ESG Performance as a Non-Financial Determinant of Corporate Borrowing Cost: Evidence from Indian Listed Companies (2020–2025)

Abstract

This study examines the influence of Environmental, Social, and Governance (ESG) performance on corporate borrowing costs among Indian listed companies during the period 2020–2025. Using a balanced panel dataset of 50 firms across multiple sectors, the research investigates whether stronger ESG practices contribute to lower debt financing costs in an emerging market setting. The study employs advanced econometric techniques, including fixed- effects regression, instrumental variable estimation, and difference-in-differences analysis centered on the implementation of SEBI’s Business Responsibility and Sustainability Reporting (BRSR) mandate. The findings reveal a significant inverse relationship between ESG performance and borrowing costs, indicating that firms with higher ESG scores benefit from reduced financing expenses. A one-standard-deviation increase in ESG performance is associated with a reduction of approximately 42–58 basis points in borrowing costs. Among the ESG dimensions, governance demonstrates the strongest impact, followed by environmental and social factors. The results remain robust across alternative ESG measures, sub-period estimations, propensity score matching, and additional sensitivity tests. The study further highlights that the BRSR mandate strengthened the ESG–debt pricing relationship by improving disclosure quality and reducing information asymmetry between firms and lenders. These findings contribute to the sustainable finance literature by providing causal evidence from the Indian context and offer important implications for policymakers, financial institutions, and corporate managers in designing ESG-linked financing strategies and regulatory frameworks.