ESG disclosure and financial performance in debt market: evidence from the oil and gas industry

What is it about?

The oil and gas industry is often criticized for its environmental impact. Companies in this sector are closely watched by investors, governments, environmentalists, and the public. One way these companies can show they are trying to be more responsible is through ESG (Environmental, Social, and Governance) disclosure, which reports on their efforts to be more sustainable and ethical. In our study, we looked at whether these ESG disclosures affect the financial performance of oil and gas companies, specifically in terms of their corporate bond credit spreads, which is a measure of how much it costs them to borrow money. We used data from 2018 to 2022 and applied a statistical method to ensure our results were reliable. Our findings show that when oil and gas companies have better ESG ratings, they tend to have lower borrowing costs. This is important because it suggests that being more transparent and responsible can lead to financial benefits for these companies. Additionally, we found that non-state-owned companies gain more financial benefits from good ESG practices compared to state-owned ones. This research is valuable for managers, investors, and policymakers. It highlights the importance of ESG practices not only for the environment and society but also for the financial health of companies. By adopting better ESG practices, oil and gas companies can reduce their borrowing costs, which is good for their bottom line and the planet.

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