Shashwat Joshi | Shreyas Latad | Ziyad Khan

PRN:

22060222252 | 22060222264 | 22060222279 | 22060222333

Program: BSc. Economics (Honours)

Course Instructor: Ms. Aradhana Shukla

Submission: 09 March 2025

Table of Contents
1. Introduction.......................................................................................................................... 1
2. Literature Review.................................................................................................................2
2.1 Theoretical Framework.................................................................................................. 3
2.2 Empirical Studies of ESG and Financial Performance.................................................. 3
2.3 Integration of ESG into Corporate Strategy................................................................... 4
2.4 Research Gaps................................................................................................................ 4
3. Objectives.............................................................................................................................. 5
4. Methodology......................................................................................................................... 5
4.1 Research Design............................................................................................................. 5
4.2 Data Collection:..............................................................................................................6
4.3 Analytical Framework....................................................................................................6
4.4 Limitations and Assumptions.........................................................................................6
5. ESG Metrics and Their Financial Implications................................................................ 7
5.1 Overview of ESG Rating Systems................................................................................. 7
5.2 Linkages between ESG Scores and Corporate Financial Indicators.............................. 8
5.3 Comparative Case Studies..............................................................................................8
6. Financial Analysis and Risk Assessment............................................................................9
6.1 Impact on Cost of Capital...............................................................................................9
6.2 Risk-Adjusted Returns and Volatility...........................................................................10
6.3 Corporate Governance and Stakeholder Theory.......................................................... 10
7. Regulatory Environment and Policy Implications.......................................................... 11
7.1 Global ESG Regulatory Frameworks...........................................................................11
7.2 Indian Regulatory Landscape....................................................................................... 11
7.3 Policy Recommendations............................................................................................. 12
8. Discussion and Interpretation of Findings.......................................................................13
8.1 Synthesis of Quantitative and Qualitative Insights...................................................... 13
8.2 Managerial Implications...............................................................................................14
 8.3 Theoretical and Practical Contributions....................................................................... 15
9. Conclusion...........................................................................................................................16
References................................................................................................................................. 1
ESG Investing and Corporate Financial
Performance: An Integrated Analysis of Financial
Implications and Sustainability Metrics

1. Introduction

ESG investing is one of the most impacting innovations in global finance whereby
non-financial factors are integrated into investment decisions not just to assess financial
performance but also reflect corporate sustainability and ethical impact. Following the global
financial unease and with increased concerns regarding climate change, social inequality, and
governance failures, it has sped the rise in demand for sustainability in business practices
(Friede et al. 2015). Built upon the idea of a ‘triple bottom line’ (Elkington & Rowlands
1999) where people, planet, and profit are all comprehended as working together, the ESG
frameworks assess how companies have managed climate risks, labor practices, and board
diversity, amongst others. This groundswell recognizes that businesses with higher ESG
profiles might be in a better position to manage risks, cut costs, and drive sustainable
long-term development (Eccles et al. 2014).

The importance of ESG investing is highlighted by the speed of growth: world ESG assets
grew from 22.8 trillion in 2016 to 35.3 trillion by 2020, equalling 35.9% of total managed
assets (Global Sustainable Investment Alliance, 2020). This trend is driven by increased
awareness on the part of investors of sustainability issues like climate change and social
injustice, as well as the push of regulation to connect to the United Nations Sustainable
Development Goals (SDGs). In India, ESG uptake is gaining momentum with regulatory
requirements such as the Business Responsibility and Sustainability Reporting (BRSR)
framework, indicative of broader shifts toward stakeholder capitalism (Kumar et al., 2022).

The importance of ESG investing has various dimensions. From a monetary point of view,
companies performing well in terms of ESG can enjoy less cost of capital, better risk
management, and greater reputational advantages. In society, higher ESG practice can result
in better environmental conditions, better relationships with communities, and more
responsible corporate actions. Both the dual advantages and the attendant scrutiny have

1
generated rigorous academic and empirical studies focused on the connection between ESG
performance and firm financial performance (Khan et al. 2016). The studies are particularly
pertinent in the emerging economies such as India, where regulatory fronts and changing
investor sentiments are progressively transforming corporate policy and market structures.

While ESG's salience is clear, its cost implications are still debated. Whereas meta-analyses
such as Friede et al. (2015) indicate that ESG performance correlates positively with firm
financial performance in 90% of studies, critics note that methodological inconsistencies and
regional biases restrict generalizability.

The rising popularity of ESG factors in investment choices is not only a reflection of shifting
market fundamentals but also of responses to changing stakeholder demands. Investors, from
large institutional portfolios to individual retail investors, are increasingly integrating ESG
indicators into their portfolios as a way of linking financial returns and ethical and sustainable
results. In spite of this rising popularity, the academic discussion regarding the real impact of
ESG performance on corporate financial performance is divided.

