How Do ESG Scores Affect the Cost of Debt in Emerging Markets? Evidence from Environmental, Social, and Governance Performance at the Aggregate and Component Levels

This study examined companies included in the BIST 100 index. However, because regular ESG data was available for only 59 companies during the relevant period, the analysis was conducted on these companies. In this context, the impact of these companies' total ESG scores and environmental, social, and governance performance on borrowing costs for the 2019-2023 period was evaluated.The study aims to reveal how the sustainability performance of companies in emerging markets affects credit conditions. A balanced panel data analysis (BDA) random effects model was used as the research method, controlling for autocorrelation, heteroscedasticity, and cross-sectional dependence. The findings indicate that total ESG and sub-dimension-level environmental, social, and governance performance increase, rather than decrease, borrowing costs. The results suggest that ESG costs are priced as a risk factor by creditors and that sustainability practices can increase the financing burden in the short term. The study provides new evidence for sustainable finance from an emerging economy.