Article

Impact of ESG Risk Scores on Asia-Pacific Journal of Management

Research and Innovation
Firm Performance: An Empirical 19(1) 7–18, 2023
© 2023 Asia-Pacific
Analysis of NSE-100 Companies Institute of Management
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DOI: 10.1177/2319510X231170910
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Kapil Shobhwani1 and Shilpa Lodha1

Abstract
This study aims to compare the overall environment, social and governance (ESG) risk score and environment risk score, social risk
score and governance risk scores across different industrial sectors in India and explore the impact of overall ESG risk score, environ-
mental, social and governance risk score on firm performance. The ESG risk score is collected for 2021–2022 from Yahoo Finance,
and financial data were collected from Prowess IQ. The Nifty 100 index of NSE is used as a platform to shortlist firms. Tobin’s
Q, return on assets (ROA) and return on equity (ROE) are used as proxy for the firm performance which determines the market-based,
operating and financial performance, respectively. We found a significant difference among the ESG risk scores, ESG risk scores of dif-
ferent industries. There is a low correlation between ESG scores, environment scores, social scores, governance scores and Tobin’s Q,
ROA and ROE. The regression results show that the ESG risk score has an insignificant negative impact on Tobin’s Q (market-based
performance) and the environmental risk scores, social risk scores and governance risk scores have an insignificant positive impact on
the Tobin’s Q. ESG risk score has an insignificant negative impact on ROA (operating performance) and ROE (financing performance)
while the environment risk scores, social risk scores and governance risk scores have an insignificant positive effect on ROA and ROE.
Thus, ESG risk score and its components do not show any significant impact on firm performance.

Keywords
ESG risk score, environment risk score, social risk score, governance risk score, firm performance

Introduction Many sustainability accounting frameworks have been

Environment, social and governance (ESG) performance developed to enhance standardised disclosure of ESG
has gained attention in recent years from investors, firm infor- mation in response to growing investor demand for
management and other stakeholders as a well-known and non- financial information from corporations (Bose,
increasingly essential strategy to boost a firm’s value 2020). ESG enables businesses to effectively utilise
(Malik, 2015). The term ‘ESG’ was first used in a 2005 limited resources while maintaining a balance between
study titled ‘Who Cares Wins’that sought to find ways to their social and com- mercial goals (Ullah et al., 2019).
integrate ESG factors into the capital market. The use of By taking into considera- tion societal, environmental and
ESG aspects as a tool for the investment decision-making ethical factors, ESG also focuses on the concerns of all
process has recently been made public on the financial stakeholders, not just share- holders (Mittal et al., 2008).
markets all over the world (Bianchi et al., 2010). The rele- Corporate social responsibility (CSR), sustainability and
vance of ESG has recently increased in both established governance reports are instances of current reports that
and emerging economies, as more firms have recognised usually discuss how to communicate ESG and ethical
that the release of ESG data influences both company per- problems to stakeholders (Navi, 2014).
formance and the concerns of investors and fund A number of international initiatives, such as the
managers (Alsayegh et al., 2020). Companies need to global reporting initiatives and the United Nations Global
prepare for future ESG-related problems as well as meet Compact, have been created in response to the growing
the demand for extensive corporate ESG performance demand for more systematic ESG (Lydenberg, 2014).
data (Barker & Eccles, 2019). ESG is a triple-bottom-line approach that combines
financial gains with adherence to social, governance and
environmental criteria (Sharma et al., 2022). On the one

1 Department of Accountancy and Business Statistics, Mohanlal Sukhadia University, Udaipur, Rajasthan, India

Corresponding author:
Shilpa Lodha, Mohanlal Sukhadia University, Udaipur, Rajasthan, India.
E-mail: [email protected]
2 Asia-Pacific Journal of Management Research and Innovation 19(1)

