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Green finance policy, ESG rating, and cost of debt——Evidence from China

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  • Li, Weihao
  • Hu, Hongbing
  • Hong, Zekun

Abstract

Climate change is causing increasing uncertainty for countries' economic growth and carbon emission control has become a global consensus. The People's Bank of China introduced a green finance policy (GFP) in the third quarter of 2017, which incorporates green finance into the Macro-Prudential Assessment (MPA) framework it has developed to assess commercial banks. Using the difference-in-differences (DID) methodology and data from 2440 Chinese A-share listed enterprises, we find that companies with higher ESG ratings experienced a significant decrease in their costs of debt (Cod) after the promulgation of this policy. Moreover, among the specific dimensions of ESG scores, Environmental scores have a more significant impact on corporates' Cod compared with those of Social and Governance. Further analysis also shows that the Cod of firms that are big-sized, state-owned, or from non-heavily-polluting industries decrease more significantly after the proposal of this GFP. These findings are relevant for subsequent revisions of the GFP and inspiring for industrial transformation and green finance system in both China and the world.

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  • Li, Weihao & Hu, Hongbing & Hong, Zekun, 2024. "Green finance policy, ESG rating, and cost of debt——Evidence from China," International Review of Financial Analysis, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:finana:v:92:y:2024:i:c:s1057521923005677
    DOI: 10.1016/j.irfa.2023.103051
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    Cited by:

    1. Zhang, Yingying & Wang, Xinpeng & Feng, Nianqiao, 2024. "The path of green finance to promote the realization of low-carbon economic transformation under the carbon peaking and carbon neutrality goals: Theoretical model and empirical analysis," International Review of Financial Analysis, Elsevier, vol. 94(C).
    2. Li, Yujie & Hua, Ziyan, 2024. "Environmental protection tax law and corporate ESG performance," Finance Research Letters, Elsevier, vol. 64(C).
    3. Dong, Xiaotian & Wang, Kai-Hua & Tao, Ran & Sorana, Vătavu & Moldovan, Nicoleta-Claudia, 2024. "Is there a relationship between climate policy uncertainty and green finance? Evidence from bootstrap rolling window test," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 277-289.
    4. Da Gao & Xiaotian Zhou & Jing Wan, 2024. "Unlocking sustainability potential: The impact of green finance reform on corporate ESG performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4211-4226, September.
    5. Peng, Changhong & Zhang, Shuqin & Rong, Xueyun & Chen, Dongjing, 2024. "Is China's green credit policy effective? -Based on the perspective of enterprise environmental performance and economic performance," International Review of Economics & Finance, Elsevier, vol. 94(C).

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    More about this item

    Keywords

    Green finance; ESG; Cost of debt;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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