With the sophistication of ESG metrics and the various ways of measuring them, there is an
imperative need for a thorough analysis that not only summarizes available empirical
evidence but also utilizes a strong analytical framework to examine these relationships. The
current research aims to fill this void by integrating both qualitative observations and
quantitative analyses. The emphasis on ESG investing is meant to give a more subtle insight
into how sustainability practices help to ensure financial resilience and long-term value
creation, most especially in environments where environmental and regulatory pressures are
changing rather quickly.

2. Literature Review

This review of the literature was conducted using a systematic approach combining seminal
works exploring the contribution of ESG investing to the corporation bottom line. Only
studies with at least 500 citations were employed so that the review rests upon building block
work. The review is organized into themes encompassing measurement and methodological
considerations; empirical confirmation of the association between ESG and financial
performance; organizational process and strategic direction roles; innovation impact on
sustainable industrial value generation; and conceptual differentiation of corporate
sustainability from corporate responsibility. In synthesizing the themes, the review presents

2
perspectives relevant to environmental economic policy as well as strategic corporate
decision-making.

2.1 Theoretical Framework

Historical development of ESG research is rooted in theories like stakeholder theory and the
triple bottom line. Based on these theories, a company's performance is not only measured in
terms of profitability but also its contribution to society and the environment. Under this
perspective, businesses that go the extra mile to embrace sustainable practices are well-placed
to generate long-term value by addressing social and environmental issues. This integrated
approach encourages the transition from traditional profit-oriented models to those that take
into account the long-term effects of business operations on society and the environment
(Peloza, 2009).

Through such core concepts, there has existed the development of comprehensive theoretical
schemes that encapsulate the intricate dynamic interdependence amongst ESG strategies and
company performance. Theories combine internal corporate governance determinants,
external pressure from stakeholders, and macroeconomic environments in constructing a
complete explanatory model of the manner in which sustainable behavior results in economic
implications. Theorizing corporate social performance as a multifaceted construct, the
theories richly conceptualize how firms are able to strategically establish their operations in
sustainability goals in ultimately enhancing long-term competitiveness and ethical value
creation (Aguinis & Glavas, 2012).

2.2 Empirical Studies of ESG and Financial Performance

Empirical studies always depict that sound ESG practices are positively linked with better
financial performance. Large scale meta-analyses which compile findings of thousands of
separate studies validate that firms with positive ESG ratings possess superior market value,
superior risk management, and greater operating efficiency. All these positive correlations are
positive indications that bringing sustainability mainstream in business activities is not
merely a matter of ethics but also a performance-enhancing mode of improvement in
economic function. The research lends credence to the argument that companies investing in
ESG programs are able to reap immediate and long-term financial benefits (Friede et al.,
2015).

Direct empirical evidence also helps explain the nature of the relationship by focusing on the

3
impact of ESG disclosure. Transparency of ESG has seemingly a non-linear impact on
profitability: optimal disclosure maximizes the firm's efficiency but very high disclosure and
very low disclosure deteriorate potential effects. This is an indication that firms must mold
their ESG reporting plans to a nicety to maximize gains without causing informational
excess. Case experience in emerging markets suggests that good ESG disclosure is a driver of
investor confidence and can provide a competitive edge during turbulent market conditions
(Xie et al., 2018).

2.3 Integration of ESG into Corporate Strategy

Integration of ESG into corporate strategy is now widely regarded as a primary driver of
long-term success. Firms that embed sustainability in their core governance system—by tying
executive pay to ESG performance, establishing dedicated sustainability committees, and
addressing stakeholders systematically—display better financial results. This intentional
integration not only aligns business practices with social and environmental objectives but
also serves as a shield against regulatory ambiguity and market fluctuations. Therefore,
companies that have successfully integrated their ESG plans are capable of maintaining
growth and increasing shareholder value in the long run (Eccles et al., 2012).

In addition, the strategic implementation of ESG initiatives is often followed by digitalization

and technological advancements. Improved data analytics, automation, and Industry 4.0
technologies facilitate accurate tracking and reporting of ESG performance metrics, allowing
companies to maximize resource utilization and operation. These technology innovations
assist in shifting ESG from a peripheral issue to a core part of business strategy. Through the
use of digital technologies to track sustainability performance, organizations are able to
respond more effectively to evolving market conditions and regulatory requirements, hence
gaining a competitive advantage and long-term profitability (Kiel et al., 2017).

2.4 Research Gaps

In spite of the broad empirical evidence establishing a connection between ESG practices and
financial performance, research gaps are broad. One of the main weaknesses is the lack of
standardization of ESG measurement criteria across geographies and studies. The lack of a
single set of widely accepted standards for the disclosure of ESG makes results
non-comparable and identifying the true effect of sustainable practices on firm performance
more difficult. This paradox is most evident in emerging economies, since reporting cultures

4
within them are still in the developmental stage, hence impeding efficient comprehension of
the financial implications of ESG (Bansal & Song, 2017).

