Greenwashing and Cost of Debt: Analyzing the Impact of ESG Disclosure Quality in Chinese Listed Companies

Environmental, Social, and Governance (ESG) information disclosure serves as a critical benchmark for assessing a company’s capacity for sustainable development. High-quality ESG disclosure entails the provision of comprehensive, precise, and timely information, complemented by demonstrable performance and future objectives in the relevant domains. The cost of debt pertains to the interest and associated expenses incurred by companies when sourcing funds through bond issuance, bank loans, or similar financial mechanisms. Enhanced ESG disclosure quality augments the transparency of corporate information, thereby enabling potential creditors to perform a more thorough risk appraisal of the firm. This study leverages data from non-financial firms listed on China’s Shanghai, Shenzhen, and Beijing A-share markets from 2012 to 2022. Employing the Greenwashing index as a proxy for ESG disclosure quality, this research investigates the influence of ESG disclosure quality on corporate cost of debt. The findings indicate that entities engaging in greenwashing tend to experience reduced cost of debt. This phenomenon may be attributed to the absence of standardized ESG evaluation criteria, which allows greenwashing practices to achieve market acceptance in the short term. Moreover, the analysis reveals a more pronounced negative impact of the greenwashing index on cost of debt among non-state-owned enterprises. This paper advocates for the enhancement of ESG disclosure standards and regulatory frameworks to improve corporate ESG transparency.