Four risk and regulation trends that will define 2026

Predicting the risk and regulatory landscape for 2026 is a tall order. Climate policy, economic strategy, and geopolitics are all moving at once, and not always in the same direction.

Still, after more than a decade working on climate risk and sustainable finance with governments, regulators, and financial institutions, I see a few patterns that are becoming clear. This is not a year of bold new commitments. It is a year when our climate reality will be colliding with political, economic, and market forces.

Four trends stand out.

1. Climate regulation is shifting from ambition to implementation, with far more attention on how rules are applied than on how many new ones are announced.
2. International climate action remains fragmented, but it has not stalled; it is simply taking different forms.
3. The financial costs of climate impacts, particularly through insurance and disaster recovery, are rising quickly and are starting to shape policy choices.
4. For central banks and supervisors, climate risk is increasingly part of a broader debate about financial stability.

In what follows, I set out how these dynamics are likely to play out in 2026, and what they mean for companies, governments, and financial institutions that need to make decisions in a world where uncertainty is structural.

More clarity this year from policymakers

The past year was seen as a retreat on climate regulation. In the US, the return of Donald Trump to the White House brought a sharp federal pullback. In Europe, the Omnibus negotiations signalled a clear political desire to slow the pace and complexity of sustainability regulation. Elsewhere, elections in countries such as Canada and Australia pointed in the opposite direction, reinforcing how uneven the global picture has become.

But taken together, these developments do not add up to regulatory collapse. They point to something more prosaic and, for many firms, more consequential: a shift from rule-making to rule-living.

By 2026, the focus will be less on new frameworks and more on how existing ones are interpreted, enforced, and embedded. Reporting requirements that have spent years in consultation are now being tested against operational reality. For companies and financial institutions, the question is no longer what might be required in theory, but what will actually be scrutinised in practice.

This is true even in the United States. While federal ambition has faded, climate policy has not disappeared. State-level action continues to fill some of the gap, with California setting expectations that often ripple well beyond its borders. For firms operating across multiple states, regulatory exposure increasingly depends on geography as much as headline national policy.

In Europe, the direction is clearer still. The centre of gravity is moving from expansion to implementation. The forthcoming review of the Sustainable Finance Disclosure Regulation is widely expected to prioritise simplification and usability over broader scope. That reflects a political reality: regulators want rules that can be enforced and relied upon, not frameworks that overwhelm both supervisors and markets.

Perhaps most importantly, regulatory momentum is no longer concentrated in the transatlantic space. Across Asia and the Middle East, governments are quietly advancing climate reporting and risk assessment requirements, often with a strong emphasis on financial materiality. New sustainability disclosure guidance in China, similar moves in Japan, and growing emissions reporting requirements across Gulf states are already shaping capital allocation decisions.

The result is not global convergence, but global coverage. For international firms, 2026 is likely to bring fewer surprises, but less room to ignore climate risk on the grounds of regulatory uncertainty.

Economics leads even when politics flag

Climate action remains fragmented heading into 2026. The global effort to map a pathway away from fossil fuels has not yet translated into a clear, shared timetable, and expectations entering COP30 remain unmet. In Europe, even long-standing initiatives such as the EU’s deforestation regulation were softened under political pressure.

Much of this reflects a wider pushback against climate cooperation, particularly from the United States. The Trump administration’s antipathy toward multilateral institutions has had a chilling effect on global diplomacy. But it would be a mistake to conclude from this that cooperation is collapsing.

Traditional, US-led multilateralism is indeed weaker than it was. In its place, regional and bilateral arrangements are playing a larger role. European countries continue to align closely around shared policy objectives. In Asia, cooperation is becoming more pragmatic and transactional, with countries such as China and South Korea deepening collaboration on energy and environmental priorities. The architecture is messier, but it is not empty.

Public opinion continues to add pressure from below. Climate change remains a high-salience issue in most countries, particularly among younger voters. That does not translate neatly into policy outcomes, but it does shape the political envelope within which decisions are made. As climate impacts increasingly show up in health costs, job disruption, and insurance losses, it becomes harder for governments to treat environmental degradation as a secondary concern.

Still, the strongest driver of climate action in 2026 is unlikely to be diplomacy. It will be economics.

Trade policy, border measures, industrial strategy, and carbon pricing are where the transition is now being contested. Markets are moving faster than politics, and in some cases are forcing political choices rather than waiting for them. Nowhere is this clearer than in China’s electric vehicle industry. Chinese EV production is expanding at roughly 30 per cent year-on-year, creating jobs and reshaping global supply chains. In the United States, growth is closer to 5 per cent.

This matters because it shows how the transition is increasingly being driven by competitiveness rather than consensus. Investment, cost curves, and market share are doing what international negotiations have struggled to deliver. For governments and firms alike, the implication is clear: climate action is no longer primarily a diplomatic project. It is an economic one, unfolding on a faster and less forgiving timetable than many policymakers would prefer.

Insurance markets are feeling the strain

This brings the discussion from policy and markets back to the physical world, where climate risk is no longer abstract. Global temperatures are now hovering around 1.5°C above pre-industrial levels, and the strain on natural systems is increasingly visible. Heat, floods, wildfires, and storms are becoming more frequent and more damaging, and the consequences are no longer confined to environmental metrics.

The point at which these physical risks most clearly translate into financial stress is the insurance sector. In disaster-prone regions, insurance premiums are rising far faster than underlying asset values, and far faster than household or business incomes. In some cases, coverage is becoming unaffordable. In others, it is simply disappearing.

Yet even now, many climate risks remain underpriced. Insurance models have long relied on historical loss data and assumptions of stationarity that no longer hold. At the same time, markets have been supported by an implicit belief that governments will step in when losses become too large, through disaster relief, public insurance schemes, or ad-hoc bailouts. That assumption has helped keep coverage available, but it is increasingly fragile.

As losses mount, insurers are retreating from high-risk areas, tightening terms, or withdrawing altogether. This is not just a problem for homeowners. Insurance availability underpins mortgage markets, commercial lending, infrastructure investment, and municipal finance. When coverage becomes uncertain, the effects ripple quickly through the broader economy.

For governments, the fiscal implications are growing. Public backstops are costly, politically sensitive, and unevenly applied. As climate impacts intensify, the gap between insured losses and economic losses is widening, pushing more risk onto public balance sheets. At the same time, fiscal space is already constrained in many countries.

The risk is that insurance stress becomes systemic. Not because insurers themselves fail, but because the withdrawal or repricing of coverage reshapes where people live, where businesses invest, and how capital is allocated. In that sense, insurance is no longer just a financial product. It is an early warning system for how climate risk is colliding with economic reality, and a signal that the costs of delay are starting to materialise.

Climate risks remain financial risks

In 2026, financial regulators are concerned about geopolitical fragmentation, AI-driven asset bubbles, and vulnerabilities in private credit markets alongside rising climate risk. Climate risk acts as a multiplier to other risks. Physical impacts disrupt trade routes, strain critical infrastructure, and reshape access to key resources. Transition dynamics are changing investment flows, commodity prices, and industrial competitiveness. In a world already marked by geopolitical tension, these effects are increasingly visible, whether through pressures on food systems, energy security, or global shipping.

Regulators are responding accordingly. Climate risk assessment is moving beyond a narrow focus on asset damage or infrastructure exposure. Central banks are paying closer attention to second-order effects: business interruption, supply-chain disruption, regional economic decline, and the knock-on effects these have on employment, tax revenues, and sovereign balance sheets.

This shift is already evident in supervisory practice. A growing number of central banks are testing how climate and nature-related risks propagate through financial systems, particularly in economies where exposure to weather, agriculture, or natural capital is high. Recent pilot exercises by African central banks on nature-related financial risks are a case in point. Insurance markets, as discussed above, are also drawing increased scrutiny, given their role in transmitting physical risk into credit and fiscal stress.

The implication for 2026 is clear. Climate risk is no longer a specialised sustainability issue to be managed at the margins. It is becoming a core consideration in macroprudential oversight, stress testing, and financial supervision. For banks, insurers, and investors, this means climate risk will increasingly shape capital requirements, risk management expectations, and supervisory dialogue, even as authorities juggle multiple sources of instability at once.

Taken together, these trends point to a shift in how climate risk is shaping the global economy. The period of rapid framework-building is largely over. What lies ahead is a more demanding period, where rules are implemented unevenly, market forces move faster than diplomacy, and the physical impacts of climate change increasingly collide with fiscal and financial realities.

In 2026, climate risk is no longer just part of future scenarios. It is a live variable interacting with geopolitics, technology, and financial fragility in real time.

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