Sean Kidney lays out 4 things to know about where we are ... and 5 to expect in 2026
The New Year is a time to check in on how our world is going.
Ten years ago, when the Paris Agreement was signed, there were only USD100m in green and sustainable bonds outstanding globally. Today it’s more than USD6tn, with demand remaining strong.
Where we are
1. Where are we? Well, we are still hurtling toward disaster
We are way behind on emission reduction pathways.
In 2025 it looks like total global emissions were roughly the same as 2024. That’s a small win, but they need to be reducing 8-10% p.a. to meet climate goals. And fossil fuel emissions went up 1.1%; it’s just that land-use emissions were down, partly because of the ending of El Niño.
And we have discovered that a major short-term pollutant – methane – is much more of a problem than we had expected. US ‘natural’ gas, for example, has been booming, but we now find that its life cycle emissions may be worse than coal-fired power; so, while we’ve been shouting “we’re transitioning,” we have in fact been going backwards. Aaargh!
Our lack of progress on emissions reduction means that temperatures have been rising rapidly. We have now breached the 1.5°C threshold that scientists have been pressing us to have as an outer limit, and we're experiencing increasingly severe heatwaves, storms, and floods around the world. This is now going to get progressively worse for the foreseeable future, with disastrous impacts unless we rapidly prepare and adapt.
In the meantime, biodiversity collapse continues apace, with scientists talking of millions of species at risk of disappearing on land and in the seas, on top of what has already gone. One sobering statistic from the animal kingdom: domesticated animals comprise 60% of the world's mammalian biomass, humans account for 34%, leaving only 6% for wild animals — a share that continues to decline.
The challenges we face remain severe. But there is progress.
2. Yet, we have won the energy argument. A big win!
Despite the grim state of things, we are making progress. The impact of efforts to date has been to lower what is the expected maximum level of warming to around 3.5°C. We have “bent the curve”.
That’s largely due to changes in energy use. In 2024, according to the International Energy Agency, over 90% of all investment in electricity generation was for clean energy.
I’d call that a slam dunk.
Solar power costs continue to fall by up to 20% annually, thanks primarily to the production cost reductions driven by China's massive renewable energy deployment — motivated as much by energy security as environmental commitment.
Solar is now cheaper, easier, and faster to deploy across markets from Africa to SE Asia. And, as predicted by our friends at Carbon Tracker, it’s creating piles of stranded assets, like the coal-fired power stations now losing money in Pakistan.
Wind energy, perhaps surprisingly, continues to drop in cost as well. And that includes floating offshore wind! Earlier this month, Japan started up its first floating offshore wind farm, with lots more in the planning (investment that will need a lot of green bonds).
Yes, we still need to shut down all the fossil fuel power generation on the planet – a vast task – and that will require speeding up the renewables roll-out. But let’s savour the energy win.
3. Electric car sales are surging, and mass transit is growing
That comes thanks again to a history of strong government support in China, where 50% of Chinese cars sold in 2024 were EVs. But this has now spread to emerging markets, with 26% of car sales in Pakistan being EVs, 60% in Ethiopia, 70% in Nepal, etc.
Given the resource and energy intensity of car manufacturing, substituting petrol and electric cars is not the perfect solution; but we are also on the cusp of a broader mobility revolution.The development that gets most attention is the meteoric rise of ride-hailing services (Uber, Didi, Ola, Grab, etc). Their huge growth in recent years has changed transport habits, with more to come with the imminent morph into driverless cars (already working in some Chinese and US cities). Privately owned cars are generally only driven 5% of the time; as shared vehicle services grow we should expect to see a lot fewer vehicles per capita, with higher utilisation rates; and more space in cities to turn over to cafes and small parks.
The development I find most compelling is with electric two-wheelers. In China they have become ubiquitous; in cities from Chennai to London they are also booming, especially for commuters. In a rapidly aging world, their ease of use is especially useful for older people.
But the development that is having the most impact is the growth of mass transit systems.
If you’ve ridden the subway networks of Tokyo or Shanghai or Delhi you’ll know what the future looks like in big cities. In the past 25 years subway development has been most incredible in China; Beijing, for example, had 54 kms of subways in 2000; it now has 879kms. But this now happening in other countries as well: Mumbai had no subways in 2000; it now has 80kms of them, with more coming this year.
Public capital for subway development in emerging markets like Bangladesh is scarce, but cities like Tokyo and Hong Kong have shown us how to finance mass transit without government subsidies, by using property development over new stations to finance the building of new lines. Expect every emerging market city to be beating a path to their doors.
