A novel framework for environmental, social and governance (ESG) investing: the case of large retail investors in an emerging market

Purpose This study aims to create a novel framework to understand the motivation, use and importance of environmental, social and governance (ESG) information for investment decision-making of large retail investors (portfolio > INR 10m) in the emerging market setting of India. Design/methodology/approach This study measures the importance of ESG investing by deriving 68 secondary indicators from 6 primary ESG themes based on in-depth semi-structured interviews with large retail investors (portfolio > INR 10m) and also uncovers the dependencies between them using an interpretive structural modelling (ISM) approach. This tries to address the lack of a standardized theory driving various ESG models as suggested in the literature. Findings The authors find that large retail investors use ESG as an essential filter; however, their portfolios do not necessarily reflect company ESG disclosures, necessitating a different ESG framework for investing. Investors also associate ESG to better investment performance, with governance (G) being most favoured. However, data availability and measurement of ESG indicators are a challenge to investors. Practical implications This paper suggests a novel framework using different ESG themes and indicators based on grounded theory approach to understand investor decisions. The findings of the paper have implications for various stakeholders, such as companies and policymakers, in terms of aligning the ESG disclosures with investor requirements and creating a more standardized reporting framework. Originality/value The study creates a novel ESG framework based on 68 different indicators and uncovers the dependencies between them using an ISM approach. It also tries to address the issue of the lack of a standard theory or framework in ESG investing.