hand, this development clearly shows the financial the Bombay Stock Exchange (BSE) launched Greenex
markets’ dedication to include ESG considerations in and Carbonex. After this, in 2013, morgan stanley capital
investment decisions (Guerrero-Villegas et al., 2018). inter- national (MSCI) released the India ESG Leaders
Global investments in professionally managed Index. As per the CSR law in 2014, companies were
portfolios exceed $ 17.5 trillion, continuing the growing mandated to con- tribute 2% of their average net profit of
trend of ESG disclosure (Boffo & Patalano, 2020). The 3 years for CSR. In 2015, the RBI included social infra
environmental report should coincide with the annual and and renewable energy in priority sector lending for Banks.
financial reports as part of the environmental A business responsibility report on 500 companies was
communications plan (Jones, 2000). It demonstrates that made mandatory by the SEBI in 2015. In 2016, the SEBI
there has been a significant improvement in the interest of issued guidelines on Green Bonds and Indian Banks’
environmental, social respon- sibility and sustainability Association issued the national voluntary guidelines for
disclosures, especially among large companies or groups of responsible financing. In 2017, recommendations related
firms (Taliento et al., 2019). to corporate governance were made by Kotak Committee
A three-dimensional indicator called the ESG perfor- which improving standards con- cerning corporate
mance score serves as a measurement of CSR governance governance of listed companies in India. In 2018, the BSE
effectiveness (Zubeltzu-Jaka et al., 2020). ESG ratings published a guidance document on ESG Disclosures. In
can aid in integrating CSR concerns and the CSP-CSR 2019, the Ministry of Corporate Affairs revised national
framework into the business to increase its effectiveness, voluntary guidance to align with sustaina- ble
operationalisation, ethical standards and sustainability development goals. In 2020, the SEBI mandated stew-
(Clementino & Perkins, 2021). According to the Survey ardship code with ESG monitoring. In 2021, the Business
of Sustainability Reporting, in 2013 more than three- Responsibility and Sustainability Report was launched by
fourths of all global corporations have started reporting on the SEBI. Thus, ESG disclosure has become a burning
sustain- ability (KPMG, 2020). A triple-bottom-line issue in the field of corporate financial reporting, and,
approach known as ESG combines monetary gains with hence, this paper attempts to explore the impact of ESG
adherence to social and environmental standards. risk score on firm performance.
Companies are under pressure to provide information
about the environment, society and corporate governance
(ESG) to stakeholders in a true and fair manner (Whelan Review of Literature
et al., 2021). Firms around the world are facing national
and international pressure from various stakeholders to Arayssi and Jizi (2023) found that royal family directors
disclose their sustainability activities (Kumar & Firoz, on GCC boards negotiate fewer ESG reporting in firms.
2022). The importance of a com- pany’s ESG operations is Shalhoob and Hussainey (2023) found that SMEs in Saudi
recognised by both institutional and individual investors Arabia lack awareness of ESG practices and disclosures
who see the value of ESG in addressing the opportunities and, therefore, the extent of their importance to sustain-
and threats the company faces (Coleman et al., 2010). If ability performance.
ESG initiatives are led by oppor- tunistic objectives (e.g., Giannopoulos et al. (2022) examined the effects of the
to improve managers’ reputations), ESG expenditures will ESG initiative on the financial performance of Norwegian
become costs rather than invest- ments, undermining a listed companies. ESG was measured through Thomson
firm’s value (Lys et al., 2015). Reuters Eikon and financial performance was measured
through return on assets (ROA) and Tobin’s Q. It was
An ESG disclosure score is an evaluation of an
found that there is a strong significant relationship
organisa- tion’s performance against various sustainability
between ESG initiatives and financial performance. ROA
metrics (related to ESG issues). Whereas the ESG risk
was negatively impacted by increased investment in ESG
score is in contrast to the ESG disclosure score, a
initiatives, and Tobin’s Q was positively affected.
company that has a higher disclosure score has a lower
risk related to ESG issues. The changes in ESG reporting Mohammad and Wasiuzzaman (2021) investigated the
in India over time are as follows: in 2007, the Reserve effects of firms’ ESG disclosures on firm performance. It
Bank of India (RBI) issued an advisory for commercial was found that ESG disclosure improved firm
banks on CSR, sustainability and non-financial disclosure. performance even after controlling for competitive
After that in 2008, the ESG Index was issued by S&P advantage and also found consistent evidence that an
Company. In 2009, the Ministry of Corporate Affairs increase in ESG disclo- sure by one unit would increase
issued guidelines on CSR. In 2010, the Department of firm performance by approximately 4 percent in
Public Enterprises issued guidelines relating to CSR for Malaysia.
Central Public Sector Enterprises. This was followed by Jyoti and Khanna (2021) examined the impact of the
the guidelines for environmental, social and economic firm’s sustainable performance on the financial perfor-
responsibility of business in 2011 by the Ministry of mance of service sector companies listed on the BSE. It
Corporate Affairs. In 2012, the Securities and Exchange was concluded that a significant negative relationship
Board of India (SEBI) made the Business Responsibility between the Environment score with ROA and return on
Report mandatory for the top 100 companies. Meanwhile, capital employed (ROCE) of the selected companies. In
contrast,
Shobhwani and Lodha 9

