The Impact of Sustainable Innovation on the Cost of Debt

This dissertation investigates the relationship between sustainable innovation and the cost of debt. Fixed Effect estimation are employed while using a sample of 747 unique firms owning sustainable patents in the European Union from 2003 until 2024. The initial analysis revealed that there is no direct relationship between sustainable innovation and the cost of debt. Further analysis by including additional sustainability measures showed that there is a positive association between sustainable innovation and the cost of debt. Conversely, there is a negative relationship between current sustainability performance and the cost of debt. The different relationship of sustainable innovation and sustainability performance with the cost of debt suggest that lenders prioritize current sustainability efforts over future-oriented ones. Additional analysis highlights that the relationship remains to exist over time, and that bigger firms, more leveraged firms and firms who are able to cover their debt obligations better are perceived as less risky and are expected to benefit from investments in sustainable innovation. This study contributes to the sustainable finance literature as it explains the effects of sustainable innovation on financing costs.