IDEAS home Printed from https://ideas.repec.org/a/bla/bstrat/v34y2025i3p3469-3496.html

ESG‐Firm Performance Nexus: Evidence From an Emerging Economy

Author

Listed:
  • Ajithakumari Vijayappan Nair Biju
  • Sreelekshmi Geetha
  • Salu Prasad
  • Aghila Sasidharan
  • Ambili Jayachandran

Abstract

Firms worldwide are strengthening environmental, social and governance (ESG) factors, indicating a bidirectional association between financial and non‐financial performance. Understanding the ambiguity around the predictors of the firm's ESG performance, we attempt to reappraise the ESG‐ firm performance (FP) linkage using the firms indexed in the NIFTY 100 ESG index spanning 2014 to 2023. Our findings highlight that market forces significantly influence firms' ESG performance; however, in emerging economies, the direct relationship between ESG and FP appears to be insignificant. Surprisingly, corporate governance positively moderates the ESG–FP linkage, strengthening this association. Among the four proxies for market forces, the Volatility Index (VIX) shows a significant impact, where higher market volatility is associated with improved ESG performance, and lower volatility corresponds to weaker ESG performance. Conversely, the World Uncertainty Index (WUI) exhibits a negative significance, suggesting that higher WUI adversely affects the ESG performance of firms in emerging economies, while lower WUI has a favourable effect. Green bonds have a positive and significant effect on overall ESG performance and on social and governance dimensions; however, their influence on environmental performance is not significant, raising concerns about potential greenwashing trends. Strikingly, our findings indicate that emerging economy firms do not consider systematic risk, suggesting that investors' risk perceptions remain unchanged regardless of whether firms over‐ or under‐invest in ESG initiatives. Our research calls for greater attention to policymakers by providing accurate reasonings for the ESG performance of emerging economy firms.