only the social score showed a significant negative demonstrated that ESG positively affected the
associa- tion with the Return on equity (ROE). ESG operational, financial and market performance in the
combined score was also negatively significant with the manufacturing sector. However, on the other hand, the
ROA and ROCE. ESG negatively
Naeem et al. (2021) analysed the impact of ESG prac-
tices on the firm’s performance of the financial and non-
financial companies of emerging countries. Based on
Tobin’s Q results it was concluded that ENV
(environment), SOC (social) and GOV (governance)
scores individually and aggregate ESG score had a
significant positive impact on firm value. Similarly, the
results of ROA also highlighted that the individual
component of ESG (ENV, SOC and GOV) and combined
score of ESG had a significant posi- tive impact on firm
profitability.
Khoury et al. (2021) explored the impact of each of the
ESG pillars on corporate financial performance (CFP)
while considering the industry sector categories. It was
con- cluded that the ESG-CFP relationship depended on
the ESG pillars, the type of CFP measures, and the
industry nature. No relationship was detected between
ESG and CFP when proxied by accounting measures
while a concave relation- ship with stock return and a
convex relationship with price- to-book ratio were
revealed.
Sharma et al. (2020) examined the relationship
between financial performances and the extent of ESG
governance disclosure of Indian companies. Financial and
market perfor- mance had a positive and significant
association with the level of ESG disclosure, whereas
leverage had a negative and significant association with the
level of ESG disclosure.
Alsayegh et al. (2020) examined the impact of ESG
information disclosure on economic and environmental
sustainability (EES) sustainability performance among
Asian firms. The positive ESG disclosure–EES
sustainabil- ity performance relationship found in this
study provided evidence that disclosing the
implementation of environ- mental and social strategies
within an effective system of corporate governance. The
results also showed that envi- ronmental performance and
social performance are posi- tively related to
economically sustainable performance. `
Sharma et al. (2019) explored the impact of ESG
disclo- sure on the financial performance of companies in
an emerg- ing economy. The ESG disclosure score
showed a negative association with measures of firm
performance, with the relationship being marginally
significant with ROA. Environmental disclosure scores
were found to have a signifi- cant inverse relationship with
measures of both accounting performance (ROA) and
marketing performance (Tobin Q). Social performance
disclosure had a significant positive impact on the
financial performance of firms.
Buallay (2019) compared manufacturing and banking
sectors with regard to the level of sustainability reporting
and its impact on operational, financial and market perfor-
mance. It was found that the empirical results on one hand
10 Asia-Pacific Journal of Management Research and Innovation 19(1)
affected the operational, financial and market performance
in the banking sector.
Dalal and Thaker (2018) examined the impact of ESG
factors on the performance of Indian Public Limited com-
panies in terms of profitability and firm’s value. It was
found that good corporate ESG performance enhances
financial performance assessed through accounting as well
as market-based measures.
Velte (2017) studied the impact of ESG performance
(ESGP) on financial performance (FINP) was studied.
It was found that ESGP had a positive impact on ROA but
no impact on Tobin’s Q. Furthermore, the author analysed
the three different components of ESGP and found that
governance performance has the strongest impact on FINP
in comparison to environmental and social performance.

Statement of the Problem and

Objectives of the Study
After studying various research papers and articles it is
found that the impact of ESG disclosure score on firm per-
formance and financial performance has been more stud-
ied, whereas less research has been done on the impact of
ESG risk score on firm performance. The number of stud-
ies analysing impact of ESG risk score on firm perfor-
mance in India is scanty. Further, there has been no com-
prehensive study of ESG risk score in various industrial
sectors of India. Many researchers have found evidence of
a positive relationship between ESG and firm
performance. So far, the impact of overall ESG risk score
and ESG risk score on firm’s market-based performance,
operational performance and financial performance has not
been stud- ied for Indian companies. So, this study explores
the impact of ESG risk score on firm performance. The
study has the following objectives:

1. To compare the overall ESG risk score and environ-

ment risk score, social risk score, governance risk
scores across different industrial sectors in India.
2. To explore impact of ESG, ESG risk score on firm
performance.

To achieve the objectives of the study, the following

hypotheses have been formulated—four for each objective:

H1: There is no significant difference among the ESG

risk scores of different industries.
H2: There is no significant difference among the
environment risk scores of different industries.
H3: There is no significant difference among the social
risk scores of different industries.
H4: There is no significant difference among the
governance risk scores of different industries.
 Shobhwani and Lodha 11

H5: There is no significant impact of ESG risk score on The companies are shortlisted from the Nifty 100 Index.
firm performance. Even though the list included 100 companies, it came
H6: There is no significant impact of environment risk down to 52 companies based on the availability of ESG
score on firm performance. data of these listed companies. Table 1 shows the
H7: There is no significant impact of social risk score industry-wise distribution of sample companies. The ESG
on firm performance. composite score and subgroup scores for 52 companies
H8: There is no significant impact of governance risk were aggre- gated from yahoo finance. ROA is used as a
score on firm performance. proxy to cal- culate the operating performance of the firm.
ROE will help in estimating the financial performance of
the firm and Tobin’s Q will help to calculate the market-
Research Methodology based per- formance. Financial data of companies have
Data Collection been taken from prowess IQ for the same time period.

ESG risk scores have been collected from Yahoo Finance

for 2021–2022. Yahoo Finance is a platform that provides Variables
financial data and ESG risk ratings powered by the
This study aims to explore the impact of ESG risk score
website Sustainalytics since February 2018. The overall
on a firm’s performance. Table 2 shows the list of
subgroups are scored as 1–100. It helps investors look
variables used in the study. This study attempts to develop
beyond the traditional approach and make more
a multi- variate regression model. Tobin’s Q, ROA and
appropriate decisions.
ROE ratios

Table 1. Industry-wise Distribution of Sample.

S. No. Industries No. of Companies % of Companies

1. Oil and gas industry 6 11.54%
2. Financial services 7 13.46%
3. Construction 5 9.61%
4. Automobile 7 13.46%
5. Metals and mining 5 9.61%
6. Healthcare 4 7.69%
7. Information technology 5 9.61%
8. Fast-moving consumer goods 6 11.54%
9. Other 7 13.46%
Total 52 100%

Table 2. Variables Used in the Study.

