INTRODUCTION:

In recent times, there has been a growing focus on Environmental, Social, and Governance (ESG) factors in guiding investment choices. Investors are increasingly assessing businesses based on their ESG pledges, although financial outcomes and external influences continue to significantly affect their decisions¹⁹. While ESG investing is perceived as a potential catalyst for managing risk and achieving long-term stability, the specific effects of these factors remain a matter of discussion. This research intends to examine how much ESG considerations affect investment choices, while also recognizing that broader economic conditions, industry-specific elements, and company characteristics can play roles in financial performance. By contrasting the ESG ratings of firms listed in the Nifty 100 ESG Index with those in the larger Nifty 100 Index, this study aims to offer insights into investor preferences, although it may not entirely reflect all the factors influencing investment behaviour.

ESG refers to Environmental, Social, and Governance, which are three essential elements used to evaluate the sustainability and ethical implications of an investment. These elements assist investors in determining a company's long-term sustainability and its responsibility to society. Interest in ESG investing is growing as more investors aim to align their investment choices with sustainability and ethical values.

· Environmental (E): Assesses a company's influence on natural resources, policies regarding climate change, carbon output, and resource management practices.

· Social (S): Reviews labour practices, diversity initiatives, human rights measures, and involvement in community affairs.

· Governance (G): Concentrates on corporate governance, clarity in operations, board composition, and the rights of shareholders.

ESG scores are evaluations assigned to companies to analyse their performance regarding environmental, social, and governance aspects. These scores help investors understand how well companies are managing their responsibilities in terms of ESG. Various organizations, such as MSCI, Sustainalytics, and CRISIL, provide these scores in different countries by examining multiple factors to conduct a statistical analysis and review the reports released by those companies. Generally, a higher score indicates that a company is effectively implementing sustainability, governance, and growth practices. ESG scores assist investors in evaluating companies based on ESG criteria alongside other financial metrics to support their investment choices.

· Risk Management: Companies with a focus on ESG may face fewer risks related to regulatory fines, reputational damage, and environmental liabilities.

· Long-Term Returns: Some research indicates that companies aligned with ESG principles tend to demonstrate greater financial resilience, although various external factors also impact returns.

· Investor Interest: An increasing number of institutional investors, pension funds, and retail investors are factoring in ESG elements, yet financial returns continue to be a crucial aspect of decision-making.

RESEARCH PROBLEM:

Although there is increasing interest in ESG investing, the precise influence on investor decision-making remains ambiguous. ESG scores are commonly recognized as indicators in the market, yet investors might still Favor conventional financial metrics. This research intends to evaluate whether ESG elements play a significant role in investment decisions or if they function more as additional considerations instead of leading factors.

OBJECTIVES:

1. To identify the ESG factors that affect investment choices.

2. To analyse how ESG factors influence investor behaviour and financial markets.

LITERATURE REVIEW:

Numerous brilliant thinkers have explored this subject and laid a solid foundation, along with valuable information regarding the various factors and methodologies, which have contributed to further exploration in this field and guided the discovery of gaps while pursuing an analytical perspective. The identification of ESG factors has been simplified through supportive work.

THEORETICAL FOUNDATIONS:

1. Stakeholder Theory: This theory posits that companies ought to take into account all stakeholders including investors, employees, customers, and communities in their decision-making processes. An effective ESG framework corresponds with stakeholder interests, which can potentially result in sustainable profitability³⁰.

2. Modern Portfolio Theory (MPT): MPT highlights the balance between risk and returns in investment choices. ESG factors can be considered as unconventional risk elements that influence the stability and performance of investments over time³³.

3. Efficient Market Hypothesis (EMH): EMH states that all available information, including ESG factors, is already incorporated into stock prices. This indicates that ESG ratings may not offer a clear advantage unless they reveal previously unnoticed risks or opportunities³².

RESEARCH METHODOLOGY:

Methodology: This study takes a comparative and correlational approach to examine the connections between ESG scores, stock performance, and investor preferences.