Moreover, existing literature overestimates qualitative aspects of ESG integration. Although

quantitative literature provides useful information regarding statistical relationships, it often
omits causal mechanisms underpinning such relations. A very urgent necessity remains for
more qualitative studies probing managerial decision-making processes, the dynamics of firm
culture, and the stakeholder engagement processes determining the ESG implications. The
research would reveal better contextual explanations and enable enhancing theory
development eventually for guiding policymakers along with business decision-makers
towards strategies for improved value creation over a sustainable basis (Bansal & Song,
2017).

3. Objectives

●​ To analyze the relationship between ESG performance and corporate financial

indicators.

●​ To evaluate India’s regulatory framework for ESG integration.

4. Methodology

4.1 Research Design

The study applies a qualitative research design based only on secondary data. The design is
modified to fit the environmental economics context, and focus is placed on knowing how
ESG investing influences the financial performance of companies. Instead of statistical
examination of quantifiable data, such a method applies close reading of text-based
documents such as academic research studies, company sustainability reports, compliance
reports, and industry case studies to uncover strategic integration of ESG factors. The method
is designed to ascertain underlying patterns and trends that represent how companies react to
sustainability issues and integrate ESG into the decision-making framework. This exploratory
design is specially apt to capture the richness and dynamism of ESG practices, particularly in
emerging markets where market and regulatory conditions are constantly undergoing change.

5
4.2 Data Collection:
Data collection is conducted exclusively via secondary sources in an attempt to enable rich
qualitative results. Materials used are peer-reviewed scholarly studies, corporate
sustainability reports, government and regulatory reports (e.g., the Business Responsibility
and Sustainability Reporting framework), and credible industry case studies. Those articles
were chosen based on their usability, validity, and qualitative richness of information
provided on ESG strategies and finance performance. Systematic searching was also
performed in electronic databases and academic libraries to ensure that the collected data
represent prevailing trends and practices of ESG integration. Emphasis on secondary
qualitative data enables intensive examination of prior narratives and policies that frame ESG
implementation and regional heterogeneity and sectoral observations as predominant in the
environmental economics methodology.

4.3 Analytical Framework

Thematic content analysis is the prevailing analysis framework employed in this research.
Upon gathering secondary data for the study, the text is read and analyzed in a structured way
in the hope of trying to discern common themes around ESG integration and financial
performance. The methodology starts with initial coding of one's papers whereby one
attempts to eliminate principal words and phrases, followed by pattern recognition typical to
a human resources amount of sources. The ideas are eventually distilled into more abstract
categories describing the link between ESG activities and firm performance, such as better
risk management, enhanced stakeholder relationships, and alignment of corporate
governance. This structure enables drawing meaningful conclusions and presents a formal
structure by which qualitative inputs influence sustainable financial results. Thematic
analysis also suggests that emergent themes may arise during the review process.

4.4 Limitations and Assumptions

Qualitative research is susceptible to several limitations and assumptions.

●​ A limitation is that it is based on secondary data, which can be prone to in-built bias
or open to discrepancies in reporting standards between sources. The research
assumes that the documents chosen provide a representative and fair view of ESG
practice, but differences in disclosure practice and local reporting traditions may
influence the findings.

6
 ●​ Another limitation would be the thematic analysis being interpretative, the themes are
defined in terms of the researchers' viewpoint and might not even encompass all the
data's nuances.

●​ It is further presumed that the qualitative data indicate industry practice more
generally, although some may be selectively reported or unreported.

Despite such limitations, the methodological strategy provides a systematic structure in

exploring the qualitative aspect of ESG integration and provides significant output to guide
research in academic work as well as policy formulation for environmental economics.

5. ESG Metrics and Their Financial Implications

5.1 Overview of ESG Rating Systems

ESG rating systems provide critical tools for investors to evaluate a company beyond
traditional financial metrics. A company’s exposure to ESG risks and opportunities can be
evaluated through this system, and
hence, a framework is provided to
investors for integrating
non-financial risks. factors into
investment decisions. MSCI,
Sustainalytics, and Bloomberg are
providers that compile ESG ratings
using proprietary methodologies
that draw on company disclosures,
public records, and third-party
research (Friede et al., 2015).

ESG rating systems, however, face

challenges despite their utility. The
inconsistency in scores for the same
firm may be caused by the
differences in the criteria, weighting, and sources of data utilized in ratings by different
providers. While Sustainalytics may prioritize carbon intensity, MSCI may focus on
governance, resulting in disparate ratings (Berg et al., 2019). This can complicate investors'

7
decision-making and also calls for transparency in methodology. Nevertheless, ESG ratings
have gained prominent support from investors as they aim to align their portfolios with
sustainability goals, such as the United Nations Sustainable Development Goals.

5.2 Linkages between ESG Scores and Corporate Financial Indicators

The research done to explore the relationship between ESG scores and the company's
financial performance suggests a generally positive correlation. Friede et al. (2015)
meta-analyzed more than 2000 studies and found that 90% of the firms reported a
non-negative association between ESG performance and their financial performance, with
most reporting a positive association. This analysis implies that firms with ESG
considerations leading their priorities produce better financial performance. ​
Eccles et al. (2014) discovered that companies with robust sustainability practices have better
ROE and ROA than their peers, which they attributed to improved operational effectiveness
and stakeholder trust. Clark et al. (2015) also showed that ESG integration can enhance
risk-adjusted returns, especially over the long term, by reducing exposure to environmental
and governance risks.

