ESG and the cost of capital of listed companies in the Basic Materials sector in Vietnam

Abstract

In the context of accelerating net-zero and sustainable development globally and in Vietnam, it has become essential to examine the impact of environmental (E), social (S), and governance (G) implemetation on the cost of capital, particularly within the Basic Materials sector- a sector with high emission levels and substantial resources consumption. The paper examines the impacts of sustainable development practices, through ESG implementation, on the cost of capital of 69 companies in the Basic Materials sector listed in Vietnam from 2018 to 2022, using Feasible Generalized Least Squares (FGLS) regression. The results indicate that ESG practices could increase both the cost of equity and the weighted average cost of capital, while the cost of debt is negatively affected. From these findings, we propose several recommendations for effective ESG practices that aim to enhance sustainable development in Vietnam, which focus on increasing social awareness of the importance of ESG, strengthening policies that support ESG implementation, and using ESG as a key corporate governance indicator.