Disclosure performance and the perception of responsible investments an empirical analysis in the Indian context

Abstract

In recent years, the incorporation of ESG factors into the investment management process has attracted increased attention from companies, regulators, and investors at large. This has resulted in growing recognition of the impact of non-financial factors on a firm s long-term prospects and investor returns. The study examined the value relevance of ESG integration by conducting panel-, portfolio-, and perceptual-level studies. Based on a pre-specified sample selection procedure, a final sample of 229 firms was derived from the companies listed on the SandP BSE 500 Index. An in-depth firm- and portfolio-level analysis of the ESG disclosures was carried out for ten years, i.e., from the FY 2007-2008 to FY 2016-2017. The study examined the ESG disclosure practices of the sample companies across industries, period, and parameters. Additionally, the study investigated the impact of ESG disclosures on financial performance and risk. Further, a portfolio-level analysis of the risk, return, and diversification implications of the responsible investing screening strategies was carried out. Lastly, the study explored the possible drivers of responsible behaviour through a survey performed on the retail (n = 307) and professional (n = 52) investors, identified based on a premeditated research methodology. A rapid growth in ESG disclosures has been witnessed over the study period, with major improvements seen in social followed by environment and governance disclosures. The ESG disclosure score was positively and significantly associated with accounting and market performance while negatively linked with the total and systematic risks. Additionally, no impact of negative and best-in-class screening strategies on portfolio s performance was found, while pursuing a positive screening strategy had an adverse effect on portfolio s returns. Besides, screened portfolios had lower risk and were better-diversified vis-à-vis unscreened ones.