The Impact of CSR/ESG on the Cost of Capital: A Case Study of US Companies

Abstract

Purpose:The paper identifies the direction and strength of the relationship between individual ESG elements (and ESG as a whole) and the weighted average cost of capital, the cost of equity, and debt. The research was based on US market company data from the Thomson Reuters Eikon database. Some modifications have been applied to the survey methodology compared to that previously used in the literature, making it possible to present comprehensive and more congruent results. Identifying the direction and strength of the relationship between individual elements of ESG and ESG as a whole and the cost of capital (weighted average, equity, and debt). Design/Methodology/Approach: This paper incorporates an analytical approach based on the results of the original research. Findings: ESG and its components affect the cost of capital (weighted average, equity, and debt) Practical Implication: Disclosure of CSR/ESG practices can improve a company's financial position because it implies the ability to raise capital with lower cost, which, in turn, induces a better financial result. Knowledge of the existence of such exist is essential when most companies have to look for further savings (cost reduction) due to pandemic impediments. Originality/Value: The originality and value of an article are manifested on three levels: 1. There is a paucity of comprehensive empirical research in the literature on the subject; 2. To date, there has been no simultaneous, large sample study of the impact of ESG and its elements on the weighted average cost of capital and on the costs of raising equity and debt separately; 3. To date, there have been no studies on the relationship between the variables mentioned in 2, including a time lag, and here it is assumed that the impact of ESG and its elements on the cost of capital, due to the nature of reporting, may become apparent at the earliest in the next fiscal year.

Environmental performance and cost of finance: evidence from emerging markets

“…They reported evidence showing that environmental performance reduces cost of debt. In similar vein, Piechocka-Kaluzna et al (2021) reported significant negative correlation between ESG and its sub dimensions and cost of finance. Huu Anh et al (2020) reported evidence that firms disclosing more accounting information related to environmental issues tend to have lower cost of finance than those who do not.…”

Оцінка Капіталів В Інтегрованій Звітності

“…В останні роки процес та чинники зміни / збереження вартості капіталів і вартості бізнесу досліджувала низка науковців, серед яких: J. Martinez-Ferrero, I. Garcia-Sanchez [11], J. Martinez-Ferrero, E. Ruiz-Barbadillo, M. Guidi [12], A. Piechocka-Kaluzna, A. Tluczak, P. Lopatka [19], D. Marchiori, R. Rodrigues, S. Popadiuk, E. Mainardes [10], Z. Mengke, H. Yan, J. Yifan [13], S. Noor, A. Saeed, M. Baloch, M. Awais [16], X. Wang, J. Yu [24], K. Elmawazini, I. Chkir, F. Mrad, H. Rjiba [4]. Названі вчені відзначили зокрема такі фактори, як соціальна відповідальність бізнесу, інновації та диджиталізація.…”