Published: February 19, 2026
Moody’s reports that credit quality is increasingly impacted by extreme weather events and social fragmentation. Tokyo Metropolitan Government is taking action having recently issued a €300mm resilience bond, the first ever certified under the expanded Climate Bonds Standard, to boost protection against climate shocks.
These days, it’s impossible to talk about credit risk without also mentioning sustainability strategies. As floods, typhoons and droughts become more prevalent, a business or government’s credit quality is increasingly linked to its ability to adapt.
According to a new report by Moody's, which outlines five key sustainable finance trends, that’s just one of the ways that creditworthiness is being affected by the climate crisis. The report takes a deep dive into the latest research, to explore how sustainable finance is shaping credit strength in 2026 and beyond.
“Much of the report is a reflection of trends we have been monitoring,” Rebecca Karnovitz, VP-Senior Credit Officer at Moody’s Ratings, tells EMEA Finance. “The outlook articulates how we expect these themes to develop in 2026 and how they might influence credit quality. The topics covered are global in nature, however, there is regional variation in how they are playing out.”
For instance, the transition to a clean energy economy looks different depending on where you are in the world. Viewed through a wide lens, the trend is clear: energy security concerns are driving a pragmatic approach to transition. But you can also talk in much more granular terms about what’s happening in different regions. The US is facing surging power demands from data centres, which has led to increased investment in fossil fuels, whereas the in the European Union some climate policies have been rolled back as the block struggles with the cost of replacing Russian gas.
“The focus on energy security and affordability looks different in the EU than it does in the US, China or some Emerging markets, especially in the context of AI competition and related power demand growth,