Exploring the Impacts of ESG Disclosure on Corporate Financing Constraints: A Perspective of Classifying Corporate Carbon Emissions

ABSTRACT Global financial markets are gradually paying attention to the roles played by corporations in environmental protection, social responsibility, and internal governance; thus, the transparency of Environmental, Social, and Governance (ESG) information has become increasingly significant. Meanwhile, transparency is a crucial driver for firms seeking sustainable competitive advantages and lower financing costs. Therefore, it is crucial to examine the relationship between ESG disclosure and financing constraints in order to foster a sustainable financial ecosystem. This study employs a panel regression model to analyze the relationship between ESG disclosure and financing constraints, drawing on a dataset of 756 companies listed on the Hong Kong Stock Exchange (HKSE) from 2012 to 2022. We use ESG ratings and the respective dimensions of Environment, Social Responsibility, and Governance as explanatory variables, alongside corporate financing constraints. The findings indicate a significant inverse relationship between ESG disclosure and the financing constraints faced by Hong Kong‐listed firms. Enhanced ESG disclosure is shown to be beneficial in reducing financing constraints, thereby enabling companies to attract more investment, secure credit from financial institutions, and obtain supply chain financing. Further, by categorizing the sampled companies into low, medium, and high emission industries and examining the ESG disclosure‐finance relationship across varying emission and pollution levels, we find that the inverse relationship is more pronounced for high‐emission companies. This suggests that investors place greater emphasis on ESG disclosures within high‐pollution industries and that ESG transparency plays a more substantial role in alleviating financing constraints for these firms.