Do sustainable business practices enhance firm profitability? An empirical study of Indian listed companies

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This study employs a panel data model to examine the impact of sustainable business practices on profitability in the Indian market, focusing on 49 companies listed in the S&P BSE ESG 100 index from 2015 to 2022. Sustainable business practices are measured by ESG composite scores and individual environmental, social, and governance scores. Profitability is represented by return on equity and return on assets. Utilizing the Panel Corrected Standard Error technique to address data issues like autocorrelation and heteroscedasticity, the study finds that sustainable business practices insignificantly impact profitability. However, the social pillar has a significantly positive correlation with return on assets, with each unit improvement in the social score resulting in a 0.1323 increase in return. Conversely, the governance pillar negatively impacts return on assets, with each unit increase in governance score resulting in a decrease of 0.1527 units in profitability. Interestingly, larger companies experienced reduced returns on both assets and equity, as financial risk also lowered returns. These findings emphasize the relevance of companies’ socially responsible behavior, suggesting that managers and investors should prioritize sustainable practices for long-term benefits. Additionally, the findings advocate for robust regulatory frameworks focused on sustainability.

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    • Table 1. Industry-wise sample classification
    • Table 2. Variables definition
    • Table 3. Descriptive statistics
    • Table 4. Correlation matrix
    • Table 5. VIF for Group 1 variables
    • Table 6. VIF for Group 2 variables
    • Table 7. Panel regression results (FEM/REM)
    • Table 8. PCSE regression estimate for variables of the study
    • Conceptualization
      Manjiri Gadekar, Eliza Sharma, Ali Yavuz Polat
    • Data curation
      Manjiri Gadekar, Eliza Sharma, Ali Yavuz Polat
    • Formal Analysis
      Manjiri Gadekar, Eliza Sharma, Ali Yavuz Polat
    • Investigation
      Manjiri Gadekar, Eliza Sharma, Ali Yavuz Polat
    • Methodology
      Manjiri Gadekar, Eliza Sharma
    • Project administration
      Manjiri Gadekar, Ali Yavuz Polat
    • Software
      Manjiri Gadekar, Eliza Sharma, Ali Yavuz Polat
    • Supervision
      Manjiri Gadekar, Ali Yavuz Polat
    • Validation
      Manjiri Gadekar, Eliza Sharma, Ali Yavuz Polat
    • Writing – original draft
      Manjiri Gadekar, Eliza Sharma
    • Writing – review & editing
      Manjiri Gadekar, Ali Yavuz Polat
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Investment Management and Financial Innovations
Investment Management and Financial Innovations