Published Online:January 2026
Product Name:The IUP Journal of Corporate Governance
Product Type:Article
Product Code:IJCG050126
DOI:10.71329/IUPJCG/2026.25.1.90-107
Author Name:Sumedh Pimpalkhute, Saumya Joshi and Abhay Kumar
Availability:YES
Subject/Domain:Management
Download Format:PDF
Pages:90-107
The paper examines the role of environmental, social, and governance (ESG) factors in affecting the risk adjusted return position and other financial performance metrics. The focus is on companies listed on EURO STOXX 50 index using data extracted from Bloomberg. Through K-Means clustering and quantile regression analysis, the study assesses how ESG scores correlate with risk-adjusted returns (Sharpe and Sortino Ratios) and downside risk (Conditional Value at Risk – CVaR). The clustering results reveal that firms with higher ESG scores generally exhibit greater financial stability and stronger risk-adjusted returns, whereas companies with lower ESG scores show greater variability in financial performance. The quantile regression analysis highlights governance as the most significant driver of financial resilience, with a strong positive association with CVaR, suggesting that well-governed firms are better at managing financial risks. The social pillar negatively correlates with downside risk, implying that weaker social responsibility practices may contribute to financial instability. However, the environmental pillar presents mixed results, indicating that sustainability initiatives do not always lead to immediate financial benefits. The findings reinforce the increasing relevance of ESG integration not only for sustainability goals (the need of the hour), but also for investment decision-making, particularly for risk-conscious investors. While ESG factors play a crucial role in shaping financial stability, they should be assessed alongside traditional financial indicators for a comprehensive investment strategy.
The global environmental, social, and governance (ESG) boom has reshaped investment approaches, fueled by rising sustainability ambitions and regulatory demands, such as the European Union’s Sustainable Finance Disclosure Regulation (SFDR) of 2021 (Eccles & Klimenko, 2019).