ESG Factors and their Impact on Financial Metrics: A Study of Stock Prices and Revenue Correlations in Banks

Abstract

This study explores the relationship between Environmental, Social, and Governance (ESG) scores and financial performance metrics, including Closing Price, Earnings per Share (EPS), Return on Equity (ROE), and Net Profit, for three major Indian banks: HDFC, ICICI, and SBI. With the increasing focus on sustainable business practices, the banking sector has witnessed heightened scrutiny over its ESG performance, especially in emerging markets like India. By analyzing ESG scores against key financial indicators, this study assesses whether a trade-off exists between ESG adherence and traditional performance metrics. Correlation and regression analyses reveal consistent negative associations between ESG scores and financial outcomes across the banks, suggesting that higher ESG scores may slightly reduce short-term profitability measures such as ROE and Closing Price. However, these findings also align with broader trends in ESG literature, indicating that while ESG practices may pose immediate cost implications, they enhance long-term stability and reputational value. The implications of this study extend to investors and bank managers, who are encouraged to consider ESG integration as a long-term resilience strategy rather than solely a profit-driven objective. This research contributes to the growing discourse on sustainable finance in emerging markets, emphasizing the importance of balancing ESG commitments with financial objectives. Future studies could benefit from analyzing more banks and expanding the scope to cover individual ESG dimensions for a granular understanding of their distinct impacts on financial performance. CZU: 005.35:336.71(540); JEL Classification: G21 – Banks; M14 – Social Responsibility, Q56 – Environment and Development, Sustainability.