ESG Compliance and Its Effect on the Investment Behaviour: Evidence from the Indian Software Sector

Abstract

Environmental, Social, and Governance (ESG) criteria have gained prominence as vital factors influencing investment decisions, with growing recognition of their potential to drive sustainable business practices and mitigate risks. This trend is driven by a growing awareness of the material impact that ESG factors can have on long-term investment performance, as well as a growing emphasis on the importance of corporate social responsibility and environmental stewardship. This shift has had a profound impact on the behaviour of market participants, as investors increasingly demand greater transparency and accountability from corporations regarding their ESG practices. The growing importance of ESG factors has been accompanied by a significant increase in the flow of capital into ESG-linked products, with assets under management in these strategies surging in recent years. This study examines the impact of ESG ratings on investment behaviour within the software industry in India. A sample of 95 respondents was surveyed for this cross-sectional quantitative research. The study revealed that a significant majority (about 71%) of the participants hold the belief that adherence to environmental, social, and governance (ESG) standards is crucial for ensuring the sustained prosperity of a company. The results also suggest that only 33% of the respondents believe in the reliability of ESG metrics and ratings when assessing a company's ESG performance.