As stakeholder expectations and regulatory requirements grow, ESG is becoming essential for companies planning to go public. Increasing research shows that strong ESG practices can improve IPO valuation and long-term performance. To meet investor expectations and reduce risk, companies must adopt a clear, data-driven ESG strategy from the early stages of IPO preparation.

Rising ESG Expectations in Global IPO Markets

As ESG factors evolve from voluntary commitments to integral components of financial strategy, companies preparing for IPOs are facing heightened scrutiny from both regulators and investors. This shift is not merely conceptual; it is materially reshaping capital markets.

Reflecting this evolution, a 2021 EY report identified ESG as a defining theme in global IPO activity, particularly in high-growth sectors such as renewable energy and electric vehicles. The growing emphasis on ESG is also reflected in investment patterns: by 2020, nearly 25% of assets under management in the U.S., around USD 12 trillion, were guided by ESG criteria, underscoring investor preference for companies demonstrating sustainability and resilience1. In Asia, a similar trend emerged as sustainability-focused funds doubled, spurred by regulatory momentum and a rising demand for ESG transparency.

Global regulatory bodies have also accelerated efforts to formalize ESG disclosures:

Source

Along with these developments, a study by MMJC and Associates LLP titled "From Compliance to Strategy: How ESG Lowers IPO Risks for Indian Firms" examined 7,446 IPOs across 36 countries between 2008 and 2018 found a clear correlation between strong ESG risk management and reduced IPO underpricing, particularly in countries with robust financial transparency and shareholder protections.

Key Findings from the Study

1. Lower Under-pricing: Companies that managed ESG risks effectively experienced reduced IPO under-pricing by lowering uncertainties related to environmental impact, corporate governance, and social responsibility.

2. Increased Investor Confidence: Effective ESG risk management contributed to stronger investor confidence, especially in markets with high financial transparency.

3. Relevance for Indian Companies: The study highlights that integrating ESG into business strategies can enhance attractiveness to investors and minimize post-listing market volatility.

Further, a recent survey found that 28% of institutional investors prioritize climate risk disclosure over financial disclosure, reflecting the growing demand for precise, standardized ESG reporting. According to the US SIF Foundation, ESG-influenced investments in the U.S. grew at a 14% compound annual rate from 1995 to 2020, reaching approximately USD 17 trillion by early 2020.

The Indian Context: ESG Integration as a Strategic IPO Advantage

As Indian capital markets increasingly align with global sustainability standards, ESG integration is gaining prominence as a strategic priority for IPO-bound companies. It is no longer limited to regulatory compliance but is recognised as a core business value that strengthens investor confidence, enhances valuations, and mitigates post-listing risks.

India is mirroring global trends in its growing focus on ESG, particularly in the wake of the COVID-19 pandemic. Between January 2020 and December 2021, the assets under management (AUM) of ESG-focused mutual funds in India rose sharply, from ₹2,747.66 crore to ₹12,544.02 crore. This surge reflects increasing interest from both institutional and retail investors in companies demonstrating responsible environmental, social, and governance practices.

Further, the Indian stock exchanges are actively promoting the ESG agenda. Both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have launched dedicated ESG indices, namely, the NSE Nifty100 ESG Index and the BSE 100 ESG Index, which act as benchmarks for sustainable investing. Companies included in these indices benefit from increased visibility among ESG-focused institutional investors, improving both capital access and valuation prospects.

Sectorally, the stakes are even higher. Industries such as real estate, infrastructure, manufacturing and energy, which collectively account for a significant portion of India’s IPO pipeline, face material ESG risks. For example, construction and infrastructure contribute to nearly 25.6% of India’s greenhouse gas emissions. Embedding ESG safeguards not only mitigates regulatory and reputational risks but can also serve as a valuation enhancer at the time of listing.

Following this trend, the Tata Steel case serves as a successful Indian precedent. With ₹3,477 crore raised in its 2011 Follow-on Public Offering (FPO), Tata Steel leveraged its long-standing ESG reporting, initiated as early as 2001, to mitigate investor concerns over its debt-heavy acquisition of Corus. Its alignment with international reporting standards, such as the Global Reporting Initiative (GRI), helped reassure the market of its sustainable growth approach.

In today’s context, Indian companies preparing for IPOs can derive similar advantages by integrating ESG into their core strategy and communications. With capital markets, regulators, and investors converging around sustainability, ESG leadership has become a defining feature of credible, high-performing public market entrants.

Strengthening ESG Readiness Ahead of IPOs

The 2024 EY Institutional Investor Survey shows that 88% of institutional investors have increased their reliance on ESG information over the past year. With ESG performance now a key consideration for investors, companies preparing for IPOs must embed sustainability into core operations and disclosures. Focusing on these four areas can enhance credibility and listing readiness: 

1. Align ESG with Business Strategy

Define ESG goals that support long-term growth and operational efficiency. CFOs can leverage resource optimization to drive both sustainability outcomes and cost savings.

2. Address Investor and Rating Expectations

Identify ESG factors most relevant to your sector, especially those prioritized by institutional investors and rating agencies. Benchmark against peers to align disclosures with market standards.

