Policy Watch | July 2026
The European Central Bank has begun applying its climate factor to collateral used in Eurosystem monetary policy operations, marking an important step in embedding transition risk within the euro area's financial architecture. Effective from 15 June, the framework adjusts collateral valuations to reflect potential losses arising from climate-related transition risks, complementing the ECB's broader programme of integrating climate considerations into monetary policy implementation. The measure reflects the ECB's assessment that transition risks can affect the value of assets held against central bank lending. The reform demonstrates how climate risk is increasingly being incorporated into core market infrastructure and prudential frameworks, with implications extending beyond disclosure requirements.
Staying with central bank policy, the Bank of England has further integrated climate risk into its collateral framework through reforms to the Sterling Monetary Framework. Corporate bonds issued by companies deriving revenue from thermal coal mining will remain ineligible as collateral, while the Bank has also introduced climate-related haircuts for issuers in sectors exposed to net-zero transition risks, where necessary, to protect its balance sheet. Underlining the importance for prudential risk management, the reforms continue the gradual incorporation of climate-related financial risks into central bank market operations. Over time, collateral eligibility and haircut methodologies can influence the relative liquidity and financing value of assets, reinforcing climate risk as a consideration within core financial market infrastructure.
Japan’s Green Transformation (GX) Agency, has established and held the first meeting of its Global Advisory Council, with Climate Bonds joining as a member. Climate Bonds welcomes the creation of the Council and looks forward to contributing our expertise to help Japan mobilise capital and scale investment for its green industrial transition. The GX Agency aims to mobilise over JPY150tn in public and private investment over the coming decade. Its expanding mandate across financial support mechanisms, emissions trading system administration and the planned introduction of fossil fuel levies under Japan’s emerging carbon pricing architecture reinforces its position at the centre of Japan’s GX implementation framework, bringing together carbon pricing governance, industrial decarbonisation policy and the mobilisation of transition finance within an integrated delivery model.
The EU Council’s position on the Carbon Border Adjustment Mechanism (CBAM) reinforces its role in shaping industrial competitiveness. The Council’s position includes extension of scope to selected downstream products, strengthen anti-circumvention provisions and simplify compliance for smaller importers. Although the reforms remain subject to negotiations with the EU Parliament they demonstrate the CBAM’s role in supporting industrial decarbonisation. By broadening coverage across value chains, the proposals increase incentives for manufacturers both within and outside the EU to reduce embedded emissions and improve carbon data transparency. The reforms reinforce expectations that carbon pricing and border adjustment measures will play a growing role in shaping the competitiveness of emissions-intensive industries, strengthening demand for low-carbon industrial technologies.
China’s new energy system blueprint for the 15th Five-Year Plan period (2026–2030) signals a shift in the country’s energy transition strategy from prioritising renewable capacity expansion towards building a more integrated, resilient and flexible energy system. The plan targets a clean, low-carbon, secure and efficient energy system by 2030, with non-fossil sources expected to account for half of electricity generation and renewable energy representing more than half of installed power capacity. It also elevates energy security as a core strategic objective, positioning grid modernisation, market reform and system flexibility as essential enablers of continued decarbonisation. For investors, the emphasis on grid flexibility, energy storage, system resilience and market reform highlights the next phase of China’s transition, where investment opportunities are increasingly centred on enabling infrastructure alongside renewable generation. The plan further strengthens the integration of energy and industrial policy, aligning electricity infrastructure with the needs of advanced manufacturing, digital infrastructure and other energy-intensive industries. The approach reflects China’s continued effort to align energy security with decarbonisation, positioning clean energy investment as a core component of industrial competitiveness and economic resilience
On the EU Methane Regulation – a policy Climate Bonds has covered in previous newsletters - the Commission has confirmed it does not intend to reopen or renegotiate the legal text, despite continued pressure from some Member States and industry stakeholders to delay or amend its implementation. While the legal framework will remain unchanged, officials indicated that further discussion will focus on implementation issues, including practical flexibility in compliance and enforcement. The position reinforces regulatory continuity in a politically sensitive area of energy policy, providing greater certainty for market participants. Ongoing discussions on methane rules continue to reflect their relevance to energy security and affordability considerations. This may signal that the EU is maintaining the integrity of its methane framework while working through implementation challenges within the existing legislative structure.
Brazil’s first sovereign Panda Bond issuance marks a new step in efforts to diversify sources of transition finance and deepen links between emerging market capital markets. The government has begun the process for issuing up to RMB5bn of yuan-denominated bonds in China, with the proceeds expected to support broader efforts to attract investment into strategic sectors including sustainable infrastructure and the energy transition. The issuance reflects growing interest among emerging economies in expanding access to alternative pools of capital while strengthening financial links with major clean technology and infrastructure investors. For markets, the move highlights the potential role of local-currency and cross-border bond markets in supporting climate investment, particularly where they can help reduce financing constraints and connect international investors with transition opportunities
Electricity grids are becoming a central investment priority in Europe’s energy transition, with the EU Parliament’s support for faster permitting of grid and clean energy infrastructure aimed at accelerating the deployment of the networks needed for electrification. The proposed reforms would streamline approval processes for electricity grids, renewable energy projects, storage facilities and charging infrastructure through shorter deadlines, digital permitting systems and clearer grid connection procedures. For investors, the measures provide greater policy certainty around the pipeline of grid investment required to integrate rising volumes of renewable power and support growing electricity demand. The package reinforces the strategic role of grid infrastructure in Europe’s wider energy security, competitiveness and decarbonisation objectives, as discussed in Climate Bonds’ recent policy paper; Rapid Transition to Energy Sovereignty. The proposal will now proceed to negotiations between the European Parliament and the Council.
