Investors for Paris Compliance executive director Matt Price notes other regulators around the world already require adherence to standardized climate reporting frameworks.Chad Hipolito/The Globe and Mail
Carbon-intensive industries pay significantly higher interest rates on their bonds than sectors with comparably lower emissions, a new study from York University’s Schulich School of Business has found.
The study, which was partially funded by the climate advocacy group Investors for Paris Compliance (I4PC), also found that once other factors such as credit ratings and bond maturity were controlled for, rates were not notably different among individual companies within carbon-intensive industries such as energy.
In a letter to be sent Friday to the Canadian Securities Administrators, I4PC warned treating all players within a given sector to be environmentally the same could result in overallocation of capital to higher-emitting firms – with the implication that lower-emitting firms get little benefit for their actions. The letter urged the umbrella group for Canada’s market watchdogs to resume working on mandatory climate disclosure rules.
“Inadequate disclosure of climate-related risks can leave the bond market exposed to systemic vulnerabilities with investors unable to reliably price transition risk,” I4PC executive director Matt Price wrote in the letter. “This creates the potential for abrupt shocks across the corporate bond market when climate-related risks materialize.”
The study analyzed roughly 5,800 corporate bonds primarily issued by Canadian companies between 2000 and 2025. After controlling for other factors such as credit ratings and bond maturity timelines, the results showed “certain sectors, particularly energy, industrials and materials, are associated with significantly higher coupon rates.”
Within the energy sector in particular, the study found emissions of individual companies did not have any significant impact on their coupon rates, which broadly refer to the amount of interest companies pay on their bonds. Higher coupon rates effectively translate to higher borrowing costs.
“This may indicate that investors treat firms within the sector relatively similarly with respect to environmental risk, or that the market assumes broadly comparable transition risks across energy companies,” the study said.
The study pointed to the lack of standardized environmental reporting requirements as a likely reason why investors are not distinguishing between individual companies within certain sectors.
“Without consistent reporting on emissions, transition strategies, and climate risks, investors may rely primarily on sector classifications rather than on detailed, company-specific environmental performance.”
Olaf Weber, a Schulich professor who is also the CIBC chair in sustainable finance, conducted the study with MBA student Gandharv Malhotra. Dr. Weber said applying sector-wide assumptions to all energy producers limits the incentive those companies have to improve their environmental performance.
“You cannot say that overall you might get a lower interest rate or something like that because you are doing better with regard to carbon emissions,” he said. “Someone who is performing well is kind of underrated.”
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Dr. Weber and Mr. Malhotra wrote that “regulatory initiatives such as sustainable finance taxonomies, climate-related disclosure requirements, and transition planning frameworks could help financial markets better differentiate between firms with high transition risks and those actively reducing their emissions.”
In April, 2025, the CSA paused its work on developing a new mandatory climate-related disclosure rule that Mr. Price wrote “would have furnished Canadian investors with more reliable issuer-level emissions data.”
“This leaves a patchwork of voluntary disclosures of varying quality for investors to muddle through, thereby unable to reliably assess climate risk at the issuer level.”
Mr. Price noted other regulators around the world, such as the European Securities and Markets Authority, already require adherence to standardized climate reporting frameworks. In January, the U.K.’s Financial Conduct Authority launched a consultation on proposed mandatory climate disclosure rules that could take effect as soon as 2027.
The Schulich study concluded “the integration of climate risk into bond pricing remains incomplete.”
Resuming work on mandatory climate disclosure rules in Canada “could improve risk management and enable investors to identify firms better positioned for the low-carbon transition,” the study said.
“In addition, the limited pricing of carbon emissions observed in this study may signal a potential climate risk mispricing in debt markets. If transition policies, technological shifts, or physical climate risks accelerate, bonds issued by high-emission firms could face sudden repricing.”