The Impact of Climate Risk Disclosure on Cost of Capital in Emerging vs. Developed Markets

Abstract

Climate change has become a defining risk for modern capital markets. From regulatory shifts to investor pressure, firms across the globe are being urged to disclose their exposure to climate-related risks. But do such disclosures actually make a financial difference—particularly in reducing the cost of capital? And does the effect differ between emerging and developed markets. This study investigates whether high-quality climate risk disclosures reduce firms’ cost of equity and debt, and whether those benefits vary across market maturity. Using a panel data set of 350 firms across 12 countries from 2016 to 2023, find that comprehensive climate disclosures are associated with a significantly lower cost of capital—particularly in developed markets where investor demand and regulatory enforcement are stronger. Emerging markets show a positive but more muted effect. These findings have important implications for corporate strategy and policy harmonization as global markets attempt to price climate risk effectively.

Keywords- Climate Risk Disclosure, Cost of Capital, Environmental, Social and Governance (ESG), Sustainability Reporting, Climate-Related Financial Risks, Emerging Markets, Developed Markets, Financial Performance, Corporate Transparency, Regulatory Frameworks, Investor Decision-Making, Green Finance, Carbon Risk, Climate Governance, Market Efficiency