Market Volatility and ESG Fund Performance in India: A Conceptual Framework for Emerging Market Analysis

Abstract

The relationship between market volatility and environmental, social, and governance (ESG) fund performance in emerging markets like India remains an underexplored area of study. The present literature, mainly drawn from developed economies, provides limited guidance for markets characterised by weaker disclosure standards, developing regulatory frameworks, and various investor profiles. This study contributes to the research programme on Sustainable Finance in Emerging Markets by developing a theoretical and analytic framework to analyze the relationship between the volatility of the NIFTY 100 ESG and NIFTY 100 conventional indices and sustainable fund performance in India. Using Modern Portfolio Theory, the Efficient Market Hypothesis, ARCH/GARCH volatility modelling, Stakeholder Theory, and Information Asymmetry Theory. The paper suggests five testable hypotheses for further research. A range of factors act as moderators, including ESG disclosure quality, market conditions and regulation, providing a holistic framework to understand the risk-return characteristics of sustainable investments. This paper advances theoretical perspectives by extending current finance theories to the ESG area in emerging markets and provides a model for policymakers, asset managers, and regulators in India seeking to support sustainable capital markets. The paper laid the foundation for upcoming ARCH/GARCH-based empirical research.