Corporate Sustainability Performance vis-à-vis ESG Disclosure and R&D: Does It Matter to Influence Corporate Performance—Evidence from India

Abstract

This study investigated the relationship between environmental, social and governance (ESG) disclosure and investment in R&D and the firm’s financial performance. The firm’s financial performance is measured through indicators such as financial (return on equity (ROE)), operational (return on assets (ROA)) and market performance (Tobin’s Q). The study covers sample selection in 7 years, ranging from FY 2016–2017 to FY 2022–2023, of Indian-listed firms on the Bombay Stock Exchange. This study used panel data models: multiple regression, fixed effects model and system generalised method of moments. The empirical results confirmed that the overall ESG disclosure positively correlates with ROE, ROA and Tobin’s Q. However, the results of ESG interrelated elements are measured separately by ESG disclosures. ENV, CSR and GOV disclosure reported a positive relationship across all corporate performance indicators of ROE, ROA and Tobin’s Q. The disclosure of governance and the firm’s investment in research and development (R&D) are significantly and positively correlated with corporate performance. Also, this study examines the effects of investment in R&D’s mediating role in improving ESG score and enhancing corporate performance. The study finds that ordering inferences by R&D has a more significant impact on improving ESG scores and financial performance. The study’s outcomes can be helpful to the company’s augmentation of the ESG matter disclosure and better quality in reporting and achieving ESG standards and financial performance. Further, these results benefit investors, managers and policymakers mostly.