4. Green and Sustainable bonds are now over USD6tn outstanding — and growing
The climate transition is capital-intensive! Decarbonisation and resilience both involve huge amounts of capital investment to build new kit, like solar farms or to retrofit what we have to make it future-fit, although operating costs are much lower. As well, we have to deliver on economic opportunities for citizens (for example, did you know that in India a million young people join the workforce every month?). To make all this happen we will need to see more than USD10tn a year flowing to climate solution investments.
Capital availability is not the issue. Global investment pools have expanded profoundly over the last 50 years, with the total value of global financial wealth increasing from tens of trillions to over USD305tn by 2024. Immense! It’s just that those pools are not always in the right places.
Except in one area. Ten years ago, when the Paris Agreement was signed, there were only USD100m in green and sustainable bonds outstanding globally. Today it’s more than USD6tn, with demand remaining strong and issuers reaping the rewards.
In a report we published at COP30 we found that, based solely on bonds expected from existing issuers, the next 10 years should see USD17.8tn in global issuance. I.e. that’s without accounting for new issuers, and they continue to appear.
Investors will choose green when given a good chance.
What to expect in 2026
1. Transition finance is building up a head of steam
The idea of transition planning in industries like steel, cement and chemicals has become a norm, encouraged by shareholders and regulators in Japan, Europe and China. We’re now seeing the spread of credible transition plans.
For example, China's Hebei province has issued steel transition-finance guidance, supporting decarbonisation through 176 eligible technologies, including hydrogen-based production. As Hebei produces 11% of global steel, this guidance — which requires steel companies to develop transition plans — sets a powerful precedent. The same guidance requires that the steel companies develop a transition plan.
12 provinces in China, covering a population greater than the US and the EU combined, have now issued transition plans.
Japan’s government has made Green (industrial) Transformation into a major national programme. They’ve even set up a special “GX Acceleration” agency to invest in transition technologies and companies, and are issuing USD10bn of sovereign climate transition bonds each year to finance the programme. The programme still needs work in some places, but every country needs one of these. Japan is moving.
Change is in the air.
2. Resilience finance is growing
As the atmosphere warms, avoiding catastrophic climate change means emission reduction targets get tougher, not weaker. Simultaneously, consequence of past emissions growth have to be managed, including secondary effects on economies, societies, health and nature. They will get progressively more severe over the next 25 years.
We need to prepare.
We are fortunate: we now have unprecedented predictive capacity — the tools to anticipate and plan for rising climate impacts.
These tools are working. In places like Tokyo, for example, where an understanding of climate impacts has led to massive investments to improve resilience to increased rainfall, flooding and storm intensity. To finance that work, late last year Tokyo issued its first EUR300m (¥53bn) Climate Bonds Certified resilience bond; it was seven times oversubscribed!
Banks are starting down this road: last week Standard Chartered Bank issued its first green bond, with a big chunk of the proceeds going to finance climate resilience investments. This mixing of decarbonisation and resilience will be a major part of finance for climate action in the future.
3. Financing the boom in emerging market cities
Last November the UN Department of Economic and Social Affairs published research showing that nine of the world’s 10 largest cities are now in emerging markets. Jakarta has nearly 42 million people; Dhaka, the world’s second largest city, has 36.6 million.
Around the world, 33 cities now have more than 10 million people.
In some regions, like South Asia and Africa, overall populations are still growing. But the big issue is the rapid shift from rural communities to cities. The West went through this last century; for example, in the US, in 1900, 60% of people were rural dwellers; it’s now down to 20%. In emerging markets impacted by increasingly severe climate change, volatile weather will make life tougher for small farmers, accelerating the shift that’s already underway.
We need to plan for 80% of people to live in cities by 2050. And those cities will have to be fit for the sort of future we’re heading into.
For a start, they’ll have to be heat-resilient. Severe heat waves are going to become the norm. Large-scale urban tree planting helps, reducing ambient temperatures by up to 5°C, but we also need building designs and materials that will help keep us cool. And to go underground.
They’ll also have to be low-carbon, water-efficient, and denser.
Cities including Nairobi, Montreal, and Reykjavik already run 100% on clean electricity. Transport will be electric, from two-wheelers to ride-hailing to mass transport. Using property development over subway stations to pay for the vast number of subway lines needed will become the norm.
Cycles of drought and flood will become the norm, forcing us to better collect, use and recycle water. Perhaps the best current example is Singapore, which uses high levels of recycling to achieve water self-security.
