This study investigates the feasibility of including the sustainability performance of firms in the asset pricing problem. The data of 500 firms from the NIFTY 500 index are used for this study. The stock prices and financial data are downloaded from the CIME database. The sustainability factor is computed using the ESG scores from the Bloomberg database. In order to test the influence of the sustainability factor, the Fama–French Five-Factor model is extended by including the sustainability factor as an additional factor. The dependent variables are the excess returns on 36 size and book-to-market ratio sorted portfolios, 36 size and operating profitability sorted portfolios, and 36 size and investment sorted portfolios. The impact of the sustainability factor on excess portfolio return is tested using the Fama-MacBeth two-pass regression and the Fama–French methodology. The results show that the price of ESG risk (or ESG risk premium) is positive, indicating that firms with lower ESG performance yield more returns than those with higher ESG returns. About one-third of the portfolios witness the significant impact of the sustainability factor on their returns. However, the insignificant relationship in two third of the portfolios between the sustainability factor and excess portfolio returns conveys that in the Indian market, corporate investors have the flexibility to decide on ESG investment. Smaller firms are exposed to a higher ESG risk, and Firms which do not integrate environmental and social costs into their strategies may bear a higher cost of equity.

本研究探讨了将企业的可持续性绩效纳入资产定价问题的可行性。本研究使用 NIFTY 500 指数中 500 家公司的数据。股票价格和财务数据是从 CIME 数据库下载的。可持续性因素是使用彭博数据库的 ESG 分数计算的。为了检验可持续性因素的影响，Fama-French 五因素模型通过将可持续性因素作为附加因素进行了扩展。因变量是 36 个规模和账面市值比排序的投资组合、36 个规模和营业利润排序的投资组合以及 36 个规模和投资排序的投资组合的超额收益。使用 Fama-MacBeth 两遍回归和 Fama-French 方法测试了可持续性因素对超额投资组合回报的影响。结果显示，ESG风险价格（或ESG风险溢价）为正，表明ESG绩效较低的公司比ESG回报较高的公司获得更高的回报。大约三分之一的投资组合见证了可持续性因素对其回报的重大影响。然而，三分之二的投资组合中可持续因素与超额投资组合回报之间的关系并不显着，这表明在印度市场，企业投资者可以灵活地决定ESG投资。较小的公司面临较高的 ESG 风险，而未将环境和社会成本纳入其战略的公司可能会承担较高的股本成本。