The Impact Of ESG Techniques On ROIC And EPS For Manufacturing Firms: Research From Listed Companies In India

Abstract

Companies that are publicly traded worldwide are shifting their focus away from maximizing short-term profits to achieving long-term environmental, social, and governance (ESG) objectives. The growing importance of environmental sustainability concerns is now recognized by most business leaders. They have started to believe that an organization's financial health and reputation in the marketplace may be affected by this. A study recently concluded that companies that have strong ESG performance may be able to enhance their financial performance. The question of how ESG affects financial performance has received little attention in India. Our study examines the link between ESG operations and financial indices in India's publicly traded firms by analyzing dynamic and static panel data. Our initial step is to gather financial data from Bloomberg and preprocess it using descriptive statistics. The consequence of ESG variables on the financial performance of the manufacturing companies during 2018 to 2022 was investigated. The analysis was done based on 701 BSE manufacturing companies’ year-wise data. The independent variable is the ESG scores; the dependent variables are performance indicators, i.e., Return on Invested Capital (ROIC) and Earnings per share (EPS).  The control variable that is employed: Firm size.

The empirical findings indicate that ESG doesn’t have a substantial positive impact on performance. However, the relationship between ESG disclosures do vary if measured individually; the disclosures are found putting positive effect on ROIC but EPS.

Financial performance may be improved through ESG activities, which could have an impact on investors, business administrators, decision-makers, and industry regulations.