But to note, this positive correlation is not absolute. There are also reports of mixed or
negative correlations, especially among industries in which ESG investments have short-term
expenses with no proximate financial returns (Khan et al., 2016). This process is further
complicated by introducing variables such as company size, industry, and geography.

In the Indian scenario, ESG implementation is in its infancy but is increasing. The regulatory
guidelines such as the Business Responsibility and Sustainability Reporting (BRSR) promote
ESG implementation in the Indian market. BRSR is a rеporting framework notified by thе
SEBI for listеd companies in Indiа. Reports indicate Indian companies with better ESG
ratings than their competitors financially outperforming them, especially in the IT industry
(Kumar et al., 2022).

5.3 Comparative Case Studies

We can contrast two Indian firms in the energy sector to demonstrate ESG's financial impact:
Tata Power and Coal India Limited (CIL). ESG performance is a key differentiating factor
for both these firms as they work in an industry with severe environmental and social
scrutiny.

8
Tata Power: Tata Power boasts high ESG scores, especially in the environmental metrics (like
reduced carbon emissions) and the governance metrics (like transparent reporting). The firm
is widely known for its transition to renewable energy as well. As a result, Tata Power’s stock
rose approximately 120% from 2018-2023. It also had an average ROE of 11.5% and a ROA
of 4.2% (Tata Power Annual Report, 2023). Its focus on sustainability has lowered its
perceived risk and, as a result, attracted ESG-preferring investors.

Coal India Limited: As the firm is primarily coal-dominated, it scores lower on ESG metrics
emerging from factors like high environmental impact and weaker social performance (Like
labor disputes). Over the same period (2018-2023), CIL’s stock price grew only by 25%, with
an ROE of 8.8% and ROA of 3.9% (CIL Annual Report, 2023). Its higher risk profile has
resulted in a relatively elevated cost of capital.

We can conclude that the firm with a higher ESG score (Tata Power) significantly financially
outperformed the firm with a lower ESG score (CIL). Sure, there may have been external
influences such as government policies and commodity prices, but the fact that investors
equate higher ESG scores with lower regulatory risks and better market reputation still holds.

6. Financial Analysis and Risk Assessment

6.1 Impact on Cost of Capital

A company’s debt and equity financing costs are both influenced significantly by its ESG
performance, affecting its cost of capital. Bauer and Hann (2010) found that companies with
good environmental performance had lower credit spreads, meaning lower borrowing costs.
Also, El Ghoul et al. (2011) established that companies that performed better in ESG had a
reduced cost of equity since investors required a lower risk premium.

Infosys, a prominent Indian multinational technology company, leverages high ESG ratings
by focusing on carbon neutrality and governance in order to secure favourable financing
positions. Its has shown lowered Weighted Average Cost of Capital (WACC) than its peers
with weaker ESG profiles (Infosys Sustainability Report, 2023), This advantage enhances
investment capacity as well as the long term profitability and aligns with global findings that
ESG integration reduces financing costs (GSIA, 2021).

9
6.2 Risk-Adjusted Returns and Volatility
The integration of ESG can serve to enhance risk management and in turn provide better
risk-adjusted returns as well as lower volatility. According to MSCI (2019) there was
exhibition of lower volatility and higher Sharpe ratios in the MSCI World ESG Leaders Index
which comprises high ESG rated firms compared to the broader MSCI World Index over a
decade. This brings the idea that through ESG focused investments one can avoid high ESG
risks (like environmental liabilities and governance scandals) and buffer against market
downturns.

It is worth noting, though, that the relationship differs between sectors and setting. Various
determinants can emerge as dominant across various industries. For instance, in energy
companies, determinants such as superior environmental performance matter whereas in tech,
governance factors are dominant. The leading ESG practicing Indian companies ( NIFTY 100
ESG Index) have proved their stability during times of market volatility and use of ESG has
seen its justification as a risk management strategy (NSE, 2023).Though short-term volatility
can rise while making ESG changes, it demands a long-term vision (Clark et al., 2015).

6.3 Corporate Governance and Stakeholder Theory

One of the key factors that hinder financial performance of any firm is agency costs. It arises
from the difference in incentives of the management and the shareholders. However, this is
resolved by Corporate Governance which is a cornerstone of ESG. Gompers et al. (2003) in
its findings correlated strong shareholder rights with higher firm value and profits. Bebchuk
et al. (2013) also linked better governance with elevated Tobin’s Q ratios. In the Indian
market, this is exemplified by companies like HDFC Bank. The company has robust board
independence and transparency which leads it into outperforming its competitors financially.

10
The framework is further extended by Stakeholder theory which states that the consideration
of all stakeholders (employees, customers, communities) enhances the sustainability and
long-term value. An example is Tata Group's stakeholder-focused strategy reflected by its
investments in community welfare. This strategy has assisted in expanding its strength and
credibility, resulting in good financial performance (Kumar et al., 2022). This also aligns with
Elkington's (1997) triple bottom line, practicing balanced focus on people, planet and profit.

