Do Scope 3 Carbon Emissions Impact Firms' Cost of Debt?

Do credit markets reward companies for disclosing scope 3 emissions?

Ahyan Panjwani, Lionel Melin, and Benoit Mercereau examine how carbon emissions disclosure affects lending costs in their paper "Do Scope 3 Carbon Emissions Impact Firms' Cost of Debt?"

They analyse 2,720 companies from the MSCI ACWI between 2015 and 2020, combining emissions data from the CDP and Trucost with credit variables from Refinitiv.

Their main conclusions include:

• Companies disclosing scope 3 emissions borrow at a lower cost, with an average disclosure premium of ~0.2% on their long-term credit spread even when their direct emissions are high.
• The premium is strongest in Europe and Asia Pacific, at roughly 0.18% and 0.74%, and it began appearing in North American credit markets only from 2019 onward.
• Credit markets penalise the level of scope 1 and 2 emissions, yet they do not charge companies more for reporting larger scope 3 figures.
• The discount concentrates in real estate (reaching about 0.47%), consumer staples, and consumer discretionary rather than in carbon-intensive sectors such as energy, materials, and utilities.
• Scope 3 data remains noisy: companies report figures for only 31% of the 17 subcategories on average in 2015, rising to ~40% by 2020. Downstream emissions are the least reliable.
• Energy, materials, and utilities companies do not disclose scope 3 more than other sectors despite being larger emitters, which leaves a clear opening for engagement.

This article shows scope 3 emissions disclosure carries a transparency premium allowing issuers to borrow about 0.2% cheaper, with no penalty for reporting larger numbers.

It raises the question of whether markets are pricing genuine transparency or rewarding advertising effort. Targeted engagement on downstream estimation could turn disclosure into a more meaningful climate signal.

The study focuses on voluntary disclosures from 2015 to 2020, so disclosing companies may differ from non-disclosers. Once reporting becomes mandatory, the signalling value of voluntary disclosure may fade.