Impact of the sustainability development goals (SDGs) on the cost of debt: how does the reporting of sustainability goals affect cost of debt?

Purpose This paper aims to investigate the impact of sustainability disclosures, specifically Sustainable Development Goals (SDGs), on the cost of debt for public interest entities. By focusing on individual SDG reporting rather than aggregated view, the study provides a more nuanced view of how non-financial disclosures are interpreted by financial institutions. The purpose is to uncover whether and how different SDGs are valued in lending decisions, thereby enhancing our understanding of the financial materiality of sustainability disclosures. Design/methodology/approach This study used public company data from Denmark, Sweden and Finland for the period from 2015 to 2020, which are tested with panel data regression method. The study provides multiple robustness tests to ensure validity of the results. Findings The findings of this study reveal that, besides of the fact that banks and other financial institutions generally acknowledge and reward companies for the efforts made in sustainability aspects, it becomes apparent that the relevance of all the goals is generally not equally perceived by the financial sector. The results here showcase that some goals can be positively perceived, while the other can have negative impact on financial expenses. Practical implications This study offers practical implications for firms, investors and policymakers by demonstrating that SDG disclosures, when targeted, credible and aligned with industry-relevant goals, can reduce the cost of debt and support better financial decision-making. Specifically, consistent and transparent SDG reporting can strengthen a firm’s position in debt negotiations and enhance its credibility with lenders. Social implications The study has important implications for practitioners, particularly supervisory board members and executives, as it emphasises the relevance of collectivity in actions around sustainable transformation. Originality/value To the best of author’s knowledge, this study is the first to discuss the association between SDGs and the cost of debt. The results here encourage further discussion on legitimacy and stakeholder theory aspects of ESG disclosures.