The impact of sustainability reporting on the cost of capital: evidence from Vietnam's listed companies

PurposeThis study aims to investigate the relationship between sustainability reporting and the cost of capital among Vietnamese firms using the Global Reporting Initiative (GRI) standards.Design/methodology/approachUsing a sample of the 100 largest firms by market capitalisation listed on the Hanoi and Ho Chi Minh stock exchanges as of 31 December 2023, this study applies regression models to examine how sustainability disclosure influences the cost of debt (COD), cost of equity (COE) and the weighted average cost of capital (WACC) over the period from 2021 to 2023.FindingsThe findings indicate a significant negative relationship between sustainability disclosure and the COD, COE and WACC, with environmental-related sustainability development goals (SDGs) disclosures having the most substantial impact. These results highlight the critical role of transparency in reducing information asymmetry and agency costs, ultimately lowering the cost of capital.Research limitations/implicationsThis study extends stakeholder and signalling theories by demonstrating how sustainability disclosure affects both shareholders and creditors in a developing economy.Practical implicationsThis study provides actionable insights for corporate managers and financial institutions on how sustainable development practices can enhance access to capital at more favourable rates. Policymakers and banks are encouraged to implement green finance initiatives to promote sustainability further.Social implicationsAs Vietnam strives to combat climate change, this research underscores the importance of sustainable practices in building trust with investors and lenders.Originality/valueTo the best of the authors' knowledge, this study offers one of the first comprehensive examinations of the link between sustainability reporting and capital costs in Vietnam, offering important empirical evidence for academics and practitioners.