Emissions disclosure brings better loans

3rd September 2015

Sustainable businesses benefit from a significantly lower cost of capital, according to academics.

A study by Maastricht University and the University of Oxford looked at whether firms that choose to voluntarily disclose their CO2 emissions enjoy more favourable lending conditions.

Researchers compared environmental reporting data from the CDP (formerly the Carbon Disclosure Project) with company loan information from the Thomson Reuters database Dealscan for businesses in 87 countries. The analysis found that transparent businesses are given more favourable interest rates than those that fail to disclose.

Companies borrowing money and which fully disclosed their emissions to the CDP were given an average loan spread of 179.7 basis points (bps), the academics found. This compared with average loan spreads of 214.4bps for firms that disclosed some, but not all, information; 224.7bps for companies that did not respond to the CDP’s survey; and average spreads of 235.6bps for those that declined to participate. Firms that provide full disclosure save $1.5 million a year on average in interest costs, the study found.

The research also considered the impact of emissions by companies on borrowing costs. This found only a weak link between scope 1, or direct, CO2 emissions and the cost of loans. However, signatories to the CDP from the finance sector imposed higher interest rates on companies with high CO2 emissions.

The researchers studied 1,029 loans and found that a 1% increase in scope 1 CO2 emissions resulted in an increase of $1.3 million a year in interest costs. Firms can make substantial cash savings by limiting their CO2 emissions relative to industry peers if they borrow from investors that have signed up to the CDP, the study concluded.

James Hulse, CDP’s head of investor initiatives, said: “This study examines a vital and hitherto missing component, which implies that investors are directly favouring lower-emitting companies with access to cheaper finance.”


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