Suggested Citation

  • Ajithakumari Vijayappan Nair Biju & Sreelekshmi Geetha & Salu Prasad & Aghila Sasidharan & Ambili Jayachandran, 2025. "ESG‐Firm Performance Nexus: Evidence From an Emerging Economy," Business Strategy and the Environment, Wiley Blackwell, vol. 34(3), pages 3469-3496, March.
    • Handle: RePEc:bla:bstrat:v:34:y:2025:i:3:p:3469-3496
    DOI: 10.1002/bse.4152
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/bse.4152
    Download Restriction: no
    File URL: https://libkey.io/10.1002/bse.4152?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fatemi, Ali & Glaum, Martin & Kaiser, Stefanie, 2018. "ESG performance and firm value: The moderating role of disclosure," Global Finance Journal, Elsevier, vol. 38(C), pages 45-64.
    2. Valentina Lagasio & Nicola Cucari, 2019. "Corporate governance and environmental social governance disclosure: A meta‐analytical review," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(4), pages 701-711, July.
    3. Wu, Zihao & Lin, Siliang & Chen, Tianhao & Luo, Chunyang & Xu, Hui, 2023. "Does effective corporate governance mitigate the negative effect of ESG controversies on firm value?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1772-1793.
    4. Yusuf Nuhu & Ashraful Alam, 2023. "Board characteristics and ESG disclosure in energy industry: evidence from emerging economies," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 22(1), pages 7-28, July.
    5. Joseph Taylor & Joseph Vithayathil & Dobin Yim, 2018. "Are corporate social responsibility (CSR) initiatives such as sustainable development and environmental policies value enhancing or window dressing?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(5), pages 971-980, September.
    6. Al-Shaer, Habiba & Uyar, Ali & Kuzey, Cemil & Karaman, Abdullah S., 2023. "Do shareholders punish or reward excessive CSR engagement? Moderating effect of cash flow and firm growth," International Review of Financial Analysis, Elsevier, vol. 88(C).
    7. Ngoc Bao Vuong & Yoshihisa Suzuki, 2021. "The Motivating Role of Sentiment in ESG Performance: Evidence from Japanese Companies," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 25(2), pages 125-150.
    8. Preeti Sharma & Priyanka Panday & R. C. Dangwal, 2020. "Determinants of environmental, social and corporate governance (ESG) disclosure: a study of Indian companies," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 17(4), pages 208-217, December.
    9. Ahmed A. Elamer & Mounia Boulhaga, 2024. "ESG controversies and corporate performance: The moderating effect of governance mechanisms and ESG practices," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(4), pages 3312-3327, July.
    10. Pistolesi, Francesco & Teti, Emanuele, 2024. "Shedding light on the relationship between ESG ratings and systematic risk," Finance Research Letters, Elsevier, vol. 60(C).
    11. Rao, Amar & Dagar, Vishal & Sohag, Kazi & Dagher, Leila & Tanin, Tauhidul Islam, 2023. "Good for the planet, good for the wallet: The ESG impact on financial performance in India," Finance Research Letters, Elsevier, vol. 56(C).
    12. Milind Kumar Jha & K. Rangarajan, 2020. "Analysis of corporate sustainability performance and corporate financial performance causal linkage in the Indian context," Asian Journal of Sustainability and Social Responsibility, Springer, vol. 5(1), pages 1-30, December.
    13. Shinu Vig, 2024. "Environmental disclosures by Indian companies: role of board characteristics and board effectiveness," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(1), pages 16-31, March.
    14. Abhishek Behl & P. S. Raghu Kumari & Harnesh Makhija & Dipasha Sharma, 2022. "Exploring the relationship of ESG score and firm value using cross-lagged panel analyses: case of the Indian energy sector," Annals of Operations Research, Springer, vol. 313(1), pages 231-256, June.
    15. Marcel Dohrmann & Monica Martinez‐Blasco & Andreas Moring & Jordi Cuadros Margarit, 2024. "Environmental performance and firm performance in Europe: The moderating role of board governance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(6), pages 5863-5880, November.
    16. Lutfi Abdul Razak & Mansor H. Ibrahim & Adam Ng, 2023. "Environment, social and governance (ESG) performance and CDS spreads: the role of country sustainability," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 24(5), pages 585-613, July.
    17. Giacomo Manetti, 2011. "The quality of stakeholder engagement in sustainability reporting: empirical evidence and critical points," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 18(2), pages 110-122, March.
    18. Muhammad Azeem Qureshi & Minhas Akbar & Ahsan Akbar & Petra Poulova, 2021. "Do ESG Endeavors Assist Firms in Achieving Superior Financial Performance? A Case of 100 Best Corporate Citizens," SAGE Open, , vol. 11(2), pages 21582440211, June.
    19. Kingstone Nyakurukwa & Yudhvir Seetharam, 2023. "Investor reaction to ESG news sentiment: evidence from South Africa," EconomiA, Emerald Group Publishing Limited, vol. 24(1), pages 68-85, March.
    20. Nisar Ahmad & Asma Mobarek & Naheed Nawazesh Roni, 2021. "Revisiting the impact of ESG on financial performance of FTSE350 UK firms: Static and dynamic panel data analysis," Cogent Business & Management, Taylor & Francis Journals, vol. 8(1), pages 1900500-190, January.
    21. Nguyen Van Linh & Dang Ngoc Hung & Ta Quang Binh, 2022. "Relationship between sustainability reporting and firm’s value: Evidence from Vietnam," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2082014-208, December.
