Environmental, social, governance (ESG) performance and firm performance in India: The moderating role of the Covid-19 Crisis

The two reports, 'Who Cares Wins' and 'Freshfield Report,' mark the pioneering efforts to consider ESG perception in business decisions to assess actual financial performance. Since then, in 2021, the United Nations Principles of Responsible Investment (UNPRI) garnered 3826 signatories representing a staggering $121t of assets under management, demonstrating the mounting global push for more unconventional growth forms. However, the relatively low number of Indian investors (33 out of 5,370 signatories) who have signed the UNPRI as of April 2023 indicates that the Indian ESG landscape is still young. Also, the empirical literature suggests that ESG as a way of business gained the spotlight post the 2008 global financial crisis. However, the COVID-19 crisis has made integrating ESG in corporate decision-making necessary. The pandemic serves as a vivid example of how an ecological crisis can disrupt the functioning of the global economy. In light of such developments, this study seeks to assess the impact of ESG performance on the top BSE 100 firms' financial performance. Additionally, the moderating role of the COVID-19 crisis in the ESG-financial performance link is investigated. Another distinctive aspect of this study is using the 'Stakeholder Capitalism Metrics' created by the World Economic Forum and International Business Council in partnership with the Big 4 to examine ESG disclosure. Results of fixed and random effects regressions support ESG's value-enhancing role. The interaction effect model suggests that the positive relationship between ESG disclosure and financial performance is amplified during times of crisis. Thus, corporates that transparently report on their ESG activities during the crisis are perceived as social stewards by stakeholders and rewarded in terms of higher profits and market value.