Unveiling the Impact of ESG Reporting on Stock Returns: Insights from India's Top 500 Companies

High-profile cases of corporate financial misconduct, such as those involving Satyam and Enron, have prompted regulatory authorities to introduce mandatory disclosure requirements regarding non-financial activities. These regulations aim to enhance transparency and enable stakeholders to better understand a firm’s environmental, social, and governance (ESG) practices. In 2015, the Securities and Exchange Board of India (SEBI) implemented a pivotal policy mandating the top 500 publicly listed companies, ranked by market capitalization, to publish annual Business Responsibility Reports (BRRs). This study investigates the impact of these disclosure requirements from the perspective of investors by examining and comparing the financial performance of the affected firms before and after the regulation's implementation. The analysis reveals a notable trend: a greater proportion of firms experienced negative stock returns following compliance with the non-financial disclosure mandate, compared to those that recorded positive returns. To further explore this phenomenon, a focused analysis was conducted on a subset of 50 companies within the top 500, selected based on their ESG ratings as assessed by Standard & Poor’s. The results indicate a significant decline in financial returns among firms with strong ESG performance after 2015, suggesting a potential inverse relationship between ESG compliance and short-term financial outcomes during the post-regulation period