Environmental Practices and Corporate Cost of Debt: Evidence from European Listed Firms

Sabri Boubaker (), Lorenzo Fichera, Simona Galletta and Sebastiano Mazzù
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Sabri Boubaker: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Lorenzo Fichera: Unict - Università degli studi di Catania = University of Catania
Simona Galletta: Unict - Università degli studi di Catania = University of Catania
Sebastiano Mazzù: Unict - Università degli studi di Catania = University of Catania

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Abstract: This paper examines the relationship between firms' environmental sustainability and the cost of debt, with a specific focus on how firms' transition efforts are taken into account. Using a dataset of large European listed companies covering the period from 2015 to 2023, we provide evidence that better environmental practices on polluting emissions, energy sources and waste management reduce firms' cost of debt. This result remains robust when environmental metrics are combined into a unique composite indicator and after testing for endogeneity. Further analysis shows that the reduction in the cost of debt is stronger for less sustainable firms engaged in environmental transition. Our findings shed light on the importance of considering firms' transition needs and efforts for effective transition finance.

Keywords: Cost of debt; Sustainable finance; Environmental transition; Climate change (search for similar items in EconPapers)
Date: 2026-03
Note: View the original document on HAL open archive server: https://hal.science/hal-05538927v1
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Published in International Review of Economics and Finance, 2026, 106, pp.104910. ⟨10.1016/j.iref.2026.104910⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05538927

DOI: 10.1016/j.iref.2026.104910

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