ESG, financial and macroeconomic indicators affecting stock returns: Evidence from India’s Nifty100 ESG Index

Type of the article: Research ArticleAbstractESG investing has emerged as a key factor in corporate strategy and capital investment, although its effects on stock returns in emerging markets such as India remain inconclusive. This paper investigates the effects of ESG scores and the financial performance of firms on the stock returns of firms in the Indian Nifty100 ESG Sector Leaders Index. Based on balanced panel data on 14 firms for 2015–2024, the study employs pooled OLS, random-effects, and fixed-effects models, conducts the Breusch-Pagan LM and Hausman tests to determine the appropriate specification, and finally estimates a two-way fixed-effects model. The empirical findings show that the ESG score has a statistically significant negative correlation with stock returns, indicating a negative relationship between ESG performance and short-term returns in the market. Return on Capital Employed (ROCE) is an important positive factor of stock returns, indicating that capital efficiency is important for stock price growth. The macroeconomic factors are also important: GDP growth has a statistically significant negative correlation with stock returns, whereas the statistical significance of inflation and industrial production is insignificant. There are no significant effects on returns in Earnings per Share (EPS) and Return on Assets (ROA). These findings imply that ESG integration in India is in its early development stage and could introduce short-term adjustment costs where corporate strategy and policy support are necessary to ensure sustainability initiatives are justified in the long-term value creation.