<p>We investigate whether and how exclusions by the Norwegian Government Pension Fund Global (NGPF-G), the world’s largest sovereign wealth fund (SWF), affect the excluded firms’ cost of equity capital. We find that exclusions by the NGPF-G are priced and are associated with a higher cost of equity compared to a matched sample of firms that are still in the SWF’s portfolio as well as firms from the same country as the excluded firm. Norm-based exclusions elicit a greater increase in the cost of equity than sector-based exclusions. Also, the effect is stronger for firms that were recently excluded from the NGPF-G portfolio than for those excluded earlier. We identify illiquidity as the main channel through which the exclusions affect firms’ cost of equity capital. Excluded firms experience a significant decrease in institutional holdings and fewer analysts cover them. These changes lead to higher illiquidity, which affects the cost of equity capital. The higher cost of capital leads to a decrease in firm value after the exclusion. Further analysis shows that the drop in firm value is caused in part by the increase in the cost of equity; thus, being dropped from the NGPF-G portfolio due to ESG concerns bodes ill for the excluded firms. This paper was completed while the corresponding author was visiting the American University of Sharjah.</p>