Variable Description References
Dependent Variables
ROA It measures a firm’s operating efficiency and Abound and Dab (2018); Abdu et al. (2021)
is calculated by dividing net income by total
assets. Waddock & Graves (1997); Nirino et al. (2019)
ROE It measures a firm’s financing efficiency and
is calculated by dividing a firm’s net income
by shareholders’ equity. Aboud & Diab (2018); Abdi et al. (2021)
Tobin’s Q It measures a firm’s marketing efficiency and is
calculated by adding market capitalisation and
total debts divided by total assets
Independent Variables
ESG risk scores It ranges from 0 to 100. Balasubramanian & Amritha (2019)
Environment risk score It ranges from 0 to 100 Balasubramanian & Amritha (2019)
Social risk score It ranges from 0 to 100 Balasubramanian & Amritha (2019)
Governance risk score It ranges from 0 to 100 Balasubramanian & Amritha (2019)
Control Variables
Firm size Natural logarithm of total assets Aboud & Diab (2018); Abdi et al. (2021);
Gerwanski, (2020); Rahman & Alsayegh (2021)

Firm age Natural logarithm of the number of years Abdi et al (2021)

since the company’s foundation
Leverage ratio Defined as total liabilities divided by total assets Aboud & Diab (2018); Abdi et al. (2021);
Rahman & Alsayegh (2021)
12 Asia-Pacific Journal of Management Research and Innovation 19(1)

have been considered as dependent variables in three dif- are three firm performance variables, so three regression
ferent models. To measure the firm performance, this equations have been formulated.
study follows the market-based, operational and financial
aspects of firm performance. To measure a firm’s market-
1. Tobin’s Qi = β0 + β1 ESG risk scoresi + β2
based performance, this study considers Tobin’s Q, for environment risk scoresi + β3 social risk scoresi + β4
operating performance, ROA, and for financial governance risk scoresi + β5 agei + β6 sizei + β7
performance, ROE. ROA exhibits the firm’s efficient
leveragei + ei (1)
utilisation of its assets to generate profits, ROE exhibits
2. ROAi = β0 + β1 ESG risk scoresi + β2 environment
the firm’s efficient utilisa- tion of its shareholder’s funds
risk scoresi + β3 social risk scoresi + β4 governance
to generate profits and Tobin’s Q exhibits the firm’s risk scoresi + β5 agei + β6 sizei + β7 leveragei + ei (2)
efficient utilisation of its total assets to generate the
3. ROEi = β0 + β1 ESG risk scoresi + β2 environment
market value of the firm. ESG risk scores and individual
risk scoresi + β3 social risk scoresi + β4 governance
scores have been considered as a set of independent
risk scoresi + β5Agei + β6 sizei + β7 leveragei
variables. Some control variables are also identified.
+ ei (3)

Here, β0–7 are various coefficients; e is the error term and i

Statistical Tools represents firms listed on NSE-100.
These regression equations have been estimated using
For the first objective, i.e., inter-industry comparison,
OLS method looking at cross-sectional nature of data.
hypothesis testing has been done using ANOVA.
ANOVA is a parametric hypothesis testing method and it
is used when the normality of data was proved. While for Results and Discussion
the sec- ond objective, i.e., to study the impact between
Table 3 displays the results of Kolmogorov–Smirnov test.
ESG risk scores and firm performance, a multivariate
For this study, the Kolmogorov–Smirnov test is more
regression model has been developed. All the ESG-related
appropriate to be adopted for small sample sizes for
variables are independent variables and dependent testing normality.
variables are from performance variables. As mentioned Table 4 displays the descriptive statistics of the
earlier, there variables. Descriptive statistics of the regression variables
show that
Table 3. Result of Normality Test.

Variable Kolmogorov–Smirnov Z Sig. Decision Rule Conclusion

ESG risk scores 0.658 0.780 <0.05 The distribution is normal
Environment risk score 1.179 0.124 <0.05 The distribution is normal
Social risk score 0.718 0.682 <0.05 The distribution is normal
Governance risk score 1.157 0.137 <0.05 The distribution is normal
Firm age 1.256 0.085 <0.05 The distribution is normal
Firm size 2.529 0.000 <0.05 The distribution is not normal
ROA 0.874 0.429 <0.05 The distribution is normal
ROE 1.039 0.230 <0.05 The distribution is normal
Leverage 0.702 0.707 <0.05 The distribution is normal
Tobin’s Q 2.079 0.000 <0.05 The distribution is not normal
Output: SPSS 23.0.

Table 4. Descriptive Statistics.

Industry Variables N Min. Max. Mean Std. Dev.

Oil and gas ESG risk score 6 29.0 55.0 38.3 8.8
Environment risk score 6 9.3 24.8 18.9 5.1
Social risk score 6 8.4 17.7 11.5 3.3
Governance risk score 6 6.3 12.4 8.0 2.3
Firm age 6 29.0 70.0 49.7 15.2
Firm size 6 22,512.9 879,154.0 317,049.1 312,839.8
ROE 6 8.3 68.5 24.8 21.8
ROA 6 4.4 49.8 14.8 17.4
Tobin’s Q 6 0.8 6.6 2.1 2.3
Leverage 6 27.3 67.9 46.7 17.5

(Table 4 continued)
 Shobhwani and Lodha 13

(Table 4 continued)

Industry Variables N Min. Max. Mean Std. Dev.

