ESG Performance and Green Bond Issuance in Indian Financial Institutions: The Moderating Role of Profitability

ABSTRACT This study examines how environmental, social, and governance (ESG) performance influences green financing within India's financial sector, using cross‐sectional data from 99 financial institutions for FY2023–24. Employing probit regression to estimate the likelihood of green bond issuance and ordinary least squares (OLS) regression to analyze the volume of green financing (bond proceeds and loans), the study addresses a key gap in emerging‐market evidence. Results indicate that higher ESG scores significantly increase the probability of green bond issuance, with governance exerting the strongest effect. Profitability moderates this relationship, reducing the ESG impact for highly profitable firms. Institutions with superior ESG performance also exhibit larger green loan portfolios. Situated within India's evolving regulatory context including SEBI's 2016 green bond guidelines, the Reserve Bank of India's 2023 sustainable finance framework, and India's sovereign green bond issuance, the findings underscore the country's growing sustainable finance ecosystem. This paper makes a novel contribution by providing the first empirical evidence linking ESG performance and green bond activity among Indian financial institutions, enriching stakeholder and signaling theory applications, and offering practical insights for policymakers and banking leaders to strengthen ESG integration and support national climate finance objectives.