What advantage does lower cost of capital provide?

Lower cost of capital provides the advantage of reduced financing costs, particularly when a company aligns its operations with Environmental, Social, and Governance (ESG) principles. When a business demonstrates strong ESG performance, it can build greater trust with investors and lenders, which can lead to more favorable financing terms. This alignment often means that investors view the company as less risky, resulting in lower interest rates and better access to capital.

Additionally, companies that effectively integrate ESG factors might benefit from a competitive advantage, enabling them to attract more socially-conscious investors who prefer to invest in sustainable businesses. As a result, the overall cost of borrowing decreases, thus enabling the company to allocate resources more efficiently and invest further in sustainable practices, innovation, and long-term strategic goals.

In contrast, a higher cost of capital could hinder growth and investment opportunities, particularly in areas that are essential for sustainability.