Does ESG impact corporate performance in environmentally sensitive and non-sensitive industries? A dynamic panel approach

Purpose This study explores how aggregate ESG disclosure, along with its three individual dimensions – environmental, social and corporate governance – affects corporate performance by categorizing corporations into environmental sensitivity industries (SI), characterized by business activities with significant socioenvironmental landscapes and more likely to damage social and environmental factors and non-environmental sensitivity industries (NSI) in India. Design/methodology/approach This research employs a system-generalized method of moments (GMM) technique to analyze 605 Indian firms listed on the National Stock Exchange (NSE) from 2015 to 2023. The methodology ensures robust and endogeneity-resistant results, reliably assessing the relationship between the variables. Findings The study indicates that ESG factors influence corporate outcomes differently across industries, and simply following sustainability – is somewhat naïve. In SI industries, ESG efforts show an insignificant association and implementing effective systems for corporate governance reduces profitability due to challenges and scrutiny from stakeholders. Conversely, NSI corporations benefit significantly from ESG practices, enhancing long-term value and investor appeal. Originality/value The research offers novelty and contributes to the existing literature by providing robust empirical evidence on the diverse impact of ESG (and its dimensions). It underscores the necessity for concerned companies, especially in emerging economies, to customize sustainable strategies that align with their unique operational contexts. The findings provide valuable insights for managers seeking to effectively manage ESG implementation and its financial effects, enhancing strategic approaches to sustainability in different industry contexts.