Do carbon emissions increase borrowing costs? Evidence from Indonesian SOEs

Richa Angelia Selbi; Doddy Setiawan

doi:10.22437/ppd.v14i1.52756

Authors

Richa Angelia Selbi Department of Accounting, Faculty of Economics and Business, Universitas Sebelas Maret, Indonesia
Doddy Setiawan Department of Accounting, Faculty of Economics and Business, Universitas Sebelas Maret, Indonesia

DOI:

https://doi.org/10.22437/ppd.v14i1.52756

Keywords:

Carbon emissions, Cost of debt, Environment, SOEs

Abstract

Climate-related risks have become increasingly relevant in corporate financing decisions. Yet, empirical evidence on how carbon emissions affect borrowing costs in state-owned enterprises (SOEs), particularly in developing countries, remains limited. In this study, borrowing costs are proxied by the cost of debt. This study analyzes the effect of carbon dioxide (CO₂) emissions on the cost of debt of Indonesian SOEs listed on the Indonesia Stock Exchange during the 2015–2024 period. Using a quantitative approach, the study employs firm-level data from LSEG Refinitiv and estimates fixed-effects panel-data regressions with clustered standard errors at the firm level. Robustness tests are conducted through winsorization and lagged independent variables. The results show that CO₂ emissions have a positive and significant effect on the cost of debt, indicating that creditors consider environmental risk when setting borrowing costs, even for state-owned firms. This relationship remains consistent in the winsorized specification, although the lagged emission variable is not statistically significant. The findings support the risk-based pricing, signaling, and legitimacy perspectives by showing that carbon emissions function as a relevant financial risk signal in debt markets. This study contributes to the sustainable finance literature by providing evidence from Indonesian SOEs, a context that remains underexplored in prior studies. In practice, the results imply that SOEs need to strengthen carbon-emission management, environmental governance, and transparency in disclosure to maintain more efficient access to debt financing.

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