7. Regulatory Environment and Policy Implications

7.1 Global ESG Regulatory Frameworks

A concerted effort to align the longevity report with regional disparity is evident in the
management of the ESG in 2025. The transnational resilience gauge Board (ISSB),
operationally inferior to the IFRS foundation, which immediately oversees climate-related
disclosures previously forbidden by the Task Force on Climate-related Economic Disclosures
(TCFD) (S&P Global, 2023). The ISSB aims at unifying disparate models such as the Global
Reporting Innovation ( GRI ), the Sustainability Accounting Standards Board ( SASB ), and
the Climate Disclosure Standards Board ( CDSB ) among a global benchmark, Cambridge
Associates, 2023. By 2025, the GRI Foundation will have expanded its sectoral focus,
offering farinaceous guidance to sectors that appreciate mining, cultivation, and renewable
energy, while the ISSB will focus on investor-centric prosody to enhance cross-border
comparisons (ESG Consulting Service, 2025).

In the European Union, the Corporate Sustainability Reporting Directive (CSRD) now forces
nearly 50,000 companies to reveal extensive details including firms from outside the EU that
earn a lot of turnover there (Plan A Earth, 2024). The European Sustainability Reporting
Standards (ESRS), updated in July 2023, now demand detailed data on the effects on
biodiversity, labor practices within supply chains plus information on pay gaps between
genders; limits ease by 2026 for small firms (Sustainability News, 2024). In contrast the U.S.
uses a market-led method where the SEC’s climate disclosure rules face legal conflicts;
jurisdictions such as Japan or South Africa impose firm rules on carbon-heavy industries
(Plural Policy, 2024). Rules differ by region, as shown by the EU’s two-year delay before
applying ESRS rules to small companies, a sign of disputes between unified standards and
what can be done practically (Cambridge Associates, 2023).

7.2 Indian Regulatory Landscape

11
India’s ESG rules in 2025 are a mix of separate orders, yet new reforms show steps toward
matching global standards. The Securities and Exchange Board of India (SEBI) changed its
Listing Obligations with a smaller set called the BRSR Core from the Business
Responsibility and Sustainability Report, which uses clear numbers for GHG emissions,
water care, board mix (SEBI, 2023; India Briefing, 2025). The top 250 listed firms must now
report ESG work across their supply chains covering both suppliers with at least 2 % of
purchases as well as customers with similar sales (Cyril Amarchand Mangaldas, 2024). To
lower extra load SEBI swapped a required “check” for an optional “review” for FY 2024–25,
so firms may begin value chain reports by 2026–27 (India Briefing, 2025).

India’s regulatory system splits into two parts. SEBI applies BRSR to public companies; the
RBI asks banks to do climate stress tests while the MCA makes private firms give 2 % of
profits to CSR (SEBI, 2023; LinkedIn, 2024). This rule split creates uneven compliance,
especially for global companies that cope with India’s National Voluntary Guidelines or the
EU’s CSRD plus Singapore’s climate reporting rules (Control Risks, 2023). For example
SEBI’s 2024 circular added a “green credit” leadership score under BRSR Principle 6 that
records credits produced by companies as well as their top 10 value chain partners - a
measure missing in global frameworks such as SASB (LiveLaw, 2024). Critics note poor
enforcement; only 60 % of BRSR filers hit SEBI’s 2024 deadlines, which shows gaps in
SMEs’ capacity (LinkedIn, 2024).

7.3 Policy Recommendations

To effectively bridge the gaps between India’s regulatory framework and global ESG
standards, policymakers should focus on the following strategies:

1.​ Harmonization of the Reporting Standards: Align India's BRSR structure with the
ISSB gauge to enhance cross-border comparison. The present entails the integration
of Scope 3 emissions and double materiality assessment into the BRSR publication.
Similar conformity would make it easier for Indian companies to enter EU trading
centers under the equality clause of the CSRD, thereby reducing the number of
duplicates for individuals complying with identical structures.

2.​ Capacity Building for SMEs: The development of public-private associations to

encourage the adoption of ESG software by SMEs, which account for 45 % of the
final product but do not have supplies for Farinaceous Disclosure. SEBI and

12
 NASSCOM could work together to develop machine learning-based systems to
automate the selection of BRSR facts, in line with the EU Digital ESG Fund. SMEs
would be able to comply with the requirements of the BRSR efficiently and
cost-effectively.

3.​ Incentivization and Enforcement: provide tax rebates to companies achieving the
≥75% green credit target otherwise transitioning to renewable energy, relevant with
penalties for greenwashing. Perform a three-tiered assurance model whereby major
undertakings are subject to external audit while SMEs self-certify. This strategy
would ensure scalable enforcement and support genuine integration of ESGs.

4.​ Global Cooperation: Establishment of framework under the UN to harmonize carbon

pricing and resolve trade disputes arises from divergent coverage indicators. This
would alleviate jurisdictional disparity and facilitate smooth transnational trade.

