A recent paper says there is significant evidence that companies having a higher environmental, social, and governance (ESG) score have a lower cost of capital. While the “ESG score does not seem to have a significant impact on the cost of equity and the beta,” the paper says, the impact is on the cost of debt because “firms having a high ESG score can significantly obtain more leverage.” Researchers analyzed the relationship between the ESG score and the cost of capital of 600 large, mid- and small capitalization companies across 17 countries of the European region being a component of the EURO STOXX 600 Index. The paper is “The Impact of a Firm’s ESG Score on Its Cost of Capital: Can a High ESG Score Serve as a Substitute for a Weaker Legal Environment?” and the authors are Randy Priem (Financial Services and Markets Authority; Saint-Louis University, Brussels; KU Leuven; United Business Institutes) and Andrea Gabellone (United Business Institutes).
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