ESG Practices and the Cost of Debt: Evidence from Italian SMEs

This study investigates whether lending institutions in Italy reward firms for their environmental, social, and governance (ESG) performance and disclosure by lowering their cost of debt capital. Especially after the Covid 19 pandemic, investors as well as other stakeholders increasingly demand both nonfinancial reports and standard financial statements. So,the integration of environmental and ethical criteria into the evaluation of a corporation is a theme widely accepted by socially responsible investors and stakeholders.In other hands, the banking system has started to incorporate ethical and social indicators into the decision-making process. Our paper finds lending institutions value ESG performance, integrating sustainability factors in their making-decision process. In this sense, we show evidence that organizations with stronger level of ESG performance have better credit conditions, through a lower cost of debt.