ESG and Idiosyncratic Risk in Indian Firms

DOI

10.2991/978-94-6239-795-8_18How to use a DOI?

Keywords

ESG Performance; Indian Capital Markets; Idiosyncratic Risk; Emerging Markets; Sustainability Transition

Abstract

This study investigates the relationship between firm-specific idiosyncratic risk and Environmental, Social, and Governance (ESG) performance in 15 NSE listed Indian firms from 2014 to 2023, a decade marked by significant regulatory changes in sustainability disclosure requirements. The study uses a disclosure based ESG index built from annual reports, Business Responsibility Reports (BRR), and Business Responsibility and Sustainability Reporting (BRSR) filings. Pooled OLS regression is used in addition to lagged ESG specifications, firm fixed effects, two-way fixed effects, episode specific crisis interaction models, firm size interaction models, and ESG component decomposition analysis. The study found a positive and statistically significant association between ESG performance and idiosyncratic risk, which was consistent across pooled OLS (β = 0.261, p < 0.001) and firm fixed effects (β = 0.405, p = 0.028) specifications. This finding supports a sustainable transition concept that suggests ESG adoption can lead to implementation uncertainty, stakeholder scrutiny, and increased firm specific volatility throughout regulatory reform. The positive link continues with lagged ESG parameters (β = 0.324, p = 0.033), confirming temporal persistence beyond contemporaneous disclosure effects. ESG performance reduces firm-specific volatility during the NBFC liquidity crisis (ESG×NBFC: β = -0.265, p = 0.004) and the COVID-19 pandemic (ESG×COVID: β = -0.226, p = 0.083), but remains insignificant during the demonetization liquidity shock. This strengthens the stakeholder insurance concept by highlighting crisis type as a critical boundary condition governing ESG's risk-mitigating properties. Firm size has no substantial effect on the ESG-risk relationship. The ESG component decomposition indicates that the Social dimension is the only significant source of idiosyncratic risk (β = 0.235, p = 0.030), due to India's obligatory Corporate Social Responsibility framework under the Companies Act 2014. By showing that ESG performance is not a context-independent risk feature and that its financial implications are influenced by the institutional environment, regulatory trajectory, and type of economic shock, the study adds to the body of literature on sustainable finance.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Download article (PDF)

TY  - CONF
AU  - Akamsha Krishnan
AU  - Amit Kumar
PY  - 2026
DA  - 2026/10/08
TI  - ESG and Idiosyncratic Risk in Indian Firms
BT  - Proceedings of the International Conference on Advancing Economics (ICAE): Redefining Growth: Integrating Economy Society and Sustainability for a Resilient Future (ICAE 2026)
PB  - Atlantis Press
SP  - 291
EP  - 314
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6239-795-8_18
DO  - 10.2991/978-94-6239-795-8_18
ID  - Krishnan2026
ER  -