In recent years, global environmental problems, represented by extreme weather, have become increasingly obvious, offering challenges to human society. It has motivated people to put the concept of sustainable development into reality and to support economic and social development that is greener and less carbon-intensive. China, the world’s second-largest economy, is also actively pursuing sustainable development, and its 2024 report proposes a “dual-carbon” goal that promotes a green transformation of development methods and the continuous enhancement of sustainable development capacity.

Sustainable development philosophy emphasizes economic growth, environmental protection, and social justice (1–3). The concept of sustainable development, as expressed in the ESG framework, corresponds well with the global trend towards green and low-carbon development. The comprehensive indicators comprised by ESG performance also serve as a benchmark for evaluating the effectiveness of related policies. It is increasingly recognized and accepted as a crucial approach to achieving high-quality development globally. ESG performance reflects a company’s ability to manage long-term environmental, social, and governance issues and industry risks (3, 4). The number of ESG disclosures by Chinese listed companies is gradually increasing. According to the most recent CSI ESG statistics, as of April 30, 2024, more than 2,110 A-share listed businesses had published independent sustainability reports, a 16% year-on-year growth, accounting for 39% of all A-share listed companies.

This growing focus on ESG performance is not only driven by investors but also by the significant role of media attention. As an important informal institutional arrangement, media plays an agenda-setting function, reinforcing certain perceptions and generating public expectations and pressures that motivate companies to adopt ESG practices. While much of the existing ESG research has relied on ESG ratings, some scholars have also conducted research on ESG news coverage. Prior research evidence suggests that media coverage of firms’ environmental, social, and governance (ESG) incidents can affect stock prices (5, 6), firm value (7), firm risk (8, 9), and analysts’ forecasts (10), but there is a lack of empirical research on the benefits of ESG news coverage on the capital market. To fill this gap, this paper attempts to explore the following questions: In the presence of ESG investors who focus on non-financial metrics in the financial market, how does a company’s ESG disclosure affect value investors’ access to information and cost of equity?

This study investigates the correlation between the ESG news coverage and equity costs of Chinese A-share-listed companies from 2010 to 2021. We construct an ESG media performance index based on the tone of the media coverage of ESG news about listed companies. When a company actively engages in ESG practices and the media news coverage is more active and positive, the ESG media index will increase if the company receives more media attention. The findings suggest that a higher ESG media index is associated with a decrease in the expense of equity financing. Specifically, for each one standard deviation rise in the ESG media index, the average cost of equity financing decreases by 0.054%. The results remain valid following the robustness test. The mechanism test indicates that firms with high ESG news coverage can reduce their equity financing costs by improving information transparency. Heterogeneity analyses show that this effect is more pronounced in state-owned enterprises as well as in firms with large firm sizes.

This paper makes several contributions. Firstly, we construct an ESG media performance index. The majority of current ESG research concentrates on ESG rating and rating divergence discussions, while fewer studies examine the influence of news coverage on ESG performance. This paper offers additional empirical evidence for ESG research. Secondly, we construct an index of ESG performance under media coverage by analyzing millions of ESG news texts. This index is capable of providing more objective and distinctive corporate information. Thirdly, we find that ESG news coverage can decrease the cost of equity by enhancing the information environment. The findings complete the logical chain of ESG information influencing financing costs. Finally, we consider the internal conditions under which ESG information impacts financing costs and offer targeted recommendations for improving ESG’s role.

The cost of equity is the internal rate of return (or discount rate) on the current market value of a firm, as determined by investors based on the firm’s future cash flows (10). For investors, this rate of return is required to take on the firm’s risk in a specific market situation.

We argue that positive news coverage reduces the cost of equity for two main reasons. Firstly, good ESG performance can enhance a firm’s reputation and attract more investors, which in turn lowers the firm’s cost of equity capital (11). Positive corporate performance in environmental preservation, such as reducing carbon emissions and environmental pollution, can enhance a company’s market image (2, 12). Positive corporate performance in social responsibility, such as labor rights protection, supply chain management, and community involvement, is usually recognized by more investors and consumers (13). Good corporate governance structures, such as efficient boards of directors, transparent financial disclosure, and effective internal controls, can enhance investor confidence (14). Conversely, deficient ESG performance may lead to negative press coverage and increase the cost of financing for the firm. For example, firms may be facing public criticism and regulatory penalties as a result of environmental violations (15). Deficiencies in corporate social responsibility and issues in corporate governance, such as excessive managerial intervention or financial misconduct, can have significant adverse effects on a company’s financial condition when exposed, ultimately leading to an increase in its cost of capital (16, 17).

Secondly, positive ESG news coverage can further reduce the cost of equity by enhancing a firm’s transparency. When firms clearly report on their environmental practices, such as carbon footprint reductions, or social initiatives, like labor rights and diversity efforts, they provide investors with valuable insights that reduce perceived risks (18, 19). Transparent governance practices, including board structure and internal controls, also foster investor confidence (20). On the other hand, a lack of ESG disclosures can lead to mistrust and higher capital costs (21). Therefore, positive ESG disclosure not only enhances investor confidence, but also reduces financing costs by creating a more favorable investment environment. Therefore, we propose hypothesis 1.

