The Impact of Green Innovation and ESG Performance on Firm Debt

Abstract

This study aims to analyze the relationship between green innovation practices and ESG performance in the debt structure of companies in the BRICS countries (Brazil, Russia, India, China, and South Africa), considering the level of governance of these countries. We used multilevel regression in a sample of 854 companies from these five emerging countries from 2009 to 2019. The results show that green innovation, green building, and ISO14001 certification are negatively related to the firm’s debt. ESG performance reduces financial constraints and raises debt to equity and long term, when their respective countries have better governance quality. The study fills a gap in the literature by addressing implications of green innovation and ESG performance on corporate debt in the context of BRICS. Then, the results can contribute to verifying the impact of green innovation practices on companies’ debts to identify which resources they are using to finance environmental projects and whether governance aspects help to reduce resource constraints. The evidence found in this study provide support to managers in their debt strategies, in a scenario where demands are growing to align corporate actions and sustainable development goals.