ESG disclosures and corporate performance: A non-linear and disaggregated approach

Abstract

The present study explores the association between Environmental Social Governance (ESG) disclosure and the operational, financial, and market-based performance of Indian corporations. The ESG score has been disaggregated into three sub-parts, i.e., EDS, GDS, and SDS (environmental, social, and governance disclosure scores, respectively). Using a sample of 305 companies listed in the NSE 500 (the largest stock exchange in India), linear and non-linear relationships among the variables have been investigated. The data has been compiled from 2014 to 2022 since the Indian government implemented the CSR mandate from the year 2014. The linear results of the dynamic panel data analysis technique have indicated that ESG disclosures significantly impact the market performance of business enterprises. Further, the non-linear results have indicated a U-shaped association between the composite ESG score and market performance. The disintegration of ESG score has revealed that while the social and governance components have a positive linear relationship with all performance indicators, the environmental sub-component has a U-shaped relationship with market performance. Hence, as the findings indicate that ESG-related activities impact firms positively after reaching a threshold, long-term planning and substantial resources are required to be dedicated in this direction.