Nigerian Journal of Banking and Financial Issues (NJBFI)

IMPACT OF ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) SCORES ON THE COST OF CAPITAL IN SUB-SAHARAN AFRICAN MANUFACTURING FIRMS

Abstract

The research evaluates how Environmental Social Governance (ESG) scores affect Weighted Average Cost of Capital (WACC) for manufacturing firms across Sub-Saharan Africa (SSA). ESG performance serves as an essential factor in determining both firm valuation and financial risk because of increasing global interest in sustainable business operations. The research design combines ex post facto analysis with panel regression to study data from 2010 to 2023 which the authors obtained from Bloomberg, Thomson Reuters, and company reports across 46 Sub-Saharan African countries while using stakeholder, agency, signaling, and resource-based view theories. The analysis demonstrates that environmental and social scores produce a positive relationship with WACC because sustainability investments in these domains tend to be viewed as costly by investors particularly in emerging markets where regulatory backing is weak. Governance scores show a negative relationship with WACC because well-structured governance systems build investor confidence and reduce capital costs. The research confirms that leverage effectively reduces WACC according to the tax-shield theory and larger firms experience higher financing costs. This research provides empirical evidence about sustainable finance within the SSA manufacturing industry that is still developing its ESG adoption practices. The research suggests that stronger regulatory systems combined with targeted incentives alongside strategic ESG alignment will help organizations optimize capital structure and sustainability performance. Investors and policymakers together with corporate managers benefit from these findings when they aim to optimize financial performance and maintain extended ESG activities in emerging markets.