<p>Financial markets play a pivotal role in steering economies toward environmental sustainability. A crucial question in this context is how investors evaluate environmental performance and how these assessments influence the cost of capital. Although extensive research has explored the relationship between environmental performance, disclosure, and the cost of equity, studies examining the impact on the cost of debt are comparatively fewer and more fragmented. In this regard, a comprehensive synthesis of this research landscape is lacking. To address this gap, this study systematically reviews 64 empirical studies published between 2010 and 2024, offering a cohesive analysis of how environmental performance and its disclosure influence the cost of debt. Our review explores geographical and temporal patterns in the data, investigates potential biases related to variable selection, addresses moderating and mediating relationships and works out the different approaches used for addressing endogeneity in the empirical models. We identify key drivers linking environmental performance to the cost of debt and reveal that, although most studies indicate a negative relationship between environmental factors and the cost of debt, the strength of this effect varies considerably. Building on the synthesized empirical evidence, we propose a conceptual model that clarifies the underlying mechanisms between environmental performance and the cost of debt, providing a foundation for a future research agenda.</p>