We study whether net zero transition (NZT) affects loan pricing in the energy and utilities sectors of the loan market. We find that firms with higher levels of overall NZT disclosure experience lower cost of debt in the loan market, controlling for loan-specific and firm financial characteristics. This association is much more pronounced in Europe than in North America and other emerging markets. We also identify relevant NZT actions contributing to such a relation. Firms disclosing clear emission reduction targets which align with the Paris Agreement enjoy lower loan spreads. Additionally, environmental R&D expenditure and improved energy efficiency policies are associated with lower loan spreads. Moreover, effective governance actions, such as environmental management training and ESG-linked executive compensation, reduce climate risks and loan spreads.

This paper is part of CGFI’s Net Zero Transition Plans research with Oxford Sustainable Finance Group.