ESG Performance and Corporate Debt Financing Costs

Abstract

Against the backdrop of ongoing efforts to achieve carbon peaking and carbon neutrality, and the deep integration of green finance with the principles of sustainable development, corporate Environmental, Social, and Governance (ESG) performance has become a key non-financial indicator influencing both a company’s long-term growth potential and its valuation in the capital markets. Based on this, to thoroughly investigate the impact of ESG Performance on Corporate Debt Financing Costs, this study utilizes data from Chinese A-share listed companies from 2010 to 2024. By constructing a fixed-effects model, we empirically examine the relationship between ESG Performance and Corporate Debt Financing Costs. The results indicate that strong ESG Performance significantly reduces Corporate Debt Financing Costs; that is, the better the ESG Performance, the lower the Corporate Debt Financing Costs. This conclusion remains valid after robustness tests involving a one-period lag and the substitution of key variables. The findings enrich the existing literature on the relationship between ESG Performance and Debt Financing Costs, offering recommendations and evidence for companies to prioritize improving their ESG Performance and for governments to strengthen the development of ESG frameworks.