The ESG paradox: Comparing the drivers of green innovation capacity and market valuation

This research investigates the "ESG Paradox" within the Indian corporate sector by comparing the factors that drive a firm's Green Innovation Capacity (GIC) against those that influence its Market Valuation (Tobin's Q).Using a sample of 28 top companies listed on the National Stock Exchange (NSE) over a ten-year period (2014-15 to 2023-24), the study employs content analysis based on GRI G3 guidelines and multiple regression models to analyze 280 firm-year observations.The findings reveal a significant divergence: while all four ESG pillars (Economic, Environmental, Social, and Governance) are significant positive drivers of internal green innovation capacity, the stock market remains largely indifferent to environmental and social scores.Specifically, profitability and corporate governance are the primary drivers of market valuation, whereas environmental and social sustainability factors were found to be statistically insignificant in immediate market pricing.Furthermore, the study identifies that financial constraints, such as high leverage and aggressive growth, act as barriers to green innovation, while larger firm size and high financial performance provide the necessary resources for sustainable development.The research concludes that a "decoupling" exists between internal sustainability efforts and market recognition.It suggests a critical need for policy interventions and better alignment between sustainability performance and market valuation to support India's transition to a low-carbon, resourceefficient economy