Title: ESG performance and cost of capital: what do we know? Evidence from the US

Authors: Ricky Wong; Hoang Thi My Nguyen; Nana Abena Kwansa

Addresses: Edinburgh Business School, School of Social Sciences, Heriot-Watt University, Putrajaya, 62200, Malaysia ' Edinburgh Business School, School of Social Sciences, Heriot-Watt University, Edinburgh, EH14 4AS, UK ' Edinburgh Business School, School of Social Sciences, Heriot-Watt University, Edinburgh, EH14 4AS, UK

Abstract: This paper empirically examines the impact of environmental, social and governance (ESG) performance and its individual components on the cost of debt and the cost of equity. Using a sample of S&P 500 firms from 2015 to 2021, we find that strong ESG performance reduces the cost of debt and the cost of equity. Furthermore, our analyses on the individual constituents of the ESG performance indicate that firms with high environmental and social performance benefit from both lower cost of debt and cost of equity with the effect more pronounced for cost of equity. The evidence also indicates that high performance in governance only has implications for equity cost of capital. The evidence supports the position that integrating relevant ESG activities in firm business model has capital raising benefits.

Keywords: environmental; social and governance; capital structure; cost of debt; cost of equity.

DOI: 10.1504/IJMEF.2024.137548

International Journal of Monetary Economics and Finance, 2024 Vol.17 No.1, pp.74 - 96

Received: 19 Apr 2023
Accepted: 21 Aug 2023
Published online: 25 Mar 2024 *

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