Impact of ESG Disclosure on Price Discovery Process in the Indian Energy Sector

ESG (environmental, social, and governance) framework has importance in investing environment due to its direct relevance with sustainable investments and long-term stock performance. ESG carries implications for all sectors of the economy and energy sector is no exception to that. In case of energy sector, it supports the investments in sustainable energy, carbon reduction, and ethical governance. The present study tries to assess the relative importance of ESG disclosure scores on the price discovery process of energy firms in Indian stock market. The study also examines the pricing efficiency of future contracts in leading the spot prices of energy sector stocks of Indian economy. Using the data from 12 energy firms in Indian stock market, this study deploys the standard time series methodology including test of stationarity, co-integration and error correction mechanism to assess the causality between future and spot prices of energy firms. The findings indicates that ESG disclosure scores do not have an impact on price discovery for most of the energy sector companies, with no long-term causality. BHEL, a low ESG level manufacturing and engineering company in the energy sector, shows slightly different results, indicating reverse causality. Similarly, insignificant short-term causal relationships are exhibited by most of the firms, except NTPC and TTPW (Tata Power) show significant short term causality.