ESG Integration and the Financial Stability Trade-Off in Emerging Markets

This study investigates the impact of ESG practices on the financial stability of publicly listed Brazilian firms, focusing on the Weighted Average Cost of Capital (WACC) and insolvency risk (AZS). Using Bloomberg data from 2010 to 2021, the research applies advanced econometric methods, including OLS, VAR, and FMOLS, to capture both short- and long-term effects. The findings reveal a financial learning curve: in the short term, ESG adoption can temporarily increase WACC and insolvency risk due to initial implementation costs, whereas in the long term, it reduces financial risk, enhances operational efficiency, and strengthens corporate resilience. These results underscore ESG practices as a strategic determinant of long-term value creation and financial stability. The study offers actionable insights for policymakers, investors, and corporate leaders aiming to align sustainability initiatives with financial performance in emerging market contexts.