The Role of Environmental, Social, and Governance (ESG) Metrics in Investment Decisions

Abstract

These days, more and more investors pay attention to Environmental, Social and Governance (ESG) factors when making their decisions on where to invest. It studies how ESG metrics are being considered increasingly as a vital part of investment evaluation systems, especially in India. Usually, the main factors behind investment decisions are financial things such as the rate of return, assessing risk and keeping an eye on market performance. But with rising issues about the climate, corporate responsibilities, fairness for people and sustainability in governance, investors are now using non-financial factors in managing their portfolios. The study investigates the impact of ESG on how people invest, giving particular attention to both stocks and bonds.

In this study, data is collected through ESG ratings and financial indicators as well as by talking to fund managers, analysts and sustainability officers involved in Indian listed companies. It is found that performing well against ESG leads to higher financial performance in the long term in sectors such as renewable energy, IT services and consumer goods. Companies that have greater ESG ratings are better able to handle risks and usually get more reliable and ethical funding from investors. It points out that increasing popularity of ESG is a result of developing regional trends, new regulations and greater market awareness.

While ESG is becoming popular, people still deal with the inconsistency in reporting, concerns about greenwashing and insufficient knowledge among investors. The research highlights that having better ESG disclosure and applying it in main financial models is important. It recommends that organizations take action at the policy level to promote more transparent and repeatable reporting concerning sustainability, also encouraging education to make investors feel more at ease with such investments. All in all, this paper points out that emphasizing ESG metrics is now at the heart of responsible investing. By focusing on sustainability and ethical rules, ESG investing will likely change how investments are made to create more value, minimize risks and make companies accountable worldwide and in India.