Finance ESG risk score 7 19.0 35.0 27.7 5.0
services Environment risk score 7 1.9 2.6 2.3 0.3
Social risk score 7 7.9 17.9 12.7 3.6
Governance risk score 7 8.7 14.9 12.7 2.0
Firm age 7 15.0 67.0 35.6 16.6
Firm size 7 4,441.8 4,998,094 1,535,435.0 1,671,158.0
ROE 7 0.7 9.7 2.8 3.1
ROA 7 0.6 9.6 2.7 3.1
Tobin’s Q 7 0.1 60.8 9.1 22.8
Leverage 7 1.5 4.9 4.1 1.2
Construction ESG risk score 5 24.0 43.0 33.0 7.3
Environment risk score 5 4.6 18.8 13.7 5.9
Social risk score 5 4.2 13.9 8.3 4.1
Governance risk score 5 7.4 15.8 11.1 3.3
Firm age 5 22.0 76.0 51.4 23.5
Firm size 5 23,470.7 174,822.9 74,176.5 61,149.6
ROE 5 6.3 14.1 11.0 3.3
ROA 5 4.5 10.1 7.1 2.4
Tobin’s Q 5 1.9 3.7 2.8 0.8
Leverage 5 22.2 61.6 34.2 16.6
Automobile ESG risk score 7 12.0 31.0 21.7 7.1
Environment risk score 7 2.2 9.8 5.6 2.7
Social risk score 7 3.0 14.0 8.9 4.3
Governance risk score 7 6.2 8.2 7.2 0.7
Firm age 7 15.0 77.0 51.3 23.9
Firm size 7 14,360.9 73,883.9 42,335.0 26,555.8
ROE 7 −7.0 18.2 10.4 8.4
ROA 7 −2.0 15.7 7.9 5.6
Tobin’s Q 7 2.5 6.8 3.6 1.5
Leverage 7 16.8 70.8 35.7 17.6
Metals & ESG risk score 5 34.0 44.0 38.0 4.3
mining Environment risk score 5 12.5 20.7 15.7 3.5
Social risk score 5 10.6 15.8 13.7 2.3
Governance risk score 5 7.0 10.1 8.7 1.4
Firm age 5 28.0 115.0 62.2 32.5
Firm size 5 103,122.0 385,185.0 208,799.1 108,520.3
ROE 5 10.1 26.3 19.5 7.7
ROA 5 4.2 14.3 9.0 4.2
Tobin’s Q 5 1.0 1.6 1.2 0.2
Leverage 5 45.6 66.8 54.4 9.6
Healthcare ESG risk score 4 31.0 38.0 34.0 3.6
Environment risk score 4 1.5 5.3 3.3 1.6
Social risk score 4 17.2 20.2 18.8 1.3
Governance risk score 4 10.4 13.5 12.2 1.4
Firm age 4 38.0 87.0 50.8 24.2
Firm size 4 22,512.6 42,704.6 28,994.2 9,245.8
ROE 4 −1.0 13.1 5.1 7.0
ROA 4 −0.8 11.5 4.2 5.9
Tobin’s Q 4 1.6 5.8 3.5 1.7
Leverage 4 12.7 42.4 25.3 12.8
Information ESG risk score 5 13.0 15.0 13.6 0.9
technology Environment risk score 5 0.5 1.0 0.8 0.2
Social risk score 5 6.1 7.4 6.8 0.5
Governance risk score 5 5.1 7.0 6.1 0.8
Firm age 5 27.0 77.0 42.4 20.0
Firm size 5 35,894.8 122,746.0 79,460.4 34,587.4
ROE 5 19.0 49.5 29.4 12.0
ROA 5 13.7 31.1 20.0 6.9
Tobin’s Q 5 3.0 9.6 5.4 2.7
Leverage 5 23.9 37.1 30.8 5.1
(Table 4 continued)
14 Asia-Pacific Journal of Management Research and Innovation 19(1)

(Table 4 continued)

Industry Variables N Min. Max. Mean Std. Dev.

