SUSTAINABLE FINANCE AND ESG: AN ANALYSIS OF RISK-ADJUSTED RETURNS AND LONG-TERM VALUE CREATION
Dr. Arpita Agarwal, Vertika Goswami
Manipal University Jaipur, India
Abstract: This study uses survey-based structural equation modelling (SEM) to investigate the complex link between environmental, social, and govern-ance (ESG) characteristics and investment performance. ESG factors were operationalized into 12 variables across three pillars using responses from 100 individual investors and investment experts. Market reputation, long-term value, and risk-adjusted returns were used to gauge the performance of the investments. ESG was found to be a disjointed construct rather than a cohesive framework by Principal Component Analysis (PCA), with low reli-ability across governance and environmental criteria. Their extensive usage in decision-making is called into question by empirical findings that show aggregate ESG scores have no discernible predictive power for investment outcomes. Returns were negatively correlated with environmental perfor-mance (β = -0.15, p = 0.003), whereas reputation was positively correlated with the use of renewable energy (β = 0.17, p = 0.001). Long-term value was considerably increased by governance quality, especially board independ-ence (β = 0.08, p = 0.046). These results underline the shortcomings of com-posite ESG ratings and stress the significance of factor-specific assessments for corporate management and investors alike.
Keywords: ESG Performance, Investment Outcomes, Structural Equation modelling (SEM), Sustainable Finance.
VOLUME 9 ISSUE 10 2025: 98 – 108