Is national economic growth associated with environmental social and governance performance of firms?

Abstract

This study delves into the effect of environmental, social and governance (ESG) indicators on economic growth trajectory of an emerging economy. A sample of firms listed on the ESG index of the National Stock Exchange (NSE) was examined. The findings reveal a positive and statistically significant relationship between ESG performance indicators and economic growth represented as gross domestic product (GDP) per capita. The sample is further segregated into energy and non-energy sectors, where the aggregate ESG scores exhibited a statistically significant influence on economic growth in both sectors. However, upon a closer examination of the individual ESG pillars, the governance pillar is observed to exert a negative influence on economic performance in non-energy firms. In contrast, the environment and social pillars show no significant influence. The analysis then employs a unique approach by applying a Difference-in-differences estimator to assess the impact of Business Responsibility and Sustainability Reporting (BRSR) regulations, which confirms a positive impact on economic growth after regulations but exclusively within the non-energy sector. This study underscores the substantial impact of ESG aggregate and individual scores on GDP per capita, which translates to economic growth.