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As we approach year-end, the familiar ritual of reflection begins. But 2025 felt different. Geopolitics were reigning supreme. Regionalisation was in full swing, with United States reversing on climate, while rest of the world keeping direction and Asia pushing steadily ahead. Markets recalibrated to political shifts, investors hesitated, and momentum stalled. Yet beneath this surface paralysis, critical work continued. These are some of the big issues we focussed on in 2025.
The Reality Check: Why Resilience Can’t Wait
We began the year asking a fundamental question: how do we build investment portfolios that can withstand physical climate risks? Not climate scenarios decades away, but the floods, droughts, and extreme weather already reshaping economies today.
Through our work with the Investment Leaders Group, we developed practical guidance breaking down what needs to happen at each stage of the investment process for listed equity and debt. The systemic nature of physical climate risk demands systemic risk management—a two-fold approach where private capital both makes portfolios resilient and actively invests in strengthening the broader ecosystem.
We closed the year reiterating this need for stronger systemic risk governance via our work with ClimateWise. We showed in this report that current risk frameworks are struggling to keep up with the fast-changing, cross-sector nature of climate risks, so we need stronger, coordinated action across the whole system to improve overall risk governance.
Retrofit: Where Theory Meets Reality
Take UK housing as a concrete example. The nation’s housing stock accounts for 12% of its greenhouse gas emissions, with 84% of households still using gas or oil for heating. Most homes that will exist in 2050 have already been built. The urgency of a national retrofit programme couldn’t be clearer.
Banks hold £1.16 trillion in mortgage portfolios exposed to rising climate and transition risks. Properties with poor energy performance face higher default risk and devaluation in a changing climate. Yet retrofit remains treated as a cost rather than a strategic investment.
The opportunity is to reframe retrofit as what it actually is: an integrated investment delivering climate mitigation, adaptation, improved public health, and financial resilience. Banks could embed retrofit into lending processes through risk-adjusted pricing that rewards improvement and integrate retrofit finance into home purchases.
Insurers face increasing claims from climate-related damages threatening long-term insurability. By recognizing adaptation measures in underwriting models and developing resilience-focused products, they can reduce losses while supporting customer adaptation.
This requires coordinated effort across government and finance, underpinned by shared data, common standards, and aligned incentives as we set out in this report. Energy efficiency improvements today prevent future financial distress and lessen burdens on public systems—with direct implications for financial stability.
Nature Risk: From Abstract to Actionable
If society continues eroding nature-based services on which businesses depend, considering those dependencies becomes increasingly important in credit risk analysis. The transmission mechanism from nature loss to company financial strength is complex, but ignoring it is no longer viable.
Working with 3 banks based in Singapore – OCBC, DBS, and UOB, we examined nature risks in palm oil portfolios under hypothetical scenarios of nature loss in Indonesia and Malaysia triggered by intensified El Niño phenomena. The analysis revealed that upstream players were more sensitive to nature-related risks than integrated players, and companies with stronger financial positions showed greater resilience to short-term stress.
Unlocking Capital for Emerging Markets
Despite blended finance’s promise to mobilize private capital in emerging markets at scale, persistent risk perceptions and structural barriers continue hindering progress. Our practitioner-led research unpacked current risk perceptions and highlighted actionable pathways to unlock private investment.
The findings underscore the need for coordinated efforts improving data, market infrastructure, and policy alignment across the blended finance ecosystem. Real or perceived, risk perceptions shape capital flows—and addressing them requires systemic solutions.
Three Critical Shifts to Rewire Finance
Half way through the year we reflected on the reasons for the pause and the need for a readjustment in what we do and where we do it. Our paper “Rewiring Finance” identified three critical shifts required to deliver transformation:
First, industrial and financial policy must provide clear transition pathways. The current system isn’t incentivized to consider sustainability in financial decision-making. We need frameworks that explicitly reward transition finance and penalize inaction.
Second, we must shift narratives away from compliance and incrementalism toward value and transformation. Market sentiment about ‘finance as usual’ needs to change. This requires moving beyond box-ticking exercises to genuine competition on sustainability performance.
Third, core financial structures must embed sustainability into the models driving financial behaviour. This means pricing in the financial materiality of climate change, biodiversity loss, and inequality. It means creating standardized structures that solve risk and scale problems. And it means improving finance flows to emerging markets and developing economies.
What 2026 Demands
Within these shifts several priorities emerge clearly for the year ahead:
Insurability needs a framework. Climate signals hit insurance markets first and hardest. We need clear matrices defining what remains insurable and what doesn’t, alongside conceptual frameworks for managing this transition.
Banking portfolios need adaptation and resilience strategies, particularly for infrastructure and agriculture exposures. These sectors face acute physical risks that directly impact loan performance.
Nature-related finance requires acceleration ahead of COP17. The analytical frameworks exist; now we need implementation at scale.
Risk perceptions need systematic examination. Capital won’t flow where perceived risks—whether accurate or not—remain unaddressed.
Social issues need financial materiality analysis, specifically examining sectoral materiality in investment portfolios. Climate and nature don’t exist in isolation from social equity and justice.
Moving Beyond the Recalibration
2025 was the year of recalibration. The question for 2026 is whether we emerge with renewed momentum or continued hesitation. The evidence is clear: physical climate risks, nature dependencies, and social factors directly impact returns, stability, and long-term value.
We have the frameworks, the data is improving, and early movers are demonstrating viability. What we need is coordinated action—from policymakers providing clear signals, from financial institutions embedding sustainability into core processes, and from investors demanding genuine transformation rather than incremental adjustments.
2026 won’t wait for perfect solutions. It demands pragmatic progress on the critical pathways already identified. The pause is ending. The question is whether we’re ready to move forward with the urgency the moment demands.