Do sustainability-driven improvements in ESG performance reduce financing costs? Evidence from Chinese A-share listed companies

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Abstract

The consideration of environmental, social, and governance (ESG) has become an integral part of the financing of companies. The ESG scores indicate sustainability, which is integral for maintaining the goodwill of the company and also showing long-term resilience in the financial markets. Hence, this ESG score allows for the alteration of the cost of financing for firms. This particular research analyses whether the improvements in ESG factors lead to a reduction in the financing cost of Chinese A-listed firms. The timeline of the study is between 2009 and 2023, and it is conducted across 4704 firms. A firm fixed effects model (FEM) with standard errors clustered by firm is considered for the analysis. The results show that ESG impacts total financing cost (TFC) negatively by -0.21 percent. Moreover, the cost of debt (COD) is also negatively impacted by -0.06 percent, and the cost of equity (COE) is impacted by -0.04 percent. Impact on TFC and COD is statistically significant. However, the same on COE is not significant. The debt-market result is consistent with signalling and information-asymmetry channels. This is because ESG reduces perceived default risk and improves creditor terms (Huang, 2022). Based on these findings, policy recommendations on ESG disclosure have been suggested to the Chinese government.

Keywords: Chinese A-Listed Firms, ESG, Panel Data Analysis, Financing Cost, FEM, REM

Authors’ individual contribution: Conceptualization — Z.T.; Methodology — Z.T. and N.H.B.; Validation — Z.T.; Formal Analysis — Z.T. and N.H.B.; Writing — Original Draft — Z.T.; Writing — Review & Editing — Z.T. and N.H.B.; Supervision — N.H.B.; Project Administration — N.H.B.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G12, G32, M14

Received: 06.07.2025
Revised: 21.10.2025; 16.12.2025
Accepted: 08.01.2026
Published online: 09.01.2026

How to cite this paper: Tong, Z., & Bajuri, N. H. (2026). Do sustainability-driven improvements in ESG performance reduce financing costs? Evidence from Chinese A-share listed companies. Corporate Governance and Sustainability Review, 10(1), 87–98. https://doi.org/10.22495/cgsrv10i1p8