Policy Watch | August 2026
Multilateral development banks scaled up their climate finance to record levels in 2025. The 2025 Joint Report on Multilateral Development Banks’ Climate Finance shows that MDB climate finance increased to a record USD163bn globally, including USD103bn in low- and middle-income countries. The increase reflects continued efforts by MDBs to expand climate-related lending, improve coordination and strengthen data transparency through initiatives such as the MDB Climate Finance Dashboard. For investors, the growth of MDB climate finance signals potential expansion of co-investment and risk-sharing opportunities; by deploying climate finance through capital mobilisation tools such as guarantees, blended finance, and early-stage investment, MDBs can both maximise impact of investment and help meet investor demand for climate investment opportunities.
The ECB is continuing to embed climate factors into the operational framework of monetary policy, signalling that climate transition risk considerations are becoming an increasingly permanent feature of financial risk management. The European Central Bank has announced that it will extend its climate-related risk adjustments ("climate factors") within the Eurosystem collateral framework to certain non-financial corporate credit claims. The measure is intended to protect the Eurosystem against the potential decline in collateral values resulting from climate-related transition shocks and complements its existing risk control framework. To limit market disruption, the additional valuation reduction applied through the climate factor is capped at 5% on top of existing collateral haircuts, with implementation expected no earlier than the end of 2027 and climate factor values updated annually. While the immediate financial impact is likely to be modest, the decision marks another step towards integrating climate-related financial risks into mainstream monetary policy operations.
The EU Commission’s proposed reforms to the EU Emissions Trading System (EU ETS) weaken the decarbonisation signal, prioritising industrial competitiveness over the pace of decarbonisation. The proposals would extend free emissions allowances for energy-intensive industries into the 2040s, slow their planned phase-out, and provide greater flexibility to reduce compliance costs for European manufacturers. While the Commission argues these measures are needed to protect industry during the clean transition and alongside the introduction of the Carbon Border Adjustment Mechanism (CBAM), they risk weakening the carbon price signal that has driven emissions reductions and investment in cleaner technologies. Delaying the full application of the "polluter pays" principle could reduce incentives for industry to decarbonise and undermine confidence in the EU's climate policy framework. However, the linking of free allowance allocation to decarbonisation investment and transition plans, and the use of ETS revenue to finance decarbonisation could help boost clean technology investment.
Pakistan is improving the tracking and classification of climate-related public finance through digital climate budgeting and implementation of its Green Taxonomy. The Ministry of Finance has developed an AI-enabled climate budgeting system that combines climate budget tagging, digital reporting tools and an integrated dashboard to improve the monitoring of climate-related allocations across government. Alongside this, Pakistan’s Green Taxonomy provides a common framework for identifying environmentally sustainable economic activities and investments, supporting greater consistency in how financial institutions assess green opportunities. Together, these reforms could improve transparency around climate expenditure, strengthen reporting on climate-related investments and help create clearer pathways for mobilising domestic and international climate finance.
The US Securities and Exchange Commission (SEC) closed its consultation on withdrawing its 2024 climate disclosure rules on 3 August, marking the end of the public comment period on the proposed rescission. Climate Bonds welcomes efforts by some investors to push back against the rescission, given that consistent and comparable climate disclosures are important for assessing climate-related financial risks and allocating capital. The consultation attracted more than 10,000 public comments, including submissions from investors and companies. The SEC will now consider the responses before deciding whether to proceed with the proposed rescission. If adopted, the withdrawal would further diverge the US from jurisdictions adopting International Sustainability Standards Board- and European Sustainability Reporting Standards-aligned disclosure frameworks, potentially increasing the cost for investors of obtaining comparable climate-risk data across markets.