    22. Liu, Yu & Miletkov, Mihail K. & Wei, Zuobao & Yang, Tina, 2015. "Board independence and firm performance in China," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 223-244.
    23. P.S. Raghu Kumari & Harnesh Makhija & Dipasha Sharma & Abhishek Behl, 2022. "Board characteristics and environmental disclosures: evidence from sensitive and non-sensitive industries of India," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 18(4), pages 677-700, April.
    24. Khalfaoui Hamdi & Hassan Guenich & Moufida Ben Saada, 2022. "Does corporate financial performance promote ESG: Evidence from US firms," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2154053-215, December.
    25. Fu, Yishu, 2019. "Independent directors, CEO career concerns, and firm innovation: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    26. Gunnar Friede & Timo Busch & Alexander Bassen, 2015. "ESG and financial performance: aggregated evidence from more than 2000 empirical studies," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(4), pages 210-233, October.
    27. Nicolo, Giuseppe & Zampone, Giovanni & Sannino, Giuseppe & Tiron-Tudor, Adriana, 2023. "Worldwide evidence of corporate governance influence on ESG disclosure in the utilities sector," Utilities Policy, Elsevier, vol. 82(C).
    28. Jiang, Hongli & Hu, Wenjie & Jiang, Pengcheng, 2024. "Does ESG performance affect corporate tax avoidance? Evidence from China," Finance Research Letters, Elsevier, vol. 61(C).
    29. Pengyu Chen & Abd Alwahed Dagestani, 2023. "Greenwashing behavior and firm value – From the perspective of board characteristics," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(5), pages 2330-2343, September.
    30. Tang, Dragon Yongjun & Zhang, Yupu, 2020. "Do shareholders benefit from green bonds?," Journal of Corporate Finance, Elsevier, vol. 61(C).
    31. Flammer, Caroline, 2021. "Corporate green bonds," Journal of Financial Economics, Elsevier, vol. 142(2), pages 499-516.
    32. Dhasmana, Samriddhi & Ghosh, Sajal & Kanjilal, Kakali, 2023. "Does investor sentiment influence ESG stock performance? Evidence from India," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    33. P.S. Raghu Kumari & Harnesh Makhija & Dipasha Sharma & Abhishek Behl, 2022. "Board characteristics and environmental disclosures: evidence from sensitive and non-sensitive industries of India," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 18(4), pages 677-700, April.
    34. Chen, Zhongfei & Xie, Guanxia, 2022. "ESG disclosure and financial performance: Moderating role of ESG investors," International Review of Financial Analysis, Elsevier, vol. 83(C).
    35. Bhattacherjee, Purba & Mishra, Sibanjan & Kang, Sang Hoon, 2023. "Does market sentiment and global uncertainties influence ESG-oil nexus? A time-frequency analysis," Resources Policy, Elsevier, vol. 86(PA).
    36. David Reeb & Mariko Sakakibara & Ishtiaq P Mahmood, 2012. "From the Editors: Endogeneity in international business research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(3), pages 211-218, April.
    37. Jayati Sarkar & Subrata Sarkar, 2018. "Bank Ownership, Board Characteristics and Performance: Evidence from Commercial Banks in India," IJFS, MDPI, vol. 6(1), pages 1-30, February.
    38. Yuan George Shan, 2019. "Managerial ownership, board independence and firm performance," Accounting Research Journal, Emerald Group Publishing Limited, vol. 32(2), pages 203-220, July.
    39. Long, Huaigang & Chiah, Mardy & Cakici, Nusret & Zaremba, Adam & Bilgin, Mehmet Huseyin, 2024. "ESG investing in good and bad times: An international study," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    40. Ricky Chung & Lyndie Bayne & Jacqueline Louise Birt, 2023. "Determinants of ESG disclosure among listed firms under voluntary and mandatory ESG disclosure regimes in Hong Kong," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 25(4), pages 812-836, January.
    41. Xinjian Cui & Xuhui Peng & Jia Jia & Dongxiao Wu, 2020. "Does board independence affect environmental disclosures by multinational corporations? Moderating effects of national culture," Applied Economics, Taylor & Francis Journals, vol. 52(52), pages 5687-5705, November.
    42. Mehdi Nekhili & Amal Boukadhaba & Haithem Nagati & Tawhid Chtioui, 2019. "ESG performance and market value: the moderating role of employee board representation," Post-Print hal-02380465, HAL.
    43. Yao Dong & Chen Liang & Zhong Wanyin, 2023. "Board diversity and firm performance: impact of ESG activities in China," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 36(1), pages 1592-1609, March.
    44. Susilo Nur Aji Cokro Darsono & Wing-Keung Wong & Tran Thai Ha Nguyen & Dyah Titis Kusuma Wardani, 2022. "The Economic Policy Uncertainty and Its Effect on Sustainable Investment: A Panel ARDL Approach," JRFM, MDPI, vol. 15(6), pages 1-17, June.
    45. Sarwar, Ghulam, 2012. "Is VIX an investor fear gauge in BRIC equity markets?," Journal of Multinational Financial Management, Elsevier, vol. 22(3), pages 55-65.
    46. Sinha, Avik & Bekiros, Stelios & Hussain, Nazim & Nguyen, Duc Khuong & Khan, Sana Akbar, 2023. "How social imbalance and governance quality shape policy directives for energy transition in the OECD countries?," Energy Economics, Elsevier, vol. 120(C).
    47. Hendi Rohendi & Imam Ghozali & Dwi Ratmono, 2024. "Environmental, social, and governance (ESG) disclosure and firm value: the role of competitive advantage as a mediator," Cogent Business & Management, Taylor & Francis Journals, vol. 11(1), pages 2297446-229, December.