Fast-moving ESG risk score 6 24.0 32.0 27.3 2.7
consumer Environment risk score 6 5.8 12.2 9.9 2.5
goods Social risk score 6 8.0 14.6 10.1 2.5
Governance risk score 6 6.3 8.2 7.2 0.8
Firm age 6 22.0 112.0 54.5 37.5
Firm size 6 4,549.0 75,600.3 30,241.5 33,285.6
ROE 6 15.7 38.1 23.3 8.1
ROA 6 7.5 25.6 15.7 6.4
Tobin’s Q 6 5.6 14.8 9.1 3.4
Leverage 6 18.8 52.3 33.5 10.7
Other ESG risk score 7 12.0 39.0 23.3 9.3
Environment risk score 7 1.6 15.5 7.9 5.4
Social risk score 7 3.2 14.4 8.1 3.3
Governance risk score 7 5.6 9.3 7.4 1.4
Firm age 7 16.0 77.0 40.6 22.4
Firm size 7 19,846.0 294,330.3 72,512.9 100,142.3
ROE 7 −4.6 28.7 13.9 12.4
ROA 7 −1.2 15.6 6.9 6.2
Tobin’s Q 7 1.6 15.8 6.0 5.6
Leverage 7 33.8 73.3 57.1 12.1
Output: SPSS23.0.

the average score on the overall ESG-related risk is higher that fast-moving consumer goods and other industry are
than the score on the individual ESG components. The disclosing most of their governance practices. While the
average score for governance risk is lower than the risk average score for social risk is higher than the score for
score for social and environmental components, indicating the environment and governance components, indicating
that the oil and gas industry is disclosing most of its that fast moving consumer goods and other industry are
govern- ance practices, although this cannot be quantified not dis- closing most of their social practices.
in terms of their social and governance concerns. While
the average score for environment risk is higher than the
score for the social and governance components,
indicating that the oil and gas industry is not disclosing ESG Risk Scores Across Industries
most of its environment practices. This scenario is A majority of ESG risk scores (overall as well as for each
prevailing due to mandatory norms on corporate of the three dimensions) are normally distributed.
governance practices, whereas environ- mental and social Parametric methods are used to analyse the data such as
disclosures are voluntary in nature in India. The average the ANOVA test. The ANOVA test is used to compare
risk score for the environment element is lower than the more than two groups. Table 5 shows the results of
risk score for the social and governance components, ANOVA for industry-wise comparison of various ESG
showing that the financial services, automo- bile and risk scores.
healthcare, information technology industry dis- closes Table 5 shows that the calculated value of F for ESG
the majority of its environmental activities. While the risk scores across various industries is 8.992 (df 8,
average social risk score is greater than the average score 43, p = 0.000); thus at the 5% level of significance, H1 is
for the environment and governance components, this rejected and it can be concluded that there is significant
indicates that the financial services, automobile, difference in ESG risk scores of different industries.
healthcare and information technology industry does not For environment risk score, the calculated F value was
disclose the majority of its social policies. The average risk found to be 16.499 (df 8, 43, p = 0.000). Thus, at the 5%
score for the social element is lower than the risk score for level of significance, H2 is rejected and it can be
the environ- ment and governance components, showing concluded that there is significant difference in
that the con- struction industry discloses the majority of environment risk scores of different industries.
its social activities. While the average environment risk
For social risk score, the calculated F value was found
score is greater than the average score for the social and
to be 6.286 (df 8, 43, p = 0.000). Thus, at the 5% level of
governance components, this indicates that the
significance, H3 is rejected and it can be concluded that
construction industry does not disclose the majority of its
there is significant difference in social risk scores of
environment policies. The average score for governance
differ- ent industries.
risk is lower than the risk score for social and
environment components, indicating
 Shobhwani and Lodha 15

Table 5. Results of ANOVA Test (Industry-wise Comparison).

Sum of Squares Df Mean Square F p-value Conclusion

ESG risk score Between groups 2,881.155 8 360.144 8.992 0.000 H1 rejected
Within groups 1,722.152 43 40.050
Total 4,603.308 51
Environment Between groups 1,780.102 8 222.513 16.499 0.000 H2 rejected
risk score Within groups 579.928 43 13.487
Total 2,360.030 51
Social risk score Between groups 511.806 8 63.976 6.286 0.000 H3 rejected
Within groups 437.633 43 10.178
Total 949.439 51
Governance risk Between groups 267.092 8 33.387 11.050 0.000 H4 rejected
score Within groups 129.918 43 3.021
Total 397.010 51
Output: SPSS23.0

