The Impact of ESG Ratings on Corporate Financing Costs

In the current era of green development, the concept of sustainable development has become increasingly embedded in public consciousness, and corporate ESG (Environmental, Social, and Governance) performance has gradually become a focal point of attention. As firms pursue economic benefits, actively fulfilling their responsibilities in environmental protection, social contribution, and corporate governance helps enhance their overall competitiveness and reduce financing costs. Based on data from 2014 to 2022, this study conducts an in-depth analysis of the impact of ESG ratings on corporate financing costs and explores the underlying mechanisms. The findings indicate that ESG ratings significantly reduce financing costs, a conclusion that remains robust across various tests. Mechanism analysis reveals that return on total assets and financing constraints mediate the relationship between ESG performance and financing costs. Furthermore, heterogeneity analysis shows that the cost-reducing effect of ESG ratings is more pronounced among non-state-owned enterprises and firms located in eastern regions. This study enriches the literature on the economic impact of ESG ratings and holds significant practical implications for enterprises seeking to optimize ESG practices to lower financing costs and achieve sustainable development.