Sample: This study will utilize secondary data, which includes: ESG Scores – Evaluating the ESG performance of companies within the Nifty 100 ESG and Nifty 100 indices. Stock Market Data – Analysing price trends, returns, and financial performance. Fund Flow Data – Identifying investor inflows into ESG-focused funds. Macroeconomic and Market Trends – Assessing external factors that affect investment behaviour.

Analysis: Secondary data was gathered from financial databases, company reports, stock exchanges, and ESG rating agencies. ESG scores, stock performance data, and market trends were analysed. The analysis employs descriptive statistics, correlation analysis, and comparative studies of ESG and non-ESG stocks³⁴. Techniques such as trend analysis and pivot tables were utilized to assess the impact of ESG on investment performance.

Limitations: Although this study offers meaningful insights into how ESG (Environmental, Social, and Governance) factors influence investment decisions, several limitations need to be considered. First, it relies on secondary data, which may have inconsistencies or gaps since ESG scores are derived from various methodologies, leading to potential variances in comparative assessments. Additionally, the limited timeframe of the study restricts the analysis of long-term trends, indicating that a more extended observation period could result in stronger conclusions. Furthermore, investment decisions are affected by numerous external factors, such as macroeconomic conditions, geopolitical developments, inflation, and monetary policies, complicating efforts to isolate the specific influence of ESG considerations. Investor biases and preferences are also significant, as individual risk tolerances, values, and financial goals may not always align with ESG criteria, with some emphasizing short-term financial profits. Finally, the scope of ESG factors is wide and continuously evolving; this study centres on specific aspects, but incorporating additional elements such as supply chain sustainability, corporate lobbying, and ethical consumerism could further enrich the findings.

Factors Considered in the Study and Their Explanations:

This research examines various ESG-related elements that impact investment choices. Here is a comprehensive overview of each element and its significance to the study.

A. Environmental Considerations:^1,23

1. Greenhouse Gas (GHG) Emissions:

· Assesses a company's carbon emissions and its dedication to minimizing them.

· Investors tend to favour companies with lower emissions due to concerns about regulatory adherence and sustainability^2,24.

2. Waste Management and Pollution Control

· Analyses how companies manage waste disposal and mitigate pollution.

· Effective waste management improves corporate reputation and ensures regulatory compliance, making the company more appealing to investors.

B. Social Considerations^1,25:

1. Human Rights Compliance:

· Evaluates whether companies follow labour laws, pay fair wages, and treat employees ethically².

· Investors, especially institutional ones, steer clear of organizations with poor records regarding human rights.

2. Employee Relations and Workplace Well-being:

· Focuses on employee happiness, workplace safety, and policies promoting diversity²⁶.

· Good workplace conditions often lead to increased productivity and profitability, rendering such companies attractive to investors².

3. Corporate Social Responsibility (CSR) and Community Engagement:²⁹

· Companies involved in CSR activities are seen as ethical and sustainable.

· Strong CSR strategies enhance brand loyalty and build investor confidence.

C. Governance Considerations¹:

1. Corporate Governance and Transparency:²

· Evaluates board independence, ethical leadership, and clarity in financial reporting.

· Companies with strong governance practices incur lower risks of financial fraud, making them favourable to investors.

2. Regulatory Compliance and Anti-Corruption Measures:^2,28

1. Confirms that companies adhere to legal and ethical standards in their operations.

2. Organizations with robust compliance frameworks draw long-term investments due to diminished legal risks.

SAMPLE SELECTION:

Data Collection:

To conduct the analysis, companies were chosen from the Nifty 100 and Nifty 100 ESG indices of the Indian stock market for recent data, and stocks were specifically observed in the ESG section of the Nifty ESG indices. The companies were categorized based on their ESG scores, ranging from high to low, on a scale of 0-100 (Score categories: 0-40 Weak, 41-50 Below Average, 51-60 Adequate, 61-70 Strong, 71-100 Leadership)⁸. The data was then prepared for correlation analysis, and information regarding holdings by Mutual Funds, Foreign Portfolio Investors, and Retail investors for each stock was also gathered.