5.​ Education and Awareness: Introduction of countrywide ESG literacy campaigns

focusing on SMEs and new operations. Reward for ESG coverage, adhesion methods,
and access to green financing options should be concealed within the above schemes.
The achievement and effectiveness of the abovementioned activities can be boosted in
cooperation with business associations and universities.

6.​ Regulatory Clarification and Consistency: streamlining the regulatory environment

of India by consolidating the sectoral responsibilities under the ESG legislation. The
current system would simplify the rules on compliance and clarify the enforcement
mechanism, encouraging other undertakings to adopt sound ESG practices.

8. Discussion and Interpretation of Findings

8.1 Synthesis of Quantitative and Qualitative Insights

The analysis of ESG investing and business financial performance shows a mainly positive
connection that depends on the situation. Quantitative evidence from a review of over 2,000
studies shows that 90 % of research finds no negative link; most reveal a positive association
between ESG performance and financial measures like return on equity, return on assets as
well as growth in stock prices (Friede et al., 2015). For example, firms with good
sustainability practices report higher ROE and ROA through improved operations and
increased trust from stakeholders (Eccles et al., 2014). In India, Tata Power serves as a clear

13
case; its high ESG scores because of its focus on renewable energy led to a 120 % increase in
stock price from 2018 to 2023, with an ROE of 11.5 % and an ROA of 4.2 %, while Coal
India Limited saw a 25 % rise in stock price, an ROE of 8.8 % and an ROA of 3.9 % (Tata
Power, 2023; Coal India Limited, 2023). Qualitative examples also show that ESG strengths
lessen risk views while boosting market standing, which drives financial gains.

The relationship does not act the same in each setting. Some research shows mixed or poor
results, mainly in fields where ESG steps cost a lot at first without quick gains (Khan et al.,
2016). New work also points out factors like digital change that can boost ESG’s money
benefits at first but lessen after a while (Xu et al., 2023). In India, study of Nifty 50 firms
finds different effects, with environmental plus governance marks sometimes cutting ROE
while social marks show little effect (Singh et al., 2023). These outcomes stress the need for
attention to specific fields as well as local factors suggesting that while ESG can lift money
returns, its power relies on careful planning plus outside conditions.

8.2 Managerial Implications

The findings give clear advice for managers who want to use ESG for financial and planning
rewards. It is essential to include ESG in business plans; managers must choose clear targets
like lowering carbon output or raising board variety, then check progress with simple
measures. Regular ESG checks and asking people through surveys or committees keep plans
on track while board control adds clarity (Idealsboard, n.d.). In practice this may require
using energy-saving tools or programs for variety, which lower costs while boosting
reputation, as seen with Infosys, whose high ESG marks cut its cost of capital (Infosys, 2023;
TechTarget, n.d.).

In India, firms must follow rules set by SEBI for business responsibility and sustainability
reports including a step-by-step value chain disclosure until 2026–27 (Securities and
Exchange Board of India, 2024). Managers use AI tools to ease ESG report work, especially
for small companies with few resources, as Section 6 advises (Conservice ESG, n.d.). This
approach meets rules, draws investors who favor sustainability, may boost risk-adjusted
returns, cuts volatility as seen with firms in the Nifty 100 ESG Index (National Stock
Exchange of India, 2023). By putting ESG in the decision process, managers cut risks, lift
long-term profit along with give their firms a better competitive edge in a stakeholder-driven
market.

14
8.3 Theoretical and Practical Contributions
This report looks at how ESG affects finances using data up to March 2025 with India as an
emerging market. It uses stakeholder theory plus the triple bottom line (Elkington, 1997) and
shows how ESG brings together business with community benefits. It discusses academic
debates by matching studies that report clear links with studies that show varied results. It
studies India-specific factors such as the role of SEBI’s BRSR Core framework, which
strengthens the discussion on ESG’s financial effects both worldwide as well as locally
(Global Sustainable Investment Alliance, 2021). This offers a careful view to the research
while showing factors such as local regulations as well as digitization (Xu et al., 2023).

The report gives clear advice for several groups. For managers it shows a plan to set up ESG
plans by following ISSB rules while dealing with local rules to boost money matters and
appeal to those who invest (MSCI, 2019). Investors get tips on judging ESG results for safer
profits, backed by facts that ESG-focused indexes face fewer ups and downs (MSCI, 2019).
For policymakers it takes ideas from Section 6. It pushes for agreement with global rules,
improves SME skills through joint ventures between government and business and suggests
rewards like tax cuts for green credits to fix gaps in rule enforcement noting that only 60 % of
BRSR filers fulfilled 2024 deadlines (India Briefing, 2025). These points join theory with
practice making a full guide for boosting ESG use in India as well as other places.

Table 1: Summary of Key Findings and Implications

Aspect Key Finding Implication

Quantitative Meta-analyses show 90% Companies should prioritize ESG

Evidence non-negative, mostly positive for potential financial benefits.
ESG-financial link.

