Published Online:July 2026
Product Name:The IUP Journal of Applied Finance
Product Type:Article
Product Code:IJAF040726
DOI:10.71329/IUPJAF/2026.32.3.80-92
Author Name:Pooja P Patel
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:80-92
Sustainable investing has gained considerable momentum in recent years as investors increasingly seek to align their financial decisions with broader environmental, social, and governance (ESG) considerations. Against this backdrop, the present study examines the dynamic interaction and short-run interdependencies between conventional and sustainable stock indices in the Indian capital market. Specifically, the study investigates the co-movement and directional causality between two conventional indices, Nifty 50 and Nifty Oil & Gas, and two sustainable indices, Nifty 100 ESG and Nifty 100 ESG Sector Leaders. Daily closing prices spanning January 2021 to July 2023 are converted to logarithmic returns to address distributional concerns. The augmented Dickey-Fuller (ADF) test confirms nonstationarity at level form and stationarity at first-order differencing, I(1), for all series. The Granger causality test reveals a bidirectional causal relationship between Nifty ESG Sector Leader and Nifty 50 at 5% level of significance, while no significant directional relationship is found among the remaining index pairs. The vector autoregression (VAR) model, estimated at lag order 1, confirms that the lagged values of Nifty significantly influence both Nifty 100 ESG and Nifty ESG Sector Leader in the short run, though the explanatory power of the model remains modest. The findings have practical implications for investors and portfolio managers considering the diversification potential of ESG indices vis-à-vis conventional benchmarks in the Indian stock market.
The global financial landscape has undergone a significant transformation in recent decades, driven in part by the growing awareness of environmental sustainability, corporate governance, and social responsibility. Within this paradigm shift, environmental, social, and governance (ESG) investing has emerged as a prominent framework through which investors assess the nonfinancial dimensions of corporate performance. As ESG considerations become increasingly central to investment decision-making, understanding the relationship between sustainable and conventional market indices has emerged as a critical question for both academic researchers and market practitioners.