The relationship between ESG scores and financing costs: An application on Stock Exchange İstanbul

In this research, the correlation between firms' Environmental, Social, and Governance (ESG) scores and their equity, debt, and weighted average cost of capital was analyzed. The firms included in the study were selected from those listed on the Turkish stock exchange, which have reported ESG scores. Using data from 44 companies ranging from 2015 to 2022 and formatted in a panel data structure, regression analyses were performed using the Stata software. In the three constructed models, the dependent variables were the cost of equity, the cost of debt, and the weighted average cost of capital, whereas the independent variable was identified as the firms' ESG scores. The model incorporated company size, financial leverage ratio, firm risk (beta), and industry sector as control variables for each firm. The findings from all three models indicated that firms with higher ESG scores (75-100) bear higher costs of equity and debt when compared to those with lower ESG scores (0-25). The outcomes pertaining to the control variables were in alignment with the existing literature.