Valuing Sustainability: The Role of ESG in Enhancing Firm Value in India

In recent years, Environmental, Social, and Governance (ESG) factors have gained significantattention from investors, regulators, and corporate leaders seeking to align financial performancewith sustainable business practices. This study investigates the impact of ESG performance onfirm valuation, with a specific focus on listed companies in emerging markets, particularly India.Using a panel dataset comprising ESG scores and financial metrics of firms from 2015 to 2024,this research analyzes the relationship between overall ESG ratings—as well as their individualcomponents—and firm valuation indicators such as Tobin’s Q, Price-to-Earnings ratio, and marketcapitalization. Employing panel regression models and robustness checks including fixed effectsand instrumental variable techniques, the study controls for firm size, leverage, industry, and otherfirm-specific characteristics. Prior studies (Friede et al., 2015; Khan et al., 2016) suggest that ESGperformance may contribute to financial outperformance through improved stakeholder trust andrisk management. The findings are expected to provide empirical evidence on whether superiorESG performance translates into higher firm valuation, and which of the three ESG pillars holdsthe strongest influence. This research contributes to the growing literature on sustainable financeby offering insights for investors, policymakers, and corporate strategists aiming to integrate ESGconsiderations into decision-making. Additionally, it offers region-specific implications for thedevelopment of ESG frameworks and disclosure standards in India and other emerging economies(Schoenmaker & Schramade, 2019).