The Role of Cost of Capital and Visibility in the Impact of ESG on Sustainable Growth Rate

Using companies listed on the Korea Exchange from 2012 to 2022, this study examined the impact of ESG on the sustainable growth rate, with a particular emphasis on the moderating and mediating effects of visibility and the cost of capital. The analysis model employed panel regression and the PROCESS macro model, with data from the Korea ESG Standards Institute and KIS Asset Evaluation. The key findings are: First, higher ESG ratings are associated with higher sustainable growth rates. Second, lower average cost is correlated with higher ESG ratings, and lower sustainable growth rates are correlated with higher average cost of capital. Third, mediating effect of weighted average cost of capital was not found to be significant. Finally, the moderating effect of corporate visibility was significant, indicating that higher corporate visibility weakens the effect of ESG ratings on the sustainable growth rate. These findings offer the following implications: First, ESG management benefits companies in the long term. Second, while ESG management reduces the cost of capital, the mediating effect of the cost of capital is not significant, suggesting that the improvement in sustainable growth rate due to reduced capital cost should not be overly emphasized. Lastly, since the moderating effect of visibility showed a significant negative effect contrary to expectations, excessive spending on advertising should be approached with caution. Therefore, this study suggests that companies focusing on ESG management should aim for long-term benefits rather than quick gains.