Managing sustainability reporting and the cost of equity: recent comparative evidence from developed and developing markets

Sustainability reporting encompasses environmental, social, and governance (ESG) information, yet significant gaps remain in ESG disclosure practices among listed companies on stock exchanges worldwide. These gaps pose challenges for information users seeking a comprehensive understanding of companies' financing, performance, and value. This study examined the impact of environmental, social, and governance disclosures on the cost of equity (CoE). Utilizing panel data from 2014 to 2023, the study analysed firms from 42 countries, encompassing both developed and developing economies, using system Generalized Method of Moments (GMM) estimators. The findings revealed that aggregate ESG disclosure was associated with a reduction in CoE across all countries, developed countries, and developing countries. At the component level, governance disclosure emerged as the most valued ESG dimension by equity providers, showing a significant negative association with CoE globally and in developed countries, while environmental and social disclosures did not demonstrate a significant impact on CoE individually. These results suggested that equity providers responded more favourably to overall ESG transparency than to individual disclosure components, and that governance quality signals were particularly valued in developed markets. Policymakers and regulators should consider encouraging comprehensive ESG disclosure frameworks rather than focusing on individual components, while recognising that a one-size-fits-all regulatory approach may not be equally effective across all institutional environments.