Qualitative Case studies (e.g., Tata Power vs. Coal Managers can learn from
Evidence India) show ESG correlates with high-ESG performers to enhance
better performance. reputation and returns.

Contextual Mixed results in some industries, Tailor ESG strategies to industry

15
 Variations moderated by digital transformation. and context for optimal outcomes.

Managerial Integrate ESG, set KPIs, engage Enhance financial performance,

Actions stakeholders, ensure reporting. manage risks, attract investors.

Theoretical Updates ESG-financial performance Advances academic

Contribution link, focuses on India. understanding, informs global vs.
local comparisons.

Practical Recommendations for companies, Guides strategy implementation,

Contribution investors, and policymakers. investment decisions, and policy
formulation.

9. Conclusion

This report has delivered a thorough investigation into the ESG investing vs. corporate
finance link. Indications from international as well as Indian contexts clearly show that
companies with strong ESG practices typically possess better financial parameters, such as
better return on equity and assets, better cost of capital, and risk-adjusted return on assets.
Indian market case studies, such as the different performances of Tata Power and Coal India
Limited, show that companies with a focus on sustainability can achieve substantial market
performance and operational advantages. Despite the presence of some mixed findings in a
few sectors, general trends confirm that effective integration of ESG leads to long-term
stability of firms and creation of value.

However, the relationship is context-dependent. Diffusion under ESG can demand higher
initial capital costs for the heavy manufacturing sector and lesser profit prospects for some
downstream operations. Under these circumstances in India, the SEBI regulation on Business
Responsibility and Sustainability Reporting is expected to facilitate ESG adoption; however,
some challenges, segmented compliance framework, low levels of capacity on the part of
SMEs, and inconsistent enforcement continue.

This research contributes to the discussion of ESG investing in three respects. Firstly, it
brings together international empirical data and India-specific case studies to provide a rich

16
understanding of how local market and regulatory factors influence ESG outcomes.
Secondly, it spans stakeholder theory and the triple bottom line to describe how balancing
profit interests with societal and environmental considerations generates long-term value.
Moreover, proposing a few actionable policy recommendations, interim measures are
suggested such as bringing the BRSR of India in line with the international standards of ISSB
and giving incentives for SMEs through public-private partnerships.

The findings highlight the need for integrating ESG in business operations, ensuring
compliance proceedings through digital tools, and engaging with stakeholders. Investors are
enlightened about the contribution of ESG towards risk reduction and improved risk-adjusted
returns, especially in unstable markets.

To unlock India's ESG potential, policymakers can intensify enforcement through tiered
punishment for greenwashing and tax credits for renewable energy shifts. Empower SMEs
through low-cost ESG reporting methodologies and training programs to overcome resource
deficiencies. Conform to international standards by partnering with multilateral organizations
to harmonize carbon pricing and disclosure standards.

For companies, ESG integration, the establishment of quantifiable KPIs, and stakeholder
engagement are vital to maintaining competitive edge. Investors need to make credible ESG
strategies a top priority for companies to reduce risk and seize nascent opportunities.

In summary, ESG investing is a revolution toward sustainable capitalism. Despite the

challenges, the intersection of regulatory intensity, investor appetite, and corporate creativity
puts ESG at the heart of robust, inclusive, and successful business models in the 21st century.

17
References

Aguinis, H., & Glavas, A. (2012). What we know and don’t know about corporate social
responsibility: A review and research agenda. Journal of Management, 38(4), 932–968.
https://doi.org/10.1177/0149206311436079

Bansal, P., & Song, H.-C. (2017). Similar but not the same: Differentiating corporate
sustainability from corporate responsibility. Academy of Management Annals, 11(1),
105–149. https://doi.org/10.5465/annals.2015.0095

Bebchuk, L. A., Cohen, A., & Wang, C. C. (2013). Learning and the disappearing association
between governance and returns. Journal of Financial Economics, 108(2), 323–348.

Berg, F., Kölbel, J. F., & Rigobon, R. (2019). Aggregate confusion: The divergence of ESG
ratings. SSRN Electronic Journal.

Bauer, R., & Hann, D. (2010). Corporate environmental management and credit risk.
Maastricht University. (Original work published n.d.).

Cambridge Associates. (2023). Global ESG regulatory framework.

https://www.cambridgeassociates.com/insights/esg-regulations

Clarke, G. L., Feiner, A., & Viehs, M. (2015). From the stockholder to the stakeholder: How
sustainability can drive financial outperformance. Social Science Research Network.
(n.d.).

Control Risks. (2023). India ESG report. https://www.controlrisks.com/india-esg

Cyril Amarchand Mangaldas. (2024). SEBI’s ESG disclosure mandates.

https://disputeresolution.cyrilamarchandblogs.com

Eccles, R. G., Ioannou, I., & Serafeim, G. (2012). The impact of corporate sustainability on
organizational processes and performance. NBER Working Paper No. 17950. Retrieved
from http://www.nber.org/papers/w17950

Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on
organizational processes and performance. Management Science, 60(11), 2835–2857.
https://doi.org/10.1287/mnsc.2014.1984

1
Elkington, J. (1997). Cannibals with forks: The triple bottom line of 21st century business.
Capstone.

Elkington, J., & Rowlands, I. H. (1999). Cannibals with forks: The triple bottom line of 21st
century business. Alternatives Journal, 25(4), 42.

