The Evolving Role of ESG in Investment Decisions: From Financing Cost Implications

Environmental protection issues, amid growing global concerns over climate change and ecological balance, have sparked in-depth reflections on sustainable development. Today, sustainable development has evolved into a comprehensive social-economic strategy guiding long-term growth, directly spurring the emergence of responsible investment. As social values shift toward equity and environmental stewardship, and economic governance systems advance, responsible investment has expanded its scope-gradually forming three core pillars: Environmental, Social Responsibility, and Governance (ESG). Since then, ESG investment has gained rapid global traction, with institutional investors increasingly integrating it into their decision-making. Enterprises disclose ESG-related information in accordance with industry standards, while rating agencies collect data from corporate reports, third-party audits, and public records to assign ESG scores. These ratings now serve as a key benchmark for investors to assess enterprises, long-term operational risks and intrinsic investment value. In China, backed by national policies, including green finance development guidelines and mandatory ESG disclosure requirements for key industries, ESG system construction thrives. Corporate ESG performance has drawn wide attention from investors, regulators, and the public, and its role in easing financing constraints for enterprises has become increasingly prominent. Compared with mature international markets where ESG investment has decades of development, China's ESG concept emerged relatively later. This paper, combining an analysis of China's ESG development status and relevant theoretical, foundations, empirically studies the link between firms' ESG performance and their financing costs (covering both equity and debt financing).