ESG Performance and Cost of Capital in India's Renewable Energy Transition: A DCF Valuation Analysis of Adani Green Energy Limited Under India's Net-Zero 2070 Policy Framework

This study has developed and applied a comprehensive ESG-augmented DCF valuation framework to Adani Green Energy Limited, generating several findings that advance both academic understanding and practical application of ESG-finance theory in the emerging market renewable energy context. The central empirical finding is that India's Net-Zero 2070 policy creates quantifiable financial value for AGEL primarily through WACC compression rather than cash flow enhancement. A 441-basis point reduction in WACC under the Net-Zero Acceleration scenario, driven by governance risk premium reduction and amplified ESG benefit adjustment, would substantially increase AGEL's terminal value through the multiplicative effect on the Gordon Growth Model denominator. The bottom-up beta analysis demonstrates that AGEL's elevated cost of equity reflects financial leverage and governance-specific risks rather than the operational risk profile of renewable energy generation, which exhibits low unlevered beta characteristics consistent with contracted, inflation-linked cash flows. The green bond spread decomposition reveals that AGEL's environmental credentials generate a 30-basis point financing advantage that is currently more than offset by an 80 basis point governance debt premium, establishing governance reform as the highest-return ESG investment available to the company's management. The FCFF projections confirm a structural negative cash flow phase through FY2030 driven by the 85% CapEx intensity of the expansion period, transitioning to strongly positive free cash flow generation from FY2031 onward as operational leverage from commissioned assets materialises. Based on these findings, the following recommendations are offered. Management should prioritise governance reform as a financial imperative, targeting specific improvements in independent director qualifications, promoter pledge ratio reduction, audit committee effectiveness, and annual external governance assessments against international benchmarks such as MSCI Governance Scorecards. The green bond programme should be extended through project-specific issuances ring-fenced to individual PPA portfolios and consideration of Sustainability-Linked Bonds with WACC-reducing covenants tied to governance improvement milestones. A structured deleveraging roadmap targeting a D/E ratio of 2.0x post-FY2030 would reduce the Hamada re-levering effect on beta and compress the cost of equity through a self-reinforcing loop of improved credit metrics and governance perception. Enhanced project-level BRSR reporting would reduce information asymmetry and enable ESG rating agencies to more accurately capture AGEL's genuine environmental performance, potentially compressing the governance risk premium through improved transparency. For institutional investors, the study provides a replicable two-scenario valuation framework that explicitly prices climate policy transition risk into emerging market renewable energy equity valuations. For policymakers, the evidence that governance reform and ESG credibility can reduce infrastructure financing costs by hundreds of basis points provides a compelling capital market argument for accelerating regulatory frameworks that support better corporate governance in the renewable energy sector. For researchers, the identification of the governance-environment ESG pillar divergence as a primary determinant of financing costs in this context establishes a productive direction for future empirical investigation using panel data across Indian renewable energy developers.

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