Does esg performance reduce the cost of capital? a comparative study of g7 and brics+ countries

Tan, Boon Hong (2025) Does esg performance reduce the cost of capital? a comparative study of g7 and brics+ countries. Final Year Project, UTAR.

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Abstract

Corporate financing and investment plans now heavily incorporate environmental, social, and governance (ESG) factors. Prior evidence suggests that companies that perform well on ESG may have lower financing costs, yet studies remain inconclusive across different economic contexts. The research examines how ESG performance will affect the capital costs of the firm, comparing developed and developing economies represented by the G7 and BRICS+ countries. A panel dataset including 200 non-financial companies is examined (top 20 by market capitalization in each country) over the 2017–2023 period. ESG scores are collected through the LSEG platform, while institutional quality indicators are drawn from the World Bank’s WGI. This paper estimates the effects of aggregate ESG performance using panel data regression models with company and year fixed effects. and individual pillars on firms’ cost of capital measures. In order to assess the moderating influence of institutional quality, interaction terms are also added. The findings are anticipated to offer comparative insights into the relationship between ESG and finance in various institutional contexts, with implications for investors, corporate managers, and policymakers looking to include sustainability in capital structure decisions.

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