ESG Reputational Risk and Cost of Equity: Evidence from KOSPI 200 Firms

This study examines whether ESG-related reputational risk affects the cost of equity capital for Korean firms, using negative ESG incident scores from the ESG Incident Analysis (ESG IA) database for KOSPI200 firms over 2019–2023. The results show that higher reputational risk is associated with higher equity financing costs, with the effect concentrated in the social dimension—indicating that investors are sensitive to issues related to fairness, consumer, and labor practices. Additional analysis using the frequency of negative ESG news reports confirms the positive relationship between reputational risk and the cost of equity, with both social and governance dimensions being significant, thereby providing further evidence of the importance of governance issues. Overall, the findings indicate that media coverage can shape investors’ risk perceptions, underscoring the need for firms to strategically address ESG concerns and highlighting the role of media oversight in promoting the effective adoption of ESG practices.