IMPACT OF ESG PRACTICES ON CORPORATE FINANCIAL PERFORMANCE: EVIDENCE FROM INDIAN COMPANIES

Abstract

Environmental, Social and Governance (ESG) practices have increasingly become an important component of corporate strategy, particularly as investors, regulators, customers and other stakeholders demand greater transparency and responsible business conduct. In India, the growing importance of Business Responsibility and Sustainability Reporting (BRSR) has further strengthened the relevance of ESG practices among listed companies. The present study examines the impact of Environmental, Social and Governance practices on the financial performance of Indian companies. The study adopted a quantitative research design and collected primary data from 237 respondents comprising managers, finance professionals, investors, employees and other knowledgeable stakeholders associated with Indian companies. Environmental Practices, Social Practices and Governance Practices were considered the major dimensions of ESG, while Corporate Financial Performance was treated as the dependent construct. Data were analysed using descriptive statistics, reliability analysis, Confirmatory Factor Analysis (CFA) and Structural Equation Modelling (SEM) using AMOS. The CFA results demonstrated satisfactory reliability, convergent validity and discriminant validity of the measurement model. The structural model indicated that Environmental Practices, Social Practices and Governance Practices have positive and statistically significant effects on Corporate Financial Performance. Among the three dimensions, Governance Practices demonstrated the strongest influence, followed by Social Practices and Environmental Practices. The findings indicate that ESG should not be viewed merely as a compliance mechanism but as a strategic approach capable of strengthening corporate reputation, stakeholder confidence, operational efficiency and financial performance.