For governance risk scores, the calculated F value was On the other hand, environment risk scores of con-
found to be 11.050 (df 8,43, p = 0.000). Thus at the 5% structions, automobile, healthcare and other industries
level of significance, H4 is rejected and it can be are not found significantly different from the IT industry,
concluded that there is significant difference in and compared to social risk scores of the IT industry,
governance risk scores of different industries. social risk scores of metals and mining, healthcare are
ANOVA revealed a significant difference in ESG and found to be significantly different the at 5% level of sig-
E, S and G risk scores of different industries, post hoc nificance. Further, social risk scores of the oil and gas
analysis was done to find out which industries have industry, financial services, construction, automobile,
significant dif- ferences in ESG risk scores. All 52 FMCG and other industries are not found significantly
companies have been divided into 9 industry groups, different from the IT industry and compared to govern-
namely (i) oil and gas, ance risk scores of the IT industry, governance risk
(ii) financial services, (iii) construction, (iv) automobile, scores of financial services, healthcare are found to be
(v) metal and mining, (vi) healthcare, (vii) information significantly different the at 5% level of significance. On
technology, (viii) fast-moving consumer goods and (ix) the other hand, governance risk scores of oils and gas
other. As shown in Table 6, the average ESG risk scores industry, construction, automobile, metals and mining,
of all industries were calculated. The average ESG risk FMCG and other industries are not found significantly
scores of all industries were calculated for inter-industry different from the IT industry.
compari- son, and it was found that mean differences were
high for all industries when compared to the oil and gas
industry. When the average ESG risk score of the oil and
Relationship Between ESG
gas industry was compared to that of other industries, the Risk Scores and Firm
following differ- ences were found: information Performance
technology (24.73), financial services industry (10.62), Table 7 represents the Pearson correlation analysis among
construction industry (5.33), auto- mobile industry (16.62), all variables used for this study. Based on the results,
metal and mining industry (0.33), healthcare industry there is a moderate degree correlation between ESG score
(4.33), fast-moving consumer goods industry (11) and and environment score, social score and governance score
other industry (15.05). As a result, the information whereby the r = 0.740, 0.708, 0.498 and p = 0.000. There
technology industry has been compared to all other is a low degree of negative relationship between ESG
industries. score and ROA, ROE, Tobin’s Q (where r =−0.148,
It is found that as compared to ESG risk scores of the −0.087,
IT industry, ESG risk scores of the oil and gas industry, −0.134, p = 0.296, 0.539, 0.342). There is a low degree of
financial services, construction, metals and mining, positive correlation between environment score and ROA,
healthcare and FMCG are found to be significantly different ROE (where r = 0.112, 0.216, p = 0.427, 0.123), whereas
at the 5% level of significance. On the other hand, ESG risk there is a low degree of negative correlation between
scores of automobile and other industries are not found envi- ronment score and Tobin’s Q.
significantly different from IT industry and compared to Meanwhile, score and Tobin’s Q (where r = 0.134,
environment risk scores of the IT industry, environment risk p = 0.345). There is a low degree of negative correlation
scores of the oil and gas industry, financial services, metals between social score and ROA, ROE and Tobin’s Q
and mining and FMCG are found to be significantly (where r = −0.230, −0.232, −0.165, p = 0.101, 0.098,
different the at 5% level of significance. 0.242).
16 Asia-Pacific Journal of Management Research and Innovation 19(1)

Table 6. Results of Post Hoc Analysis for Industry-wise Comparison.

ESG Risk Score Environment Risk Score Social Risk Governance Risk Score
Industries (p-value) (p-value) Score (p- (p-value)
value)
Oil and gas industry 0.015 0.006 0.237 0.816
Financial services 0.005 0.000 0.082 0.001
Construction 0.048 0.094 1.000 0.283
Automobile 0.314 0.062 0.984 0.619
Metals and mining 0.002 0.008 0.027 0.158
Healthcare 0.010 0.407 0.002 0.014
Fast-moving consumer goods 0.000 0.005 0.286 0.655
Other 0.398 0.192 0.998 0.815
Output: SPSS23.0.

Table 7. Pearson Correlation.

ESG Risk ENV. Risk SOC. Risk GOV. Risk

Variables Score Score Score Score Firm Age Firm size ROE ROA Leverage Tobin’s Q
ESG risk score 1
ENV. risk score 0.740* 1
SOC. risk score 0.708* 0.109 1
GOV. risk score 0.498* −0.097 0.603* 1
Firm age 0.256 0.200 0.295* −0.07 1
Firm size 0.111 −0.155 0.235 0.382* 0.016 1
ROE −0.087 0.216 −0.232 −0.449* 0.031 0.296* 1
ROA −0.148 0.112 −0.230 −0.400* 0.030 0.280* 0.954* 1
Leverage −0.115 0.401* −0.119 −0.410* 0.107 −0.347* 0.079 −0.114 1
Tobin’s Q −0.134 −0.134 −0.165 −0.142 −0.173 −0.182 0.149 0.217 −0.215 1
Output: SPSS 23.0.

There is a moderate negative correlation between govern- moderate

ance score and ROA, ROE (where r = −0.400, r = −0.449
p = 0.003, p = −0.001). Whereas low degree of positive
correlation between governance score and Tobin’s Q
(where r = 0.142, p = 0.316). There is a low degree of
posi- tive correlation between ESG risk score firm age,
firm size, leverage (where r = 0.256, 0.111, 0.115, p =
0.067, 0.434, 0.417). There is a low degree of positive
correlation between environment risk score firm age and
firm size low degree of negative correlation (where r =
0.200, −0.155, p = 0.155, 0.272). Whereas, there is a
moderate degree of positive cor- relation between
environment risk score and leverage (where r = 0.401, p =
0.003). There is a low degree of posi- tive and negative
correlation between social risk score and firm size,
leverage (where r = 0.235, −0.119, p = 0.094, 0.401),
whereas there is a moderate degree of positive cor-
relation between environment risk score and firm age
(where r = 0.295, p = 0.034).
There is a moderate degree of positive correlation
between governance risk score firm size and leverage
mod- erate degree of positive correlation (where r =
0.382,
−0.410, p = 0.005, 0.003), whereas there is a low degree
of negative correlation between environment risk score
and firm age (where r = −0.070, p = 0.623). There is a
 Shobhwani and Lodha 17
degree of positive correlation between firm age and ROA,
ROE (where r = 0.030, 0.031; p = −0.834, 0.830), whereas
there is a low degree of negative correlation between firm
age and Tobin’s Q (where r = −0.173, p = 0.220). There is
a moderate degree of positive correlation between firm
size and ROA, ROE (where r = 0.296, 0.280; p = .044,
0.033),
whereas there is a low degree of negative correlation
between firm size and Tobin’s Q. (where r = −0.182,
p = 0.198). There is a low degree of positive correlation
between leverage and ROE, (where r = 0.079, p = 0.576).
Whereas, there is a low degree of negative correlation
between leverage and Tobin’s Q and ROA (where
r = −0.215, −0.114, p = 0.125, 0.420).

