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From unrated to rated: How ESG ratings impact the debt pricing of listed firms?

Author

Listed:
  • Andrea Bellucci

    (University of Insubria)

  • Alberto Citterio

    (University of Insubria)

  • Kambar Farooq

    (University of Insubria)

  • Rossella Locatelli

    (University of Insubria)

  • Andrea Uselli

    (University of Insubria)

Abstract

This paper investigates the causal effect of ESG rating initiation on corporate borrowing costs. Using a staggered difference-in-differences design, we analyze a panel of Italian publicly listed non-financial firms from 2013 to 2023. We find that becoming ESG-rated leads to a statistically and economically significant reduction in the firm's cost of debt. On average, the cost of debt declines by approximately 90 basis points following ESG rating initiation. This effect strengthens over time indicating that the benefits of ESG certification in debt markets accumulate as lenders incorporate the ESG information. These findings hold up under a range of robustness tests including various matching strategies, alternative difference-indifferences estimators, placebo tests, and the use of different control groups. Moreover, this relation is stronger for firms that are financially constrained, highly levered, and capital-intensive, as well as firms operating in low carbon industries. Overall, our results offer causal evidence that getting ESG-rated lead to lower cost of debt.

Suggested Citation

  • Andrea Bellucci & Alberto Citterio & Kambar Farooq & Rossella Locatelli & Andrea Uselli, 2026. "From unrated to rated: How ESG ratings impact the debt pricing of listed firms?," Mo.Fi.R. Working Papers 197, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    • Handle: RePEc:anc:wmofir:197
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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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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