Cost of Capital Study 2021

The 16th edition of the Cost of Capital Study focuses on “Sustainability vs. Return – ESG as a key driver for long-term performance?”. Among other things, it examines the influence of sustainability requirements on business models, corporate developments and on long-term return expectations (cost of capital) based on sector specific analyses.

After last year’s decline in the weighted average cost of capital (WACC) to 6.6%, the WACC remained constant across all industries in this years’ study. This development however contradicts to the heterogeneous WACC development within the individual sectors.

While about a third of industries reported a decline in the WACC, other industries experienced an increase. The highest WACC was observed in the Technology (8.9%), Automotive (7.6%) and Industrial manufacturing (7.5%) sectors and concerns industries where regulatory and political risks and technology-driven changes fundamentally impact business models.

The sharpest rise compared to the prior year was observed in the Technology sector (plus 1.2 percentage points). The greatest decline in the cost of capital was observed in the Transport and Leisure (-0.7 percentage points), Consumer Markets (-0.6 percentage points) and Energy and Natural Resources (-0.4 percentage points) sectors. 

ESG-driven changes have already found their way into so many aspects of companies’ business activities today. In some cases, these changes even caused disruption to existing business models.

Based on the chosen motto “Sustainability vs. Return – ESG as a key driver for long-term performance?”, the study also focuses on the following subjects:

• What are the key changes in ESG reporting?
• How do ESG requirements impact valuations in the consumer markets sector?
• How can good decisions be made in the ESG environment?

The vast majority of survey participants consider ESG issues to be relevant on their future business development. However, what significance is ultimately attributed to ESG varies from industry to industry. In general, resource-intensive industries and those where environmental issues play a key role are more sensitive to challenges/requirements posed by ESG-related factors.

The response rate of companies underlines the practical relevance of our annual Cost of Capital Study. In total, with 332 participating companies, the number of study participants increased compared to the previous year (previous year: 309) and attained, once again, a new record level. Of the participating companies, 243 are based in Germany, including 83% of the DAX companies.