📈 ESG and Financial Performance: What Indian Companies Reveal

Author: Srivathsan
Date: September 15, 2025

In today’s business landscape, ESG—Environmental, Social, and Governance—is no longer a buzzword. It’s a strategic imperative. I recently completed a data-driven analysis exploring how ESG factors influence financial performance among 17 listed Indian companies across sectors like manufacturing, IT, infrastructure, and consumer goods.

🌿 What Is ESG and Why Does It Matter?

Environmental: Carbon emissions, energy usage, waste management
Social: Employee turnover, diversity, health & safety
Governance: Leadership ethics, board diversity, CEO background

Strong ESG practices aren’t just good for the planet—they build investor confidence, reduce risk, and drive long-term profitability.

🧪 The Analytical Approach

Using multiple linear regression models, I examined how ESG indicators—carbon emissions, energy consumption, and employee turnover—affect two key financial metrics:

Return on Assets (RoA)
Return on Equity (RoE)

I progressively enriched the models by adding categorical variables like location, industry, and CEO identity to understand their influence.

🔍 Key Findings

Model Evolution (RoA)

Model	Variables Included	R² (Explained Variance)
ESG Only	Carbon, Energy, ETOR	10.9%
+ Location	Adds city/state	36.6%
+ Industry	Adds sector type	80.3%
+ CEO	Adds leadership data	93.6%

Model Evolution (RoE)

Model	Variables Included	R² (Explained Variance)
ESG Only	Carbon, Energy, ETOR	7.3%
+ Location	Adds city/state	59.5%
+ Industry	Adds sector type	68.8%
+ CEO	Adds leadership data	88.2%

💡 Strategic Takeaways

ESG metrics alone offer limited predictive power—but when contextualized with location, industry, and leadership, they become powerful indicators of financial health.
Companies that optimize energy use and retain talent tend to perform better.
Investors and stakeholders should look beyond surface-level ESG scores and consider deeper organizational attributes.

🧭 Final Thoughts

This study underscores that ESG is more than compliance—it’s a growth strategy. As Indian companies navigate sustainability, those embracing ESG holistically will be better positioned for resilience and profitability.