    48. Matthias Horn, 2023. "The Influence of ESG Ratings On Idiosyncratic Stock Risk: The Unrated, the Good, the Bad, and the Sinners," Schmalenbach Journal of Business Research, Springer, vol. 75(3), pages 415-442, September.
    49. Azmi, Wajahat & Hassan, M. Kabir & Houston, Reza & Karim, Mohammad Sydul, 2021. "ESG activities and banking performance: International evidence from emerging economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 70(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ann Susan Thomas & Ambili Jayachandran & Ajithakumari Vijayappan Nair Biju, 2024. "Strategic mapping of the environmental social governance landscape in finance – A bibliometric exploration through concepts and themes," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4428-4453, September.
    2. Changjun Zheng & Md. Abdul Mannan Khan & Mohammad Morshedur Rahman & Syed Moudud-Ul-Huq & Md. Shahinur Rahman, 2025. "ESG Performance and Financial Stability: A Bibliometric and Meta-Analysis," SAGE Open, , vol. 15(4), pages 21582440251, October.
    3. Muhammad Alamgir & Magdalena Osińska & Ming‐Chang Cheng, 2026. "Green Bonds Impact on Firm Performance: The Mediating Role of Financial Risk and Financial Quality," Sustainable Development, John Wiley & Sons, Ltd., vol. 34(S2), pages 1135-1154, March.
    4. Taha Almarayeh, 2026. "The Impact of ESG Ratings on Financial Performance: Evidence From Developing Economies," Business Strategy and the Environment, Wiley Blackwell, vol. 35(3), pages 4345-4359, March.
    5. Huarng, Kun-Huang & Yu, Tiffany Hui-Kuang, 2024. "Causal complexity analysis of ESG performance," Journal of Business Research, Elsevier, vol. 170(C).
    6. Remo-Diez, Nieves & Mendaña-Cuervo, Cristina & Arenas-Parra, Mar, 2023. "Exploring the asymmetric impact of sustainability reporting on financial performance in the utilities sector: A longitudinal comparative analysis," Utilities Policy, Elsevier, vol. 84(C).
    7. Hayam Wahba & Heba B. Hathout, 2026. "Do board characteristics moderate the relationship between ESG and financial performance? Evidence from African listed companies," Future Business Journal, Springer, vol. 12(1), pages 1-22, December.
    8. Pruthiranjan Dwibedi & Debasis Pahi & Antarjyami Sahu, 2024. "Mapping the landscape of environmental, social and governance research: A bibliometric analysis," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 3745-3767, September.
    9. Veeravel, V & Murugesan, Vijaya Prabhagar & Narayanamurthy, Vijayakumar, 2024. "Does ESG disclosure really influence the firm performance? Evidence from India," The Quarterly Review of Economics and Finance, Elsevier, vol. 95(C), pages 193-202.
    10. Marie, Mohamed & Qi, Baolei & Elgammal, Mohammed & Elnahass, Marwa, 2024. "A more sustainable future: Can politically connected CEOs spur the nexus between ESG performance and firm financial performance?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 96(C).
    11. Richard Yeaw Chong Seow, 2025. "Environmental, social, and governance reporting in family firms: The critical role of CEO attributes," Business Strategy and the Environment, Wiley Blackwell, vol. 34(1), pages 70-87, January.
    12. Majdi Anwar Quttainah & Ankita Pathak & Tarun Soni, 2025. "Configurations of Corporate Governance Mechanisms and Sustainable Development: A Review," Indian Journal of Corporate Governance, , vol. 18(1), pages 38-91, June.
    13. Mohamed Rashwan & Nardin Farouk & Rania Pasha, 2025. "Can ESG Strategies Drive Firm Value Growth in the MENA Region?," Sustainability, MDPI, vol. 17(17), pages 1-30, September.
    14. Pompei MITITEAN & Nicoleta-Florina SĂRMAȘ, 2023. "The Relationship Between Sustainability Reporting and Corporate Performance. Evidence from the European Energy Sector," CECCAR Business Review, Body of Expert and Licensed Accountants of Romania (CECCAR), vol. 4(7), pages 49-59, July.
    15. Doğan, Murat & Sayılır, Özlem & Komath, Muhammed Aslam Chelery & Çimen, Emre, 2025. "Prediction of market value of firms with corporate sustainability performance data using machine learning models," Finance Research Letters, Elsevier, vol. 77(C).
    16. Wei Liu & Han Yan, 2025. "The evaluation of ESG strategy implementation effect based on performance prism: evidence from the industrial and commercial bank of China," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-14, December.
    17. Gillan, Stuart L. & Koch, Andrew & Starks, Laura T., 2021. "Firms and social responsibility: A review of ESG and CSR research in corporate finance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    18. Ved Dilip Beloskar & S. V. D. Nageswara Rao, 2024. "Screening activity matters: Evidence from ESG portfolio performance from an emerging market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 2593-2619, July.
    19. Seyed Alireza Athari & Chafic Saliba & Elsa Abboud & Nourhan El-Bayaa, 2024. "Examining the Quadratic Impact of Sovereign Environmental, Social, and Governance Practices on Firms’ Profitability: New Insights from the Financial Industry in Gulf Cooperation Council Countries," Sustainability, MDPI, vol. 16(7), pages 1-26, March.
    20. Cini, Federico & Ferrari, Annalisa, 2025. "Towards the estimation of ESG ratings: A machine learning approach using balance sheet ratios," Research in International Business and Finance, Elsevier, vol. 73(PB).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:bstrat:v:34:y:2025:i:3:p:3469-3496. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-0836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.