Effect Of ESG Scores On Firm Performance – A Study On Two Capital Intensive Industries In India

Abstract

This paper examines the effect of Environmental, Social, and Governance (ESG) scores on firm performance in two capital-intensive industries in India: metals and mining, and chemicals. Using acquisition announcements of NSE 500 firms from 2010 to 2020, the analysis integrates accounting-based measures—Return on Equity (ROE), Return on Assets (ROA), and Return on Capital Employed (ROCE)—with value-based indicators including Economic Value Added (EVA), Market Value Added (MVA), Cumulative Abnormal Returns (CAR), and Tobin’s Q. Paired sample t-tests, regression models, and Holm–Bonferroni corrections are applied to ensure robust results. Findings indicate that metals and mining firms achieve stronger environmental and governance improvements, which correspond to moderate financial gains and significant increases in EVA and MVA. The chemical sector, in contrast, shows weaker ESG progress with limited profitability impact. Disaggregated analysis reveals that aggregate ESG scores do not reliably predict outcomes. The environmental pillar is critical for metals and mining, while the social pillar dominates in chemicals, though its effect on profitability is adverse. Governance signals remain mixed but show some emerging relevance. Event-study results demonstrate that markets react mainly before or around announcements, with significant CARs clustering in trailing windows. Overall, ESG’s financial relevance is industry-specific and pillar-driven, underscoring the importance of materiality-focused ESG strategies for managers and a nuanced evaluation framework for investors.