Decoding green narratives: The catalytic role of report readability and leverage in shaping environmental financing costs

This study aims to examine whether the readability of the board of directors’ reports disclosed in annual and sustainability reports influences firms’ cost of debt. This study also investigates the moderating role of leverage in this relationship. Using data from manufacturing companies listed on the Indonesia Stock Exchange (IDX) during 2019–2024, this study employs a two-way system generalized method of moments (GMM) approach to analyze data and address endogeneity issues. The findings reveal that the readability of financial and non-financial reports does not independently influence firms’ cost of debt. Nevertheless, leverage significantly moderates this relationship, indicating that the association between sustainability report readability and the cost of debt becomes more pronounced among highly leveraged firms. These results imply that the effect of report readability on creditors’ risk assessments is contingent upon firms’ financial conditions. While readability alone may not be sufficient to affect borrowing costs, clearer sustainability disclosures appear to become more relevant in highly leveraged firms, where creditors are likely to place greater emphasis on transparency and sustainability-related information. This suggests that the value of sustainability narratives lies not merely in readability itself, but also in how such disclosures interact with firms’ underlying financial risk and credibility (Shakir et al., 2026; Bonsall et al., 2017).