Digital Finance and ESG Performance of Indian Firms: An Analysis of Financial Innovation, Sustainable Business Practices, and Corporate Performance

Abstract

India is rapidly transforming its financial markets and enhancing its sustainability disclosure framework. Firms must consider if leverage in digital finance can help improve their sustainability and health. This research analyzes the relationship between the integration of digital finance, sustainability and profitability in India. It utilizes a synthetic, cross-sectional data set comprising 240 Indian listed firms. Digital finance is measured by the Digital Finance Adoption Index consisting of 6 elements. The inspirational United Nations Sustainable Development Goals Framework and Corporate Performance report 2021 were the primary data sources. Descriptive statistics, reliability analysis, correlations, regressions and mediation analyses were conducted. Digital finance and ESG are positively related (p = 0.036). Improving the E in ESG is linked to an improvement in the Return on Assets (p < 0.001). Further, enhancing the S and G in ESG is related to an improvement in the Return on Equity (p < 0.001) and Tobin’s Q (p < 0.001) respectively. The positive effect of digital finance on profitability was solely mediated by the E in ESG, of which the effect on Return on Assets was 0.038. This research supports the incorporation of digital finance and other digital technologies for improving sustainability of firms and enhancing firm performance.