ESG Disclosure and Cost of Capital in Indian Maharatna CPSEs: Evidence on WACC and Debt Pricing Using BRSR-Based ESG Index

: ESG Disclosure, Cost of Capital, WACC, Debt Pricing, BRSR, Maharatna CPSEs, India, Public Sector Enterprises, Sustainable Finance

This research paper looks at the correlation between the quality of the Environmental, Social, and Governance (ESG) disclosure and the cost of capital in Indian Maharatna Central Public Sector Enterprises (CPSEs). By evaluation of the effect of the ESG disclosure on the Weighted Average Cost of Capital (WACC) and the cost of debt using a comprehensive BRSR-based ESG Index constructed out of Business Responsibility and Sustainability Reports that are required by SEBI during the period FY 2022-23 to FY 2024-25, we examine the effect of ESG disclosure on both the &WACC and the cost of debt. We have used a sample of all 14 Maharatna CPSEs (India): the largest government-owned corporations in India in terms of the energy, infrastructure, and manufacturing industries. The results of the empirical data indicate statistically significant negative correlation between scores of ESG disclosure and WACC and high ESG-performers CPSEs demonstrate that WACC is about 85-125 basis points below among its lower-scoring counterparts. Moreover, there is attractive Environmental (E) pillar which has the greatest impact on debt pricing and the next pillar is Governance (G) and Social (S) pillars. The implication of these findings to policy makers, investors and corporate managers is that, ESG disclosures are financial enough to matter in emerging markets.