How ESG Performance Affects Cost of Capital?

DOI

10.2991/978-94-6239-642-5_49How to use a DOI?

Keywords

ESG Performance; Cost of Capital; Sustainable Finance; Heterogeneity

Abstract

The integration of Environmental, Social, and Governance (ESG) factors into corporate decision-making has become a focal point for investors and companies alike, driven by a heightened emphasis on sustainable development. This study examines the nuanced relationship between ESG performance and the cost of capital, utilizing panel data from US listed companies over the period from 2002 to 2021. The findings indicate a significant negative relationship between high ESG scores and the cost of debt, attributed to reduced information asymmetry, enhanced investor confidence, and lower risk perceptions. In contrast, there is no substantial effect on the cost of equity, suggesting that equity investors may prioritize financial metrics over sustainability indicators. Further analysis shows that the debt-reducing effect of ESG was more pronounced before 2010 and among firms with lower leverage levels, underscoring the roles of regulatory evolution and financial risk. The study provides valuable implications for corporate managers, investors, and policymakers aiming to leverage ESG practices for improved financial outcomes and sustainable growth, highlighting the need for integrating ESG considerations into strategic decision-making processes.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Haihan Ding
PY  - 2026
DA  - 2026/04/29
TI  - How ESG Performance Affects Cost of Capital?
BT  - Proceedings of the 2026 11th International Conference on Financial Innovation and Economic Development (ICFIED 2026)
PB  - Atlantis Press
SP  - 506
EP  - 517
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6239-642-5_49
DO  - 10.2991/978-94-6239-642-5_49
ID  - Ding2026
ER  -