Impact of ESG Risk Scores

on Firm Performance
Multiple regression equations (1), (2) and (3) were esti-
mated and their estimation results have been presented in
Table 8. Table 8 displays the results in three columns which
represent the three models. For each variable, beta coeffi-
cients have been shown along with t-statistic in parenthe-
ses and its significance has been displayed with the use of
an asterisk.
18 Asia-Pacific Journal of Management Research and Innovation 19(1)

Table 8. Regression Results.

Model 1 Model 2 Model 3

Variables Tobin’s Q ROA ROE
Intercept 6.110 29.391 38.834
ESG risk score −4.869 −6.208 −5.803
(−1.073) (−1.511) (−1.362)
Environment risk score 3.475 4.683 4.428
(1.063) (1.583) (1.443)
Social risk score 1.864 2.875 2.702
(0.905) (1.542) (1.397)
Governance risk score 1.814 1.288 1.180
(1.346) (1.056) (0.933)
Firm age −0.023 −0.025 −0.056
(−0.154) (−0.186) (−0.403)
Firm size −0.296 −0.197 −0.142
(−1.99) (−1.463) (−1.020)
Leverage −0.184 −0.474 −0.268
(−1.137) (−3.234)* (−1.761)
Adjusted R2 0.116 0.275 0.221
F-statistics 1.952 3.765 3.062
p-value 0.084 0.003 0.010
S.E. 8.16 7.60 11.66
Note: t-statistics within brackets and * denote statistical significance at 5%.
Output: SPSS23.0.

Table 9. Summary of Hypotheses Testing.

S. No. Hypotheses Results

H1 There is no significant difference among the ESG risk scores of different industries. Rejected
H2 There is no significant difference among the environment risk scores of different industries. Rejected
H3 There is no significant difference among the social risk scores of different industries. Rejected
H4 There is no significant difference among the governance risk scores of different industries. Rejected
H5 There is no significant impact of ESG risk score on firm performance. Accepted
H6 There is no significant impact of environment risk score on firm performance. Accepted
H7 There is no significant impact of social risk score on firm performance. Accepted
H8 There is no significant impact of governance risk score on firm performance. Accepted

Model 1 For model 1, it is found that the t-statistic is found that ESG risk score, firm age, firm size have
1.952 with a p of 0.084, standard error is 8.16 and negative and insignificant coefficients. ESG risk scores
adjusted R2 is have positive but insignificant coefficients, whereas
0.116. Thus, this model is a good fit at the 5% level of leverage has negative and significant coefficients.
significance and is able to explore 11.6% variations in
Tobin’s Q. As far as variables of interest are concerned, it Model 3 For model 3, it is found that the t-statistic is
is found that ESG risk score, age, size and leverage have 3.062 with a p of 0.010, standard error is 11.66 and
negative and insignificant coefficient. ESG risk scores adjusted R2 is
have positive but insignificant coefficients. 0.221. Thus, this model is a good fit at the 5% level of
significance and is able to explore 22.1% variations in
Model 2 For model 2, it is found that the t-statistic is ROE. As for as variables of interest are concerned, it is
3.765 with a p of 0.003, standard error is 7.60 and found that ESG risk score, age, size and leverage have
adjusted R2 is negative and insignificant coefficients. ESG risk scores
0.275. Thus, this model is a good fit at the 5% level of have positive but insignificant coefficients. Table 9 sum-
significance and is able to explore 27.5% variations in marizes the results of hypotheses testing.
ROA. As for as variables of interest are concerned, it is
Shobhwani and Lodha 19

Conclusion Declaration of Conflicting Interests

This study aimed to provide relevant information on the The authors declared no potential conflicts of interest with respect
impact of ESG risk scores on firm performance which is to the research, authorship and/or publication of this article.
suitable for investors and analysts to consider in their
investment decision-making. The study used three proxies, Funding
i.e., market-based performance (Tobin’s Q), operational The authors received no financial support for the research,
performance (ROA) and financial performance (ROE), to author- ship and/or publication of this article.
measure the firm performance. Based on results, the ESG
risk score and the subgroup risk scores are significantly ORCID iD
different in various industries. Our regression results show
that the ESG risk scores, firm age, firm size, leverage have Shilpa Lodha https://orcid.org/0000-0002-4313-0265
an insignificant negative impact on Tobin’s Q (market-
based performance). The result from the study is similar to
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