The Impact of ESG Scores on Financial Performance of Companies: An Analytic Study

This study investigates the impact of Environmental, Social, and Governance (ESG) scores on the financial performance of noan-financial companies listed on the National Stock Exchange. With the growing importance of sustainable business practices and responsible investing, ESG has become a key area of interest for researchers, investors, and policymakers. However, existing literature provides mixed evidence regarding the relationship between ESG performance and financial outcomes, particularly in emerging economies like India. This study seeks to address this gap by empirically analyzing the ESG–financial performance relationship using panel data methodology. The analysis is based on a sample of 50 non-financial companies over a five-year period, resulting in 250 firm-year observations. Financial performance is measured using Return on Assets (ROA) and Return on Equity (ROE), while ESG scores are treated as the primary independent variable. The study also incorporates control variables such as firm size, leverage, and firm age to enhance the robustness of the results. Econometric techniques including Pooled Ordinary Least Squares (OLS), Fixed Effects, and Random Effects models are employed. The Hausman test confirms the suitability of the Fixed Effects model, which is used as the final estimator. Additionally, logarithmic transformations and diagnostic tests for heteroskedasticity and autocorrelation are applied to ensure the reliability of the findings. The results indicate that ESG scores do not have a statistically significant impact on financial performance in the short term. In contrast, firm size shows a negative effect on ROA, while leverage has a strong positive influence on ROE. The findings suggest that ESG should be considered a long-term strategic factor rather than an immediate driver of profitability. Overall, the study highlights the complexity of the ESG–financial performance relationship and underscores the need for further research using extended time horizons and advanced methodologies.