The Impact of ESG Efficiency on the Cost of Equity Capital: Data from China

The paper provides an empirical analysis based on the relationship between listed companies' equity capital costs in mainland China and Hong Kong from 2018 to 2022 and their ESG efficiency. The final empirical results of the study show that a negative relationship exists between environmental, social and governance performance and the cost of equity capital in China. The study further discovers that among the three ESG dimensions, the social aspect has the most pronounced influence on listed companies in China. The correlation between the two variables is influenced by the ownership structure and geographic location of the companies. Reductions in the cost of equity capital are more strongly impacted by mainland Chinese companies' improvements in environmental, social, and corporate governance performance than by those in Hong Kong. Similarly, non-state-owned firms' improvements in environmental, social, and corporate governance performance have a greater effect on lowering equity capital costs than does the performance of state-owned enterprises. These findings highlight the significance of integrating ESG issues into business operations for the realization of long-term success and sustainable development of China's capital markets.