Artificial Intelligence and ESG Performance: A Causal and Strategic Analysis of Firms in Haryana

The integration of Artificial Intelligence (AI) into business operations is increasingly influencing Environmental, Social, and Governance (ESG) outcomes. This study investigates the relationship between AI adoption and ESG performance among firms in Haryana, covering both manufacturing and service sectors. While prior research largely establishes a positive association between AI and ESG improvements, it often fails to address causality. This research advances the literature by examining the bidirectional causal relationship between AI adoption and ESG performance. It posits that AI not only enhances ESG outcomes but is also shaped by firms’ sustainability orientation and regulatory context. Due to the absence of direct indicators, proxy variables are constructed to measure AI adoption and ESG dimensions. The study employs a game-theoretic framework, integrating Stackelberg competition and Bayesian evolutionary models, to capture strategic decision-making under uncertainty. Empirical methods such as a modified Difference-in-Differences (DiD) model and Propensity Score Matching (PSM) are used to establish causality and control for selection bias.