ESG disclosure improves funding terms despite regulatory costs
A systematic review of 99 European studies by De Nederlandsche Bank finds that ESG disclosures generally improve access to capital and lower borrowing costs. However, the synthesis highlights that regulatory compliance costs and uncertainty create friction for companies across the EU.
Cheaper debt leads the green transition
The review synthesizes 99 publications from 2010 to 2025, including 82 peer-reviewed articles and 17 studies from the European Central Bank and European Supervisory Authorities.
Across debt markets, the findings document lower borrowing costs and preferential bank lending terms for firms with robust ESG profiles.
In contrast, equity market evidence remains sparse and reliant on secondary market models, where green disclosures correlate with reduced market betas rather than direct equity issuance.
Moreover, 56 of the reviewed papers rely on ESG ratings as disclosure proxies.
While credit allocation increasingly favors sustainable businesses, several lenders maintain ties to carbon-intensive borrowers without imposing higher financing penalties.
Regulatory drag meets green mandates
European mandatory frameworks like the SFDR, the EU Taxonomy, and the NFRD show measurable shifts in capital allocation toward sustainable investments.
Nevertheless, mandatory reporting introduces transitional friction.
Investors actively price compliance risks and regulatory uncertainty, which triggered negative stock market reactions during the implementation of the CSRD and the NFRD.
Furthermore, fund classification inconsistencies under the SFDR show that label transparency does not always guarantee verifiable decarbonization in underlying portfolios.
Transparency without simplicity breeds market friction
The paper confirms that ESG disclosures lower borrowing costs only when rules remain credible.
Complex reporting mandates create compliance drag that harms valuations instead of accelerating green reallocation.
Regulators must prioritize proportionality before expanding disclosure burdens across smaller firms.
Source: ESG Disclosure and Green Investment in the EU
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