The Impact of the Environmental Performance to the Financial Performance in India: An Investigation to Analyze the Link Between the Environmental and Financial Performance in Light of the INDC Announcements of India

Andreas Falkenberg

Student thesis: Master thesis


This master thesis investigates the impact of a changing environmental performance of Indian companies due to the Intended Nationally Determined Contribution (INDC) policies and shows how this shift could affect the financial performance of those companies. In October 2015 the Indian government announced its climate targets for the year 2030 to the United Nations Framework Convention on Climate Change (UNFCCC) via its INDC, in light of the global climate change. The goals are ambitious and not common for an emerging country like India. Therefore, this work analyzes the effect of a change in the environmental performance of companies in India.
By constructing a meta-study, this investigation identifies, that previous theories, which analyze the link between the environmental and financial performance for developed countries, predominantly identify a positive relationship. Theories do not investigate the connection between both parameters for developing countries. This research gap is narrowed by this thesis by examining the case of India.
To test between both described parameters, a panel data regression is used that applies various regression estimators with data of Indian companies from 2011 to 2014. This thesis uses the environmental performance scores provided by Thomson Reuters ASSET4 as an independent variable and financial performance indicators like Tobin’s q as dependent variables. Next to the empirical approach, the investigation is extended by qualitative aspects via an expert interview of a leading Indian environmental expert and advisor of to the government.
The analysis carried out that the environmental performance of a company is most likely to increase due to stricter climate laws. Next to that, the empirical investigation identifies, that the environmental and financial performance of businesses in India have been significantly and positively linked to each other in the past. Investments to become an environmentally friendly company (and therefore having a better environmental performance) are not contrary to a better financial performance of corporations in India. These findings are highly relevant in light of the ambitious climate goals of the Indian government; that also require external investors next to domestic ones to reach the Indian INDC targets. Attracting Investors is much more likely if an investment creates both positive environmental impact and positive risk-adjusted financial returns.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2016
Number of pages96
SupervisorsSteffen Brenner