3. Strengthen ESG Governance

Establish board-level oversight for ESG risks such as climate change, human capital, and cybersecurity. This signals organizational commitment and strengthens investor confidence.

4. Build Reporting Infrastructure

Implement internal controls to ensure ESG data is accurate and consistent. This supports compliance with SEBI’s BRSR and emerging global disclosure standards7.

From Preparation to Performance: ESG’s Long-Term Impact

While ESG readiness is critical during IPO planning, its value extends well beyond the listing date. Companies that embed ESG practices early often experience long-term benefits in market perception, investor trust, and financial performance. The following case study from India’s pharmaceutical sector highlights how ESG transparency at the time of listing can translate into sustained post-IPO returns.

Case Study: ESG Reporting and Post-IPO Performance in India’s Pharmaceutical Sector

A 2025 study evaluating 35 pharmaceutical companies listed on Indian stock exchanges between 2012 and 2022 offers compelling evidence on the long-term market impact of ESG disclosures during IPOs.

Key findings include:

i. In the short term (3 months), non-ESG reporting companies tend to show stronger performance in the short term, with gains approximately 1.64 x higher than those of ESG-reporting companies. This suggests that ESG initiatives may not yield immediate financial returns and can involve initial costs or transitional adjustments.

ii. Over the long term (1 year), ESG-reporting companies significantly outperform their non-reporting counterparts by as much as 18 times in emerging markets like India, where ESG awareness is still evolving.

- Average return for ESG-reporting companies: 20.27% 

-Average return for non-ESG-reporting companies: 1.17% 

An 18-fold outperformance highlights how ESG transparency boosts investor confidence and strengthens post-listing market performance. This trend accelerated post-COVID, as investors prioritized corporate resilience and sustainability, viewing ESG-aligned firms as more adaptable, future-ready, and well-governed. The findings underscore ESG reporting as not just regulatory compliance, but a strategic signal of business maturity and resilience during IPO planning.

Enhancing IPO Credibility with ESG Ratings

Recent empirical evidence further underscores the growing relevance of ESG in IPO markets. A 2025 study published in the Journal of Economics & Management Research analysed 1,803 IPOs in the U.S.

Key findings from the study include:

1. Companies with Neutral or Positive ESG Ratings Attracted Stronger Interest: Firms that received a neutral or positive ESG rating (BB or higher) before their IPO saw nearly triple the under-pricing (15.6%) compared to the broader group of IPOs (5.6%), indicating that investors responded more favourably when ESG ratings helped reduce uncertainty.

2. Rated Firms Tend to Be More Established: ESG-rated companies were generally larger, more established, and better capitalized, showing that such firms are more likely to seek and benefit from ESG disclosures.

While the study could not confirm a linear relationship between the level of ESG rating (e.g., AAA vs. A) and underpricing, it established that having an ESG rating, particularly one that is neutral or positive, plays a meaningful role in enhancing IPO outcomes.

In the context of IPO preparedness, this reinforces the strategic importance of obtaining and disclosing ESG ratings. Beyond compliance or marketing, ESG ratings offer a practical tool to reduce information asymmetry, attract informed investors, and position a company as a credible, future-ready listing candidate.

Recognizing this shift, GlobeTrend Climate Impact Pvt. Ltd., a SEBI-accredited ESG Rating Provider and Independent reviewer/certifier for ESG debt securities, enables IPO-bound companies to strengthen their market positioning through rigorous and credible ESG assessments.

To support holistic ESG integration, our sister concern also provides a comprehensive range of sustainability services, including:

- ESG Assessment & Due Diligence

- ESG Reporting & Disclosures

- ESG/Sustainability Strategy & Roadmap

- Business Responsibility and Sustainability Reporting (BRSR)

- Materiality Assessment

- Carbon Footprint Assessment (GHG)

- GHG Inventory Framework

- Life Cycle Assessment (LCA)

- Environmental Audit

- Energy Audit

- Green Building Consultancy

- Carbon Credits & Plastic Credits Offsetting

- Assurance Services

These services are designed to help companies meet evolving investor expectations, align with regulatory standards, and embed ESG as a value-creation lever in their capital market journey.

Conclusion
Even amid periods of global IPO slowdown, a company’s strategic commitment to ESG reporting remains essential not optional. As investor expectations, consumer preferences and regulatory frameworks continue to evolve, ESG disclosure is no longer a differentiator; it is becoming a fundamental requirement. For IPO-bound companies, this shift means that ESG integration is not only a lever for enhancing valuation and reducing risk, but increasingly, the cost of entry into today’s capital markets.

References

1) https://journalppw.com/index.php/jpsp/article/view/9779/6384

2) https://www.niftyindices.com/indices/equity/thematic-indices/nifty100-esg

3) https://www.builtxsdc.com/blog/india-net-zero-goal-2070-role-of-construction-industry-and-builders?

4) https://www.ey.com/en_gl/insights/climate-change-sustainability-services/institutional-investor-survey

5) https://riveron.com/posts/ipo-and-esg/

6) The Impact of ESG Reporting on IPO Performance in India’s Pharmaceutical Sector in the Pre- and Post-COVID Era

7) https://www.onlinescientificresearch.com/articles/how-does-esg-ratings-influence-ipos-underpricing-evidence-from-the-us-market.pdf