ESG Consulting Service. (2025). ESG reporting frameworks in 2025.

https://esgconsultingservice.com

Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: Aggregated
evidence from more than 2000 empirical studies. Journal of Sustainable Finance &
Investment, 5(4), 210–233. https://doi.org/10.1080/20430795.2015.1118917

Global Sustainable Investment Alliance. (2020). 2020 Global sustainable investment review.

Global Sustainable Investment Alliance. (2021). Global sustainable investment review 2020.
https://www.gsi-alliance.org/wp-content/uploads/2021/08/GSIR-20201.pdf

Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. The
Quarterly Journal of Economics, 118(1), 107–156.

Harvard Business School. (n.d.). Corporate sustainability: First evidence on materiality.

Faculty & Research.

HDFC Bank. (2023). HDFC Bank Annual Report.

Idealsboard. (n.d.). ESG strategy: Best practices, challenges, tips for success.
https://idealsboard.com/how-to-create-an-environmental-social-and-governance-esg-pla
n/

India Briefing. (2025, January 15). ESG reporting in India 2025: Trends and compliance
requirements.
https://www.india-briefing.com/news/esg-reporting-in-india-2025-trends-and-complian
ce-requirements-29733.html

Infosys. (2023). Infosys ESG report 2022-23.

https://www.infosys.com/sustainability/documents/infosys-esg-report-2022-23.pdf

Khan, M., Serafeim, G., & Yoon, A. (2016). Corporate sustainability: First evidence on

2
 materiality. The Accounting Review, 91(6), 1697–1724.
https://doi.org/10.2308/accr-51383

Kiel, D., Müller, J. M., & Arnold, C. (2017). Sustainable industrial value creation: Benefits
and challenges of Industry 4.0. International Journal of Innovation Management, 21(3),
1750015. https://doi.org/10.1142/S1363919617400151

Kumar, R., Singh, S., & Kumar, A. (2022). ESG disclosure practices in India: An analysis of
BRSR compliance. Journal of Sustainable Finance, 12(3), 45–62.

Kumar, S., et al. (2022). ESG adoption in India: Trends and challenges. Indian Journal of
Finance.

LinkedIn. (2024). India’s ESG reporting regulations.

https://www.linkedin.com/pulse/indias-esg-reporting

LiveLaw. (2024). India ESG analysis. https://www.livelaw.in/esg-india

MSCI. (2019). MSCI world ESG leaders index.

https://www.msci.com/documents/10199/8f4f1b2d-4e1e-4e7d-9f1a-2f8e8c9b0e6e

National Stock Exchange of India. (2023). NIFTY 100 ESG index factsheet.
https://www.niftyindices.com/Factsheet/Factsheet_NIFTY100_ESG_Index.pdf

Plural Policy. (2024). Global ESG policy tracker. https://pluralpolicy.com

Plan A Earth. (2024). EU ESG regulations 2025. https://plana.earth/academy

Sadok, E. G., Guedhami, O., Kwok, C. C., & Mishra, D. (2010, July 1). Does corporate social
responsibility affect the cost of capital?

Securities and Exchange Board of India. (2024, December). Amendments to SEBI (LODR)
regulations 2024 (Circular No. SEBI/HO/CFD/CFD-SEC-2/P/CIR/2024/89467).
https://www.sebi.gov.in/legal/circulars/dec-2024/amendments-to-sebi-lodr-regulations-
2024_89467.html

SEBI. (2023). Circular on ESG disclosures. https://www.sebi.gov.in/circulars

S&P Global. (2023). ESG regulatory tracker.

3
 https://www.spglobal.com/esg-regulatory-tracker

Sustainability News. (2024). ESG regulations guide. https://www.sustainabilitynews.com

TechTarget. (n.d.). ESG strategy and management: Complete guide for businesses.
https://www.techtarget.com/sustainability/feature/ESG-strategy-and-management-Com
plete-guide-for-businesses

Tata Power. (2023). Annual report 2022-23.

https://www.tatapower.com/pdf/investor-relations/Annual-Report-2022-23.pdf

UN PRI. (2023). Principles for responsible investment. https://www.unpri.org/principles

Xu, Y., Liu, Z., & Zhao, C. (2023). An empirical analysis of the impact of ESG on financial
performance: The moderating role of digital transformation. Frontiers in Environmental
Science, 11, Article 1256052. https://doi.org/10.3389/fenvs.2023.1256052

Xie, J., Nozawa, W., Yagi, M., Fujii, H., & Managi, S. (2018). Do environmental, social and
governance activities improve corporate financial performance? MPRA Paper No.
88720. Retrieved from https://mpra.ub.uni-muenchen.de/88720/