Impact of ESG Disclosures on Corporate Financial Performance: An Industry-Specific Analysis of Indian Firms

Abstract

This study investigates the relationship between environmental, social, and governance (ESG) practices and return on assets (ROA) in Indian companies, focusing on industry-specific variations. Using 10 years of panel data across resource-intensive, consumer-facing, and service sectors, the analysis employs the system generalized method of moments (GMM) for robust estimation. The results reveal a positive overall effect of ESG practices on ROA, with significant differences across industries. The study uses the categorization of resource-intensive, consumer-facing, and service industries to examine the differential effects of ESG factors on ROA. However, environmental scores do not significantly impact ROA, suggesting uniform effects across industries. Social scores enhance ROA without notable industry-specific differences, while governance scores show varying effects, indicating sector-specific drivers of profitability. The analysis also highlights the moderating effects of industry categories on the ESG–ROA relationship, suggesting that the impact of ESG practices varies across different sectors. The study also considers the economic effects of COVID-19, highlighting its marginal impact on ROA and the need for resilient financial strategies. However, the moderating effect of COVID-19 on this relationship was not significant, indicating limited variation in the ESG–ROA dynamics during the pandemic period except in the governance model. These findings suggest that tailored ESG strategies, aligned with industry-specific challenges, can optimize financial performance. Policymakers and investors are encouraged to focus on sector-specific ESG practices to better evaluate company performance and formulate effective regulations. This research contributes to the emerging market context by emphasizing the importance of industry-specific ESG integration for enhancing financial outcomes.