Our findings confirm that the ESG media index plays a critical role in shaping corporate financing conditions by improving transparency and investor confidence. To ensure that this relationship is not driven by other firm characteristics, we control for ROA, leverage, firm size, Tobin Q and other variables, following previous literature (43). These controls allow us to better isolate the impact of ESG media coverage on equity costs, reinforcing the robustness of our findings. Even after controlling for these factors, ESG media coverage remains a significant determinant of financing conditions, influencing firms’ risk perception and cost of capital. Firms with greater ESG index are perceived as less risky, leading to lower risk premiums and improved access to capital. This effect is particularly pronounced in firms with stronger governance mechanisms, such as those with larger boards, where enhanced oversight amplifies ESG effectiveness. Similarly, firms with higher market valuations (Tobin’s Q) and lower book-to-market ratios benefit more from ESG transparency, as their valuations rely more on investor sentiment. Moreover, state-owned enterprises (SOEs) experience greater reductions in financing costs through ESG media coverage, likely due to institutional credibility and stronger regulatory oversight. Conversely, while high profitability, revenue growth, and leverage are typically associated with higher equity costs, ESG transparency helps mitigate these concerns by reinforcing financial stability and credibility. These findings highlight ESG transparency as not only a governance mechanism but also a strategic financial asset that enhances market confidence and lowers financing costs.

A key mechanism through which ESG media coverage reduces the cost of equity is enhancing corporate transparency and mitigating information asymmetry. Firms with strong ESG transparency provide more reliable and accessible information, reducing uncertainty and strengthening investor confidence, which aligns with prior research on disclosure and capital costs (33–35). Additionally, ESG transparency improves market liquidity, as greater disclosure attracts investors, lowers transaction costs, and reduces price volatility, facilitating equity financing. In contrast, firms with weaker ESG communication face higher risk premiums and lower investor appeal due to reduced liquidity and greater price fluctuations. These findings underscore ESG transparency as not just a governance tool but a key determinant of financial stability and valuation, reinforcing its increasing importance in investment decisions (36).

To ensure the robustness of our findings, we conducted sensitivity analysis and selection bias tests, confirming that the observed effect of ESG media coverage on reducing the cost of equity is not driven by model specifications or sample selection. When we replaced the PEG model with the MPEG model, the results remained consistent, indicating that our findings hold regardless of the cost of equity estimation method. Additionally, to address potential selection bias—where firms with greater ESG media coverage may inherently possess better governance or financial health—we employed the Heckman two-stage model and Propensity Score Matching (44). Both approaches reaffirm that ESG transparency remains significantly associated with lower equity costs, reinforcing the validity of our conclusions. Further analysis reveals that the benefits of ESG media coverage in reducing financing costs are more pronounced in state-owned enterprises (SOEs) and large firms, suggesting that firms with greater investor scrutiny and institutional credibility gain more from ESG transparency. These findings emphasize that ESG disclosure is a robust determinant of equity financing costs across different firm types and market conditions.

This paper examines the impact of ESG news coverage on the cost of capital. As a key informal institutional mechanism, the media plays an agenda-setting role, shaping public perceptions and generating expectations that drive companies to adopt ESG practices. According to stakeholder theory, companies engaged in ESG activities enhance their ability to manage environmental, social, reputational, operational, and regulatory risks, which in turn helps reduce their equity costs.

The results demonstrate that companies with more positive ESG media coverage (higher ESG media index) have a lower cost of equity. This finding remains applicable even after conducting sensitivity tests and robustness checks. Mechanism tests suggest that ESG news coverage reduces financing costs by improving the information environment and decreasing information asymmetry. Heterogeneity tests indicate that this effect is more pronounced in government-owned and large firms. Firms that take part in ESG construction can reinforce their public image, build their reputational capital, and lower their financing costs. This research expands our understanding of the factors affecting equity costs and complements studies on the impact of corporate participation in ESG governance. It contributes to promoting a correct understanding and better construction of ESG in enterprises.

Based on the findings of this study, the following policy recommendations can be made to lower corporate financing costs through improved ESG practices. First, policymakers should strengthen ESG disclosure regulations to enhance information transparency and reduce information asymmetry. Second, media outlets should be encouraged to highlight positive ESG practices and be incentivized to promote accurate and impactful ESG reporting. Third, firms should enhance their corporate governance structures by integrating ESG principles into their operations, with a particular focus on the establishment of sustainability committees and mechanisms for executive accountability. Finally, firms and policymakers should collaborate to advance green innovation and investment, aligning corporate strategies with environmental sustainability goals to effectively reduce financing costs and achieve a dual benefit of financial and societal value.

This study provides empirical evidence supporting the relationship between ESG news coverage and the cost of equity, validating this link within the context of emerging market. Future research could extend this analysis to developed markets, such as the US and European stock market, to examine whether similar relationships hold under different institutional settings. Additionally, as ESG regulations and media influence evolve, future studies could explore how this relationship changes over time and across different economic cycles.