Companies that publish detailed plans for the climate transition typically benefit from lower borrowing costs than peers that do not, research commissioned by a task force of financial regulators has found.
The International Transition Plan Network found that between 2016 and 2023, listed companies that published fully fleshed-out plans for dealing with the impact of climate change and reducing their own contributions to global warming paid lower annual effective interest rates on their outstanding debts. These were on average 0.8 percentage points less than the borrowing costs of companies that did not publish such plans.
Analysts said investors might see such disclosures as a marker of better climate risk management and of a company being more reliable.
The research comes after years of backlash against investment focused on environmental, social and governance standards, especially in the US, as investors questioned whether avoiding fossil fuels or promoting positive climate impacts improved investment performance.
“The economic rationale . . . is that if you are showing investors that you are serious about global warming, you are more likely to be fit to live in a world in 10 or 20 years’ time, when [climate] regulation will be much more stringent,” said Simone Varotto, professor of finance at the University of Reading. “It makes you fitter to survive in the future.”
Transition plans can include net zero targets, explanations of the risks and opportunities arising from the green transition, evidence of policy engagements and measures of CO₂ emissions, for example.
Regulators in the EU and UK have developed transition plan frameworks for companies without making the publication of a plan mandatory. The European Central Bank has said it plans to run “targeted supervisory exercises” on banks’ prudential transition planning as one of its regulatory priorities over the next two years.
The research on borrowing costs was prepared by advisory firm SCS Consulting Services, reviewed by experts at Oxford university and commissioned by the ITPN, whose members include policymakers, regulators and other officials from countries including the UK, Japan, Brazil and Australia.
The research looked at the performance and disclosures of almost 8,000 companies around the world, controlled for size, sector and region. Alongside the apparent impact on borrowing costs, it found disclosure of climate transition plans had no significant impact on profits or stock performance.
One drawback to the research, some analysts said, was that it did not separate borrowing costs by type of debt.
Academics have previously found that the so-called greenium — whereby more climate-friendly companies can access cheaper capital through bond markets — is small and can fluctuate in line with political appetite for acting on climate change.
Additionally, Nicola Ranger, a professor focused on sustainable finance at the London School of Economics, said it was “uncertain” whether disclosures had caused lower borrowing costs. The findings might partly reflect reporting capacity and transparency, which were likely to correlate with management quality, she said.
However, Ulf Erlandsson, a senior credit portfolio manager at Swedish national pension fund AP4 and founder of the Anthropocene Fixed Income Institute, a non-profit focused on the climate impacts of fixed-income investing, said the findings reflected his own research on investor preference for bond issuers with lower CO₂ emissions.
“The study’s results corroborate what we are finding empirically in trading strategies,” he said.
The link between transition plans and borrowing costs in the ITPN study was strongest among companies in financial services and real estate in developed economies and in healthcare in developing economies.
Ulrich Volz, director of the Centre for Sustainable Finance at Soas University of London, said the ITPN report showed what he hoped would happen in future but may not be happening in markets at the moment. Oil company stocks, for instance, have performed strongly this year.
“We haven’t really seen that markets have rewarded companies that take a more sustainable approach,” he said.
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