Assessing financial materiality for environmental issues: impacts on cost of capital in diverse national contexts

Abstract This study investigates whether corporate engagement in financially material environmental issues, as defined by SASB, reduces firms’ cost of capital (CoC) across diverse national contexts. We construct SASB-based environmental performance scores for 8314 firm-year observations from 32 countries spanning the period 2015–2022. We find that better SASB-based environmental performance is associated with a lower CoC, supporting the role of financial materiality as a credible signal to investors. Furthermore, our cross-country analysis reveals a contingency effect: in countries with high environmental performance indexes, engaging in financially material environmental issues is associated with a reduction in CoC, whereas engaging in overall environmental issues is associated with an increase. These findings provide large-scale evidence on the CoC benefits correlated with the global application of the SASB framework and offer valuable implications for corporate environmental strategies and investment decision-making.