DATA ANALYSIS:

This data analysis aims to examine the correlations that help to identify the relationship between ESG factors and investor decisions by analysing stocks in the Indian stock market, focusing on Nifty 100 and Nifty 100 ESG as key indices. The companies within these indices will be compared and analysed using data collected from the NSE (National Stock Exchange), categorizing them into high and low ESG-scored companies based on information obtained from CRISIL ESG (ESG Rating Agency) Table No 01: Sample of Companies with High ESG Scores and Its Returns. The primary focus will be on the flow of funds, and statistical methods will be employed to assess the relationship between ESG scores and stock liquidity and performance over the long term.

Table No 04: ESG Scores and Investors Holdings (MF: Mutual Fund; FPI: Foreign Portfolio Investor.)^8,17,18(Source: NSE)

Stock Name	Total Score	MF Holding %	FPI Holding %	Retailers Holding %
Adani Energy Solutions	72	8.19	19.38	4.56
Avenue Supermarts	71	23.93	49.2	16.23
Apollo Hospitals Enterprise	66	0.37	13.68	23.66
Cholamandalam Investment and Fin	66	11.14	40.08	10.38
Cipla	65	9.52	20.79	9.34
Bajaj Finance	64	20.46	26.65	16.44
Adani Green Energy	63	12.77	45.27	5.42
Dr Reddy’s Laboratories	63	13.37	27.43	6.54
HDFC Bank	61	1.91	17.33	6.87
HCL Technologies	61	6.77	8.96	8.26
Jindal Steel and Power	60	9.58	8.91	9
Adani Enterprises	57	5.06	13.94	5.96
Bharat Electronics	55	1.6	12.35	11.09
Gail India	55	6.37	7.98	13.35
Indian Railway Finance Corporation	55	4.64	12.26	7.95
Adani Power	54	10.08	16.05	14.35
Bharat Heavy Electricals	54	0.24	1.01	11.39
Hindustan Aeronautics	53	16.17	17.35	10.58
Adani Ports and Special Economic	50	2.37	11.73	7.69
Bank Of Baroda	49	13.38	10.99	10.57

Fig 03: Holding Values of Different Type of Investors as per ESG Scores of Companies: (Source: Authors Own)

Table No 05 Pivot Table of Averages^8,17,18,22(Source: NSE)

Investor Type	Averages of High ESG Scores	Averages of Low ESG Scores
MF Holding Average	37.72	30.10
FPI Holding Average	44.98	32.53
Retailers Holding Average	37.66	31.94

Conclusions of the Correlation Analysis:

A negative correlation indicates that companies with higher ESG scores often experience lower returns over one (table no 02: Co-relation Valueand fig-01: Scatter Graph of ESG Score Vs 1 Year Returns) and three years (table no 03 co-relation valueand fig-02: scatter graph of ESG score vs 3year returns)

This might imply that:

· Investors do not prioritize ESG scores exclusively when making their investment choices.

· Other factors, including market fluctuations, sector performance, or broader economic trends, could be more influential.

· While ESG investments might offer advantages in the long run, they may fall short in the short term.

Comparative Analysis of Investors Preferences Between High and Low ESG Scored Companies:

The objective of this analysis is to evaluate if investors prefer companies with elevated ESG scores over those with lower ratings. By analysing stock returns, trading volumes, and market performance across different ESG categories, this research aims to reveal trends in investor behaviour.

Sample for the Analysis:

Table No 04: Sample of Stocks, ESG Scores and Investors Holdings (MF: Mutual Fund; FPI: Foreign Portfolio Investor) and Table No 05 Pivot Table of Averages.

Conclusion of Analysis:

This analysis explores how different types of investors—Mutual Funds (MFs), Foreign Portfolio Investors (FPIs), and Retail Investors—allocate their investments between firms with high and low ESG scores.

1. Mutual Fund (MF) Ownership: Mutual funds allocate more capital to companies that possess high ESG scores compared to those with lower scores. This suggests that mutual funds may prioritize ESG factors in their investment approaches, possibly due to institutional demands, long-term risk evaluations, or alignment with sustainability targets.

2. Foreign Portfolio Investor (FPI) Ownership: FPIs demonstrate a clear preference for firms with elevated ESG ratings, holding a significantly larger proportion of these stocks. This pattern may indicate compliance with global ESG standards, increasing regulatory emphasis, and a heightened focus on sustainable investing among foreign investors. The marked difference implies that FPIs are more attuned to ESG considerations than their domestic counterparts.

3. Retail Investor Ownership: Retail investors also show a preference for companies with high ESG scores, although the distinction is not as significant as it is for institutional investors. This suggests that while there is a growing awareness of ESG issues among retail investors, their investment choices may still be more strongly influenced by conventional financial indicators and immediate returns.

Sample For the Analysis: Table No 04: Sample of Stocks, ESG Scores and Investors Holdings (MF: Mutual Fund; FPI: Foreign Portfolio Investor) and Fig 03: Holding Values of Different Type of Investors as per ESG Scores of Companies

Final Conclusions of Data Analysis:

ESG (Environmental, Social, and Governance) scores are gaining significant importance in investment strategies, especially among institutional investors who are motivated by regulatory obligations and a commitment to long-term sustainability. Conversely, retail investors continue to emphasize financial returns, adopting a more nuanced view of ESG factors. This difference is underscored by the inverse relationship between ESG scores and short-term stock performance, indicating that investments focusing on sustainability may require more time for financial benefits to become evident. While retail investors are slowly incorporating ESG principles, their focus on quick profits might make them hesitant to prioritize ESG considerations. Nevertheless, companies that adhere to strong ESG standards are likely to experience advantages such as lower regulatory risks, better reputations, and increased investor confidence over time.

FUTURE RESEARCH SCOPE:

Future investigations into ESG (Environmental, Social, and Governance) could pursue various pathways. One potential focus could be a global comparative analysis of ESG investment patterns in different economies. Furthermore, research may distinguish between how retail and institutional investor’s view ESG factors. Long-term studies investigating the effects of ESG over time could offer more in-depth understanding, while exploring the relationship between ESG implementation and corporate financial outcomes—specifically profitability and market valuation—could uncover important insights. Lastly, examining the sector-specific impact of ESG in fields such as technology, energy, and manufacturing could provide valuable knowledge about how these factors influence performance in diverse industries.

LIMITATIONS:

The constraints of this research encompass several key aspects that may affect the results. To begin with, the availability of data poses a challenge since ESG reporting standards differ among companies, resulting in inconsistencies in the analysis. Moreover, market dynamics significantly affect outcomes; external economic conditions can impact stock performance, complicating the isolation of ESG's specific effects. Additionally, there is variability in investor behaviour, as personal and financial factors that go beyond ESG scores can influence individual investment choices. Finally, the research is limited by its focus on short-term data, based on a narrow timeframe that may not reflect long-term trends that could produce different outcomes.

CONCLUSION:

This research examines how Environmental, Social, and Governance (ESG) factors influence investment choices, highlighting that this impact differs by the type of investor and the industry involved. Institutional investors typically integrate ESG into their long-term risk management strategies, while retail investors tend to prioritize traditional financial indicators. The results reveal a negative relationship between ESG ratings and short-term stock performance, indicating that strong ESG adherence may not yield immediate financial benefits. Industries with robust ESG practices, such as renewable energy and technology, tend to gain greater investor confidence, in contrast to those with less stringent practices which attract increased scrutiny. In conclusion, ESG investing is influenced by external economic conditions and regulatory policies. Companies should improve their ESG disclosure, and policymakers should establish incentives for responsible investment. As concerns regarding sustainability continue to rise, the importance of ESG in investment strategies is expected to grow, although investors need to find a balance between these considerations and traditional financial analysis for sound decision-making.

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Received on 19.06.2025 Revised on 25.07.2025

Accepted on 26.08.2025 Published on 18.02.2026

Available online from February 21, 2026

Asian Journal of Management. 2026;17(1):58-64.

DOI: 10.52711/2321-5763.2026.00009

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Creative Commons License.

Stock Name	Sector	Total ESG Score	Returns 1Yr %	Returns 3Yr %
Bajaj Finance	NBFC	65	26.72	27.72
Adani Green Energy	Renewable energy	66	47.87	50.41
Dr Reddy’s Laboratories	Pharmaceuticals	66	5.41	31.68
HDFC Bank	Banks	71	25.72	26.58
HCL Technologies	IT	72	3.6	35.17