Integrating ESG into Enterprise Risk Management and Its Implications for the Cost of Capital: A Governance-and-Risk Blueprint for Firms in Emerging Markets

Abstract

Investors increasingly treat environmental, social, and governance (ESG) exposures as financially material drivers of cash-flow volatility, downside tail risk, and estimation uncertainty. This paper develops an implementable governance-and-risk blueprint that integrates ESG into enterprise risk management (ERM) and clarifies how integration quality can influence the cost of capital. Anchored in the COSO ERM framework and the COSO–WBCSD guidance for applying ERM to ESG-related risks, the study maps ESG risk identification, risk appetite calibration, control design, assurance readiness, and disclosure governance into a coherent operating model. The blueprint is contextualised within tightening disclosure regimes, including the EU Corporate Sustainability Reporting Directive (CSRD) and the IFRS Sustainability Disclosure Standards (IFRS S1/S2), which increase the consequences of weak data lineage and inconsistent metrics. Using a structured scenario illustration, we translate ESG–ERM maturity into indicative reductions in cost-of-equity and debt spread components via three channels: risk reduction, transparency, and regulatory/stakeholder compliance. Results show that credible ESG–ERM integration is most likely to reduce financing frictions where controls are auditable, metrics are decision-useful, and disclosures are consistent across management reporting and external statements. A phased implementation roadmap and control matrix are provided for emerging-market firms with heterogeneous data maturity.