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ESG Integration and the Financial Stability Trade-Off in Emerging Markets

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  • Luis Ángel Meneses Cerón

    (School of Administrative, Accounting, and Economic Sciences, Universidad Nacional, Abierta y a Distancia UNAD, Popayán 190001, Colombia)

  • Julián Mauricio Gómez López

    (Faculty of Economic Sciences, Universidad de San Buenaventura Cali, Cali 760001, Colombia)

  • Yudith Cristina Caicedo Domínguez

    (School of Administrative, Accounting, and Economic Sciences, Universidad Nacional, Abierta y a Distancia UNAD, Popayán 190001, Colombia)

  • Juana Patricia Diaz Olaya

    (School of Administrative, Accounting, and Economic Sciences, Universidad Nacional, Abierta y a Distancia UNAD, Popayán 190001, Colombia)

Abstract

This study investigates the impact of ESG practices on the financial stability in a multisector sample of 86 publicly listed Brazilian firms, focusing on the Weighted Average Cost of Capital (WACC) and Altman Z-Score (AZS) as a proxy for insolvency risk. Using Bloomberg data from 2010 to 2021, this research applies advanced econometric methods, including Ordinary Least Squares (OLS), Vector Autoregression (VAR) and Fully Modified Ordinary Least Squares (FMOLS), to capture both short- and long-term effects. The findings reveal a financial learning curve: in the short term, ESG adoption can temporarily increase WACC and insolvency risk due to initial implementation costs, whereas in the long term, it reduces financial risk, enhances operational efficiency, and strengthens corporate resilience. These results underscore ESG practices as a strategic determinant of long-term value creation and financial stability. This study offers actionable insights for policymakers, investors, and corporate leaders aiming to align sustainability initiatives with financial performance in emerging market contexts.

Suggested Citation

  • Luis Ángel Meneses Cerón & Julián Mauricio Gómez López & Yudith Cristina Caicedo Domínguez & Juana Patricia Diaz Olaya, 2026. "ESG Integration and the Financial Stability Trade-Off in Emerging Markets," IJFS, MDPI, vol. 14(2), pages 1-27, February.
    • Handle: RePEc:gam:jijfss:v:14:y:2026:i:2:p:26-:d:1854357
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