Financial implications of ESG adoption: A comparative study of ESG (Environmental, Social and Governance) impact in IT and Energy sectors

Abstract

The purpose of this study is to determine whether and how the financial performance of Indian companies in the IT and energy sectors is impacted by environmental, social, and governance (ESG) integration. The analysis uses correlation and multiple regression techniques to separate the distinct effects of the E, S, and G dimensions on profitability and growth outcomes based on firm-level ESG pillar scores and six performance metrics: return on capital employed, return on equity, return on assets, earnings per share, profit earning growth, and profit growth. Stronger environmental performance is typically linked to higher returns on capital and assets, according to empirical data, while the social pillar is consistently linked to lower short-term profitability and muted earnings and profit growth, indicating costly social commitments that are not immediately offset by financial gains. Tighter governance frameworks seem to limit some accounting-based returns, but they are positively correlated with profit growth and shareholder-oriented metrics, indicating a trend toward more sustainable wealth generation. Overall, the results show that ESG integration in Indian IT and energy companies is marked by significant short-term financial trade-offs along with possible long-term benefits, providing managers, investors, and policymakers with useful information for striking a balance between performance expectations in emerging markets and sustainability goals.