Environmental emissions and the cost of debt: the moderating role of gender diversity in European companies

Purpose This paper examines the relationship between carbon (CO2) emissions and the cost of debt, and whether female board representation moderates this relationship. Design/methodology/approach Based on a sample of 477 European firms selected from the Stoxx Europe 600 Index over the period of 2016–2024, the study uses the feasible generalized least squares method to investigate the impact of carbon (CO2) emissions on the cost of debt. In order to ascertain the robustness of the results obtained, it is proposed that the measurement of the variables be modified. An alternative measure of the independent variable, and the simultaneous equation model, will be applied for the purpose of conducting an endogeneity test. Findings The findings notice that the emission of carbon is positively associated with cost of debt. This suggests that firms with better environmental performance, as measured by lower emissions, tend to benefit from more favourable debt financing conditions and hence lower investment and debt costs. These results are robust to the alternative specifications and remain consistent after correcting for potential heteroskedasticity, autocorrelation, multicollinearity and endogenity problems. Originality/value This study makes a distinctive contribution to the sustainable finance and accounting literature by investigating the effect of corporate carbon emissions on the cost of debt across a broad and diverse panel of European companies listed in the STOXX Europe 600 index. In contrast to previous research, which was frequently confined to national samples or ESG aggregates, this study focuses specifically on quantitative carbon data, enabling a more detailed and direct evaluation of environmental risk exposure.