What if climate transition planning could help reduce a company’s cost of debt? New research published by the International Transition Plan Network (ITPN), an initiative hosted by E3G, suggests transition planning may deliver a very practical financial benefit: lower borrowing costs.
The ITPN’s latest report, The Debt Discount: A study evaluating the financial track record of companies with private sector transition plans, provides some of the strongest evidence to date that lenders reward companies that plan and communicate how they will manage the transition to a low-carbon and climate-resilient economy.
Drawing on data from nearly 8,000 companies worldwide and analysing more than 3,300 publicly listed companies that disclosed elements of a transition plan between 2016 and 2024, the study found a clear relationship between transition planning and the cost of debt.
The headline finding is significant: companies that disclosed a complete transition plan experienced an average 80 basis point reduction in borrowing costs on debt compared with those disclosing limited or no transition planning information. This equates to an 11.7% relative reduction in the average annual interest rate paid on outstanding debt.
For companies operating in an uncertain economic environment, these savings can be substantial. For the company with the median level of debt in the study, the 80 bps reduction equates to approximately US$10 million in annual interest savings.
Start now, build over time
One of the findings from the research is that organisations do not need a perfect transition plan from day one. The study found that for every 1% increase in transition plan completeness, companies reduced their cost of debt by an average of 0.15%. Companies can start with a partial plan and strengthen it over time, rather than waiting until every element is in place.
Investors and lenders are looking beyond disclosure
The research also shows that financial markets are paying attention to more than the existence of a transition plan. Companies that demonstrated progress towards their transition commitments saw additional benefits.
For example, companies whose emissions reduction targets were demonstrably on track performed better than the wider stock market with a 58.2 basis point higher stock alpha in the year after disclosure, rising to 157.7 bps in emerging markets. Companies with the highest transition-aligned financial metrics show stronger share price growth over the broader market in the following year (a one-year-ahead stock alpha bump of 153.4 bps).
A growing opportunity for policymakers
More companies can benefit from these savings if governments put in place the policies and requirements to boost credible transition planning. 46 jurisdictions are adopting the IFRS S2 climate disclosure standard, which requires companies that have transition plans to disclose baseline information, while some jurisdictions – including the EU and Japan – have introduced more extensive mandatory requirements.
As approaches continue to evolve globally, policymakers have an opportunity to strengthen corporate resilience to climate risk and help more companies realise the potential financial benefits of transition planning.
Building the business case for transition plans
Transition planning is often discussed in terms of risk management, regulatory expectations, and climate goals. While these remain important drivers, ITPN’s research highlights another compelling reason for action.
The evidence suggests that companies with more complete transition plans are viewed more favourably by lenders and investors, translating into tangible financial benefits. Importantly, the study found no statistically significant long-term negative impact on profitability from transition plan disclosure, indicating that any upfront investment is not undermining business performance.
For businesses weighing the costs and benefits of transition planning, the message is increasingly clear: transition plans are not just a climate strategy. They are part of good practice business strategy, and may offer a financial advantage.
Read the full report
The ITPN, hosted by E3G, is a network of over 40 public sector organisations globally, focused on private sector transition planning. Read more about the ITPN here.
