Human Capital Disclosure and the Cost of Capital: The Role of Financial Materiality in Corporate Sustainability

Despite growing regulatory and investor attention to human capital as a core pillar of corporate sustainability and ESG reporting, it remains unclear how human capital-related information is priced in financial markets. This study examines the associations between human capital disclosure, management practices, and firms’ financing costs. Using a global panel of 1180 non-financial firms across 53 countries from 2017 to 2023, we employ Bloomberg ESG data to construct measures of human capital disclosure, management practices, and materiality. Panel regression analyses indicate that while human capital management practices exhibit no significant standalone associations, human capital disclosure is positively associated with the cost of equity, cost of debt, and the weighted average cost of capital. However, we document a significant complementary effect: when coupled with strong management practices, disclosure is associated with a lower cost of equity, particularly in contexts where human capital is financially material. Furthermore, the positive association between disclosure and capital costs becomes weaker as human capital materiality increases. Overall, our findings suggest that capital markets do not uniformly price human capital information; rather, its valuation is highly conditional, depending on the substantive credibility of management practices and contextual materiality.