ESG and firm value: A hybrid literature review on cost of capital implications from Scopus database

Does strong sustainability performance lower firms' cost of capital?

Massimo Postiglione, Cristian Carini, and Alberto Falini examine the link between ESG and firm value through the cost of capital in their review "ESG and firm value: A hybrid literature review on cost of capital implications from Scopus database".

Combining bibliometric mapping with a detailed reading of the most cited contributions, they narrow an initial pool of 314 Scopus papers to a core of 50 highly cited articles spanning 2000 to 2024.

Their main conclusions include:

• The field is strikingly young and fast-growing, expanding at roughly 30% a year, with the first relevant study appearing only in 2011 and most research concentrated since 2019.
• No dominant theory or shared conclusion has emerged, leaving the question of whether sustainability raises firm value through a lower cost of capital still unresolved across the literature.
• Cost of debt studies were the most consistent in finding stronger sustainability quality goes with lower borrowing costs, even though it does not automatically translate into a higher firm value.
• Cost of equity research was more fragmented, and two thirds of these studies chased the returns earned by investors rather than actual firm value.
• Nearly 60% of the 50 closely examined studies could not properly link sustainability to firm value through the cost of capital, exposing how thin the direct evidence remains.
• ESG rating disagreement surfaced as a recurring concern, since opaque and divergent ratings both distort empirical results and can raise a company's cost of capital by adding uncertainty.

This article cautions the popular claim that strong ESG lowers the cost of capital and therefore lifts firm value is not yet backed by cohesive evidence.

Opaque and divergent ESG ratings are not merely an academic nuisance but a source of uncertainty weighing on firm value, which will be partially addressed by the EU's new regulation of ESG rating providers.

As a literature review, the study inherits the limits of its filters, drawing only on ABS-ranked, English-language journals indexed in Scopus, and focuses on papers cited at least 15 times.

In a field this young, this citation threshold may sideline the newest work, which has had little time to accumulate citations.