coagulated itself as an unavoidable aspect of corporate performance metrics especially in the banking sphere. The increased awareness of the environmental degradation, societal inequalities, and lack of governance has influenced institutions to justify the actions they undertake in operations and investments to meet the ESG principles. Such alignment is an indicator of conjuncture between financial success and sustainability, which is creating long-term value-creation and stakeholder trust. In the financial services environment, ESG issues provide a holistic prism to gauge the effect of an institution on the environment, its contribution to the society, and ethical standards of conduct. Integration

of ESG into consideration is not just corporate altruism but has become a strategic risk management and decision-making strategy. By using ESG criteria in credit underwriting, investment selection and policy design, banks are able to determine and avert weaknesses linked to environmental damage, societal instability or governance failures and, thereby, preserve profitability. Furthermore, ESG integration leads to transparency, increased trust between the parties involved, and long-term stability, which allow completing the journey through the regulatory environment and aligning with the global sustainability goals, including climate risk mitigation and inclusive growth. Banking has a central role to play in the process of sustainable economic development by funding responsible projects. ESG-based investment approaches enable the banks to promote the ethical progress and, at the same time, increase their profitability and reduce risks. They also add reputational capital and more trust with the clients and investors, which solidify the position of the institutions in the market.

LITERATURE REVIEW:

This literature has a very significant amount of work done with regards to the relation between ESG dimensions and corporate financial performance with various results. According to Buallay (2019), the relationship between ESG practices and performance metrics in the European banking institutions has remained positive. Similarly, Ahmad (2021) has shown that there is a reinforcement effect between ESG activities and the financial performance of the firm. However, Velte (2019) found a counterargument conclusion as ESG performance has a negative impact on AEM and no statistically significant effect on REM. Adegbayibi (2022) also explained the role of corporate governance and found that it is a moderating variable between intellectual capital investment and financial performance in the nexus.

OBJECTIVES OF STUDY:

• To analyse the impact of ESG investments on the profitability of Indian public sector bank.
• To examine the relationship between the individual ESG dimensions — Environment, Social, and Governance scores and the financial performance of banks.
• To evaluate the trend and consistency of ESG performance across Indian banks using CRISIL ESG Scores.

This study is experiential in nature and analysis of data has been done with the help of secondary data from 1st April 2023 to 31st March 2025. For this study it has composed twelve public sector banks. This study adopts a quantitative, empirical research design to examine the impact of ESG investments on bank profitability and risk management.

Table1: Return on Assets (ROA) and Total Assets of Public Sector Banks in India (2023–2025)

Sources: https://www.iba.org.in/depart-res-stcs/key-bus-stcs.html

The table shows the Return on Assets (ROA) and total assets of public sector banks in India from 2023 to 2025. ROA measures how profitably banks use their assets, while total assets show their financial size. Most banks record rising ROA, showing better efficiency. Bank of Maharashtra’s ROA grows from 1.10% to 1.75%, and Union Bank and Indian Bank also improve. SBI keeps a steady 1% ROA while its assets grow strongly. Overall, banks show expanding assets and steady profitability growth across these three years.

Table 2: CRISIL ESG Scores of Public Sector Banks in India (2023–2025)

Sources: https://www.crisilesg.com/en/home/esg-ratings.html

The table shows the ESG scores sidelong with the respective CRISIL ESG scores of twelve public sector banks in India from year 2023 to 2025. The performance of most institutions is either stable or improved. State bank of India takes the lead with a constant score of 65 in the three years, which has been supported by its good social and governance score. Bank of Baroda and Canara Bank are also doing well with a range score of 62-64. Indian Overseas bank and Punjab and Sind bank record a lesser score at around 57- 58. In general, the social aspect turns out to be the strongest throughout the research of the discussed banks.

Table 3: Descriptive Statistics of Public Sector Banks in India (2023–2025)

Sources: Author’s Calculation

The table of descriptive statistics summarizes the data of thirty-six observations. The average ESG Score is 61.58 with a difference of 55 to 68 which implies that the performance of the company is generally satisfactory in the environment, social and governance areas. The least mean (54.14), and the highest variation (SD = 4.04) are the environment component, and the highest mean (63.39) is the social component. Governance scores have the average of 62.42 and the medium standard deviation (SD = 3.75). Lastly, the Return on Assets (ROA) mean is 0.8883 with a range of 0.18 to 1.75 as the best indicator of the financial performance showing variability but generally positive results in the sample.

Table 4: Information Criteria of Public Sector Banks in India (2023–2025)

Sources: Author’s Calculation

The table illustrates the extent to which the model fits into the data, with ROA as the dependent variable. The Restricted Log Likelihood value is 22.429, with the Information Criteria (AIC, AICC, CAIC, BIC) is an acceptable fit. When these criteria have lower values, this means that it is a more parsimonious model and the reported numbers indicate that the model is able to capture the dynamics of ROA in respect to the public sector banks.

Table 5: Type III Tests of Fixed Effects

Sources: Author’s Calculation

The Type III test of fixed effects of the ROA model reveals that the intercept is the only variable of interest with an F -value of 276.430 and p -value of. 000. This is a very important finding that proves the fact that the mean ROA of the banks in the public sector is not equal to zero and, therefore, this fact is substantive and material.

Table 6: Estimates of Covariance Parameters

Sources: Author’s Calculation

The table also shows the forecasted variances of ROA of the public sector banks in the year 2023 to 2025. Without any time connection, the variance is 0.0917 in 2023, 0.0951 in 2024, and increases marginally to 0.1157 in 2025, which means that the inter-bank dispersion of ROA grows slightly over time.

The review shows that ESG investments and bank profitability (ROA) have a positive relationship among Indian banks between 2023 and 2025. A score of 61.58 on ESG with the social factor scoring the best is consistent with the fact that the ROA of banks like Bank of Maharashtra and Indian bank is on the increase, whereas SBI is level. Diagnostic tests of the models and tests of significance have a high level of strong results, which support the validity of these results. Therefore, the ESG practices seem to be increasing the profitability, governance, and social responsibility and, consequently, creating the long-term financial stability and sustainability of the Indian banking industry.

The study arrives at the conclusion that ESG investments positively affect the profitability and risk management of banks and pay attention to the increased significance of sustainable finance in the banking industry. Higher ESG bank show stronger governance, responsibility and better financial stability. These results confirm that the ESG integration is not only a reinforcement of risk management practices, but also the key to long-term profitability and trust in the stakeholders. In general, ESG-based policies are essential in the creation of sustainable development within the banking sector of India.

1. Ahmad, N., Mobarek, A., & Roni, N. (2021). Re-testing the effect of ESG on the financial results of FTSE350 companies in the UK: Static and dynamic panel results. Cogent Business and Management, 8 (1). https://doi.org/10.1080/23311975.2021.1900500.
2. Buallay, A. (2019). Discovering the relationship between sustainability reporting (ESG) and firm performance: European banking industry. Environmental Quality, 30 (1), 98-115, management, 30(1). doi.org/10.1108-meq-12-2017-0149.
3. Velte, P. (2019). The two-way relationship between ESG results and earnings management Empirical evidence in Germany. Journal of Global Responsibility, 10(4), 322338. https:doi.org/10.1108/jgr-01-2019-0001.
4. Adegbayibi, A. (2022). The relationship between intellectual capital and the financial performance of the listed Nigerian companies: The moderating effect of corporate governance. Jurnal Akuntansi dan Auditing, 17(2), 3346. https:doi.org/10.14710/jaa.17.2.33-46.