Impact of Environmental, Social, and Governance Factors on Firm Efficiency: The Indian Service Sector Perspective

Environmental, social, and governance (ESG) factors have gained much traction over time due to regulatory and societal changes in countries, governments, corporations, and individuals. This study is conceptualized to analyze the influence of ESG aspects on firms' efficiency using data envelopment analysis. A sample of 149 service firms drawn from the Indian service sector is analyzed using total assets and market capitalization as inputs and total income, profit, and ESG scores as outputs. The second phase analysis uses a simultaneous quantile regression (SQR) to study the association of the firms' efficiency level with the ESG scores. The findings signify a positive association between the social score and the firms' efficiency level at pooled ordinary least square regression and the 25th quantile level. However, it does not find any association between the environmental and governance scores at any quantile level and firms' efficiency. The study highlights significant implications for investors, corporations, and policymakers. ESG awareness will boost the formation of a robust ecosystem for the sustainable growth of the companies. However, further research could explore cross-industry comparisons over time to capture diverse business environments.