ESG Controversies and Short‐Term Profitability: The Role of Current ESG Performance and Lagged Reputation in Emerging Markets

ABSTRACT This study examines whether ESG controversy involvement is associated with short‐term return on equity (ROE) and whether current and lagged ESG scores moderate that relationship among Indian nonfinancial firms. Drawing on stakeholder theory, legitimacy theory, and the managerial opportunism hypothesis, the study analyses 382 NIFTY 500 firm‐year observations for FY2024–25 using Hayes PROCESS Macro moderation models, with PLS‐SEM employed as a robustness check. ESG controversy involvement is positively associated with ROE, an association consistent with transitory cost externalization under India's formative mandatory disclosure environment. Current ESG scores significantly attenuate the controversy–ROE association, with positive associations concentrated among low‐ESG firms rather than consistently observed across all firms, providing conditional support for the managerial opportunism hypothesis. This moderating pattern is corroborated across estimation approaches. In contrast, ESG scores measured one and 2 years prior do not exhibit consistent additional moderation beyond current ESG performance. As controversy involvement and ROE are observed only for FY2024–25, the findings do not establish temporal adjustment, persistence, or changes in the financial consequences of controversies over time. The study contributes by distinguishing the moderating roles of current and prior ESG standing, identifying the conditional nature of the controversy–profitability association among NIFTY 500 non‐financial firms, and extending the managerial opportunism hypothesis to an emerging‐market regulatory context.