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Do ESG incidents matter for corporate cost of debt? Evidence from China

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  • Du, Linqi
  • Lu, Na

Abstract

We investigate the impact of ESG incidents on corporate cost of debt financing using RepRisk incident data matched with Chinese A-share listed firms from 2007–2022. Our results show that ESG incidents significantly increase debt costs by approximately 70 basis points. Mechanism analysis reveals that ESG incidents affect debt costs through four channels: increasing credit risk, damaging banking relationships, reducing information quality, and weakening operating performance. The effects are more pronounced for firms with weak ESG performance, state ownership, and non-polluting industry operations. ESG incidents also constrain debt financing capacity, particularly for long-term financing. ESG pillar analysis reveals that social and governance incidents primarily drive the increased debt costs. Our findings highlight the financial materiality of ESG risk management and provide novel insights for sustainable finance development in emerging markets.

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  • Du, Linqi & Lu, Na, 2025. "Do ESG incidents matter for corporate cost of debt? Evidence from China," Finance Research Letters, Elsevier, vol. 86(PB).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pb:s1544612325017131
    DOI: 10.1016/j.frl.2025.108459
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    1. Xu, Yanhui & Jin, Yangyang & Deng, Fuhua & Feng, Qianbin, 2025. "Disruption of customers' political connections and suppliers' ESG performance: Evidence from China," Finance Research Letters, Elsevier, vol. 86(PF).

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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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