Does Corporate Social Responsibility Affect the Financial Performance in the FMCG Sector? Evidence from the BSE FMCG Index

The study examines the relationship between Corporate Social Responsibility (CSR) and Corporate Financial Performance (CFP) of companies listed on the Bombay Stock Exchange (BSE). It is based on the BSE Fast- Moving Consumer Goods (FMCG) index. It consists of 30 companies in the FMCG sector, and analysis was undertaken on 25 BSE FMCG companies from 2013-2014 to 2021-22. The companies are selected based on top market capitalisation. To retrieve CSR data from the company’s annual report, the Sustainability Reporting Index (SRI) developed by Garg (2017) has been utilised as CSR data remains challenging to access in India. The report also includes social, economic, and environmental disclosure, and it is also the only official and legal document published regularly by the organisation. To analyse the relationship between CSR and CFP, six indicators, namely Return On Equity (ROE), Net Sales (NS) and Net Profit (NP), are taken as an independent variable which determines the firm’s profitability. Whereas stock price, Earning Per Share (EPS) and Price to Earnings (P/E) ratio are used to determine market share return. Then Capital Employed (CE), company size and Debt to Equity (D/E) ratio are used as a control variable. The research findings yield mixed results, revealing the positive and negative relationships between CSR and CFP across different models. Notably, the average sustainability reporting score indicates a collective need for companies to enhance their CSR initiatives, particularly in addressing environmental concerns. This study carries significant implications for managers and decision-makers, emphasising the importance of investing in sustainable projects after a thorough cost-benefit analysis. Such investments contribute to building competitive advantages by meeting stakeholder expectations and fostering a robust brand image for the company.