Impact of ESG Risk Scores on Firm Performance: An Empirical Analysis of NSE-100 Companies

Abstract

This study aims to compare the overall environment, social and governance (ESG) risk score and environment risk score, social risk score and governance risk scores across different industrial sectors in India and explore the impact of overall ESG risk score, environmental, social and governance risk score on firm performance. The ESG risk score is collected for 2021–2022 from Yahoo Finance, and financial data were collected from Prowess IQ. The Nifty 100 index of NSE is used as a platform to shortlist firms. Tobin’s Q, return on assets (ROA) and return on equity (ROE) are used as proxy for the firm performance which determines the market-based, operating and financial performance, respectively. We found a significant difference among the ESG risk scores, ESG risk scores of different industries. There is a low correlation between ESG scores, environment scores, social scores, governance scores and Tobin’s Q, ROA and ROE. The regression results show that the ESG risk score has an insignificant negative impact on Tobin’s Q (market-based performance) and the environmental risk scores, social risk scores and governance risk scores have an insignificant positive impact on the Tobin’s Q. ESG risk score has an insignificant negative impact on ROA (operating performance) and ROE (financing performance) while the environment risk scores, social risk scores and governance risk scores have an insignificant positive effect on ROA and ROE. Thus, ESG risk score and its components do not show any significant impact on firm performance.