“Impact of ESG disclosure on firm performance and cost of debt: Empirical evidence from India”

Abstract

Despite several research evaluating the connection between sustainability and the bottom line of firms, the existing research is inconclusive. In addition, most studies focus on multinational firms based in the United States or Europe, while research in the context of emerging economies is scant. This paper endeavours to investigate the strength of the association between Environment, Social and Governance (ESG) disclosure scores and the financial performance of 272 Indian firms listed on National Stock Exchange for the period 2015 to 2021 by employing panel data regression techniques. The results indicate that organisations having better ESG performance outperform their industry peers financially and are valued more by the market. Moreover, the data indicates that financial markets for lenders consider ESG disclosure when determining creditworthiness. In accordance with this, businesses can examine their operations and become more aligned with eco-friendly methods. Even though ESG disclosure appears to be associated with improved financial success, this is not the case across all industries and during COVID-19 pandemic. This study is relevant due to the growing significance of sustainability and the role of emerging nations in international commerce. It helps managers prioritize resource allocations to ESG-related activities that may affect financial performance differently across industry sectors, thus adding to the literature on the financial effects of ESG disclosures, particularly industry-specific aspects. This research represents a pioneering effort by assessing the impact of ESG disclosure on the profitability, market value, and cost of financing of Indian firms using both aggregation and disaggregation methods.