ESG Performance and Its Impact on Mitigating Cost of Capital: Evidence from Southeast Asia

Abstract

In response to global challenges such as climate change, social
injustice, and the growing demand for corporate ethics,
Environmental, Social, and Governance (ESG) factors have
become central to business, investment, and public policy
agendas. This study aims to provide empirical evidence on the
impact of ESG performance on the cost of capital. The research
sample consists of non-financial companies listed on stock
exchanges in developing Southeast Asian countries from 2018 to
2023. Using panel data regression analysis with STATA version
17, the findings reveal a significant positive relationship between
overall ESG performance and the environmental pillar's impact
on the cost of capital. However, the social and governance pillars
do not show a significant effect on the cost of capital. Further
analysis reveals that while ESG performance significantly
reduces the cost of debt, it has no impact on the cost of equity.
These results suggest that ESG-related practices are not yet fully
valued by capital markets and stakeholders in developing
Southeast Asian countries.