Market Efficiency of ESG and Traditional Indices -Pre and Post COVID Analysis of NSE Indices

ESG reporting and disclosure practices are the buzzing terms in the Indian corporate sector occupying the place after corporate governance (CG) and corporate social responsibility (CSR). ESG is a broader concept than CG and CSR, wherein ESG practices include corporate's practices relating to Environmental (E), Social (S) & Governance (G) and disclosure of the same by the corporate world. Though sustainability and ESG reporting are used interchangeably, ESG is more specific to three pillars in terms of corporate efficiency which provide augmented risk-adjusted returns. Major stock exchanges worldwide have begun constructing ESG based indices constituting those companies that comply with specific ESG criteria. Mutual Funds in India have introduced ESG based schemes for investors for better long-term returns. SBI Mutual Fund has renamed its widely popular and most successful equity scheme, SBI Magnum Equity into SBI Magnum Equity ESG fund. Other fund houses such as Quantum, Axis, and ICICI Mutual Funds have also introduced ESG based equity schemes. In India, BSE and NSE as well, have ESG based indices. BSE has S&P BSE 100 ESG Index, whereas NSE has Nifty 100 ESG Index, Nifty 100 Enhanced ESG, and & Nifty 100 ESG Sector Leaders. ESG indices are constructed based on the criterion of disclosure related to E, S & G practices and the question here arises is, whether these ESG indices are efficient in terms of information absorption by the market. The present study has considered all three ESG indices of NSE for a period of six months each before and after the imposition of lockdown in India. To analyze the efficiency of these indices Hurst exponent has been calculated for two periods and compared with Nifty 50 & Nifty 100 indices. The results have shown that ESG indices are more efficient in the post-COVID than the pre-COVID period, which gives an impression that investors are leaned towards ESG indices post math of COVID. In other words, the ESG portfolio can be taken as COVID free portfolio