Abstract
Environmental, social, and governance (ESG) are considered the sustainability factors of corporations. By taking inspiration from stakeholder theory, this study aims to examine the impact of ESG risk level on the firm's financial performance. A cross-sectional sample of 57 Indian financial firms was taken. Financial performance data and ESG risk data for the financial year ending 2021 were retrieved from Prowess IQ and the Sustainalytics website. The study used ordinary least square regression to capture the impact of the ESG risk on a firm's return on assets and return on equity. The findings are consistent with stakeholder theory, that firm's financial performance has a strong negative correlation with the ESG risk level. Hence firms should minimise the ESG risks to increase their profitability. The study contributes by filling the gap of less literature on Indian financial firms and by exploring the relevance of ESG in the financial sector.
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