Dense cities use less energy, are easier to service, and serve as incubators of economic growth. Managing density can help with other objectives — for example, if we allow zero-carbon and water-efficient buildings to have more height (and so floor space) than normal buildings, developers will build accordingly.
But cities will, above all, have to be engines for wealth and job creation. If we’re to avoid slums and favelas that will leave millions at risk of disaster in every severe storm and flood, the millions moving must find livelihoods, housing, and services. Cities are already national engines for national economic development, but rapid growth will require extra effort to absorb people smoothly.
Step change in urban development will take significant investment capital. Tax-based funds are totally inadequate for the work required.
In places like the USA, a robust market of municipal bonds finances urban infrastructure and development; that’s also been the same in China. Municipal finance is increasingly visible in emerging markets — in the last few months, we have seen very successful green bond issuance from Bogota in Colombia, Surat in Gujarat, and from the State of Lagos in Nigeria. Plus green bonds from city water and transport utilities all around the world.
Expect more in 2026.
4. Finance for nature grows
The most common discussion of “nature” focuses on protecting and restoring biodiversity, on land and at sea. While we continue to look for ways of funding forest protection, the bulk of effort will involve government expenditure. We already have, for example, France using its green bond to fund work to protect the rainforest of French Guaiana, and the Australian Government using its green bond for ecosystem restoration in the Great Barrier Reef. Expect to see more of this being included in sovereign green bond issuance in the coming year.
The second focus is bringing nature and agriculture closer together. Sustainable agriculture that supports biodiversity usually requires changes to farming practices, such as the creation of wildlife corridors that Brazil’s Forest Code encourages, or the avoidance of polluting pesticides and fertiliser. Expect relevant issuance to grow in Brazil and in China.
The third focus is the integration of nature into cities. That will range from greening streets (reducing heat while we do so), to planning wildlife corridors, to preserving wetlands for birds. Expect to see the inclusion of relevant expenditures in green debt issuance from cities and from major developers.
5. Grow climate finance to match the tens of trillions needed
Green bonds continue to get higher over-subscription rates than ordinary bonds, and regular pricing benefit. That leads governments and corporates to ask “could this work for us?”
USD6tn+ is a great start as an indicator of capital flowing, but we need a lot more — more like USD30tn by 2030.
A lot will be new investment, from solar power to resilient water infrastructure in places starting to experience more severe droughts.
For governments it means bringing in policy settings that lead to the creation of more climate investment opportunities.
That might range from better planning for the expansion of transmission lines to bring renewable energy to industry and setting up subway authorities with the powers needed for property development over railways stations, as Hong Kong as done to finance its subway network, to tax-breaks for urban agriculture that improves city resilience and getting involved in ensuring critical minerals availability. The very first and often most impactful step will be reform to fast-track relevant investment approvals.
Programmes will range from the national, like China’s New Economy Plan or Japan’s Green Transformation initiative, to simply requiring water utilities to incorporate robust climate impacts planning into their decision-making process.
It’s not always about new capital, it’s also about making sure what we invest in is future-fit.
The majority of investment we need involves changing the requirements of what we’re already planning to do, from making sure that when we upgrade ports we prepare them to deal with more severe storm impacts, to switching transport investments to electric.
In fact, the majority of what we have to do is to “green” existing capital flows — rethinking what we build and how we manage. Upgrading the requirements for underlying investments will allow bond issuance to be included in climate investment portfolios.
This year we’ll also see bonds related to improving the resilience of everything from physical infrastructure (like Tokyo’s successful Climate Bonds Certified resilience bond late last year) to economic systems.
Emerging transition and resilience guidance gives governments, cities, and corporates a clear roadmap for action.
Thinking past 2026 — it's not just the now
Change doesn’t happen in a linear fashion.
There will be backward lurches, like we’re experiencing in US climate policy right now. We are seeing tectonic changes in the norms of government and politics. They could be teaching moments; that "Trump effect" can be positive in one key way — it can liberate those of us working to address climate change to think big, to be audacious.
And there are already big shifts. On clean energy we’re in the middle of a gargantuan shift forward, kicked off by the German Greens introducing a feed-in tariff in 2001, then scaled up massively by China. Thank you Beijing.
Other opportunities will present themselves; and the volume of climate finance opportunities — and climate-related bonds — will grow.
The window remains narrow for reducing emissions and preparing for the climate impacts coming our way. We have to move fast.
