From unrated to rated: How ESG ratings impact the debt pricing of listed firms?

Andrea Bellucci, Alberto Citterio (), Kambar Farooq (), Rossella Locatelli Locatelli () and Andrea Uselli ()
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Alberto Citterio: University of Insubria
Kambar Farooq: University of Insubria
Rossella Locatelli Locatelli: University of Insubria
Andrea Uselli: University of Insubria

No 197, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper investigates the causal effect of ESG rating initiation on corporate borrowing costs. Using a staggered difference-in-differences design, we analyze a panel of Italian publicly listed non-financial firms from 2013 to 2023. We find that becoming ESG-rated leads to a statistically and economically significant reduction in the firm's cost of debt. On average, the cost of debt declines by approximately 90 basis points following ESG rating initiation. This effect strengthens over time indicating that the benefits of ESG certification in debt markets accumulate as lenders incorporate the ESG information. These findings hold up under a range of robustness tests including various matching strategies, alternative difference-indifferences estimators, placebo tests, and the use of different control groups. Moreover, this relation is stronger for firms that are financially constrained, highly levered, and capital-intensive, as well as firms operating in low carbon industries. Overall, our results offer causal evidence that getting ESG-rated lead to lower cost of debt.

Keywords: Environmental, Social, and Governance (ESG) ratings; Cost of debt; Corporate borrowing costs; Sustainable finance (search for similar items in EconPapers)
JEL-codes: G14 G32 M14 (search for similar items in EconPapers)
Pages: 46
Date: 2026-04
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:197

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