ESG Integration and Its Influence on Financial Performance and Investment Choices in Bangalore’s MSME Sector

Abstract

The present emphasis on the sustainability and responsible nature of business has put the Environmental, Social and Governance (ESG) aspects as the main influences of the organizational, success. This study focuses on the aspect of integrating the concept of ESG, which identifies the financial impacts and investment decision-making of the Medium, Small and Micro Enterprises (MSMEs) in Bangalore City. Structured questionnaires were used to collect primary data, in which 150 responses were collected on owners of MSMEs and financial managers in a mixed-method design and supported by secondary financial and ESG performance reports. The analysis has focussed on the impact of environmental sustainability practices, socially responsible operations and good governance systems of profitability, cost-effectiveness and capital allocation decisions. The correlation and regression statistical test were performed to find the correlation between the ESG adoption and financial performance. Findings indicate that those MSMEs that are strategic with regards to their inclusion of ESG factors perform well in financial performance, investor trust, and access to finance. Besides, social and governance motives were also observed to play a bigger role in investment choices than do environmental initiatives. The paper enlightens the significance of MSMEs identifying business strategies and matching them with the ESG principles, in order that they can enjoy sustainable growth, competitiveness and resilience in the ever-evolving Bangalore market. The insights give meaningful information to the policymakers, both investors and MSME stakeholders who attempt to encourage sustainable entrepreneurship.