Does esg rating affect stock performance of Indian Companies? an empirical study

Abstract

Purpose: The study tries to investigate the influence of the ESG (environmental, social, and governance) ratings on the stock performance of Indian companies. It further compares the stock performance of those companies that are ESG leaders with Design/Methodology/Approach: The current paper is retrieving the ESG data from a third party to look at the impact of the ESG ratings on the performance of Indian stocks. This is the first study to use a calendar-time approach to assess the impact of 621 ESG rating changes on the stock returns of Indian companies from 2017 to 2022. Findings: The study finds that while an improvement in ESG rating has resulted in statistically significant but unpredictably positive abnormal returns of approximately 0.7% per month, a decline in rating is detrimental to stock performance, resulting in statistically significant monthly risk-adjusted returns of nearly -1.7% on average. Originality/Value: This is one of the primary studies that has investigated the outcome of specialized ESG ratings (improved and declining) on the stock return performance of companies in India.