Sustainable Banking in India: An Empirical Study of ESG Scores and Financial Performance

Abstract

The research study on the relationship between ESG scores and financial performance in the banking sector of India reveals significant insights into the dynamics of sustainable finance. The analysis, conducted using data from eight banking companies over a five-year period, indicates a weak negative correlation between ESG scores and the compound annual growth rate (CAGR) of stock prices. Conversely, moderate positive correlations are observed between ESG scores and the CAGR of both return on assets (ROA) and return on equity (ROE). Regression analysis reinforces these findings, highlighting a weak linear relationship between ESG scores and financial metrics. Theoretical implications suggest alignment with stakeholder theory, agency theory, and institutional theory, emphasizing the importance of considering stakeholder interests, aligning incentives, and navigating institutional pressures. Managerial implications underscore the need for strategic integration of ESG factors into decision-making processes, stakeholder engagement, and investment in ESG education and training programs. The study identifies limitations, including inadequate ESG data availability and sector-specific focus, and suggests future research directions exploring diverse sectors and financial indicators beyond banking. Overall, the research contributes to advancing our understanding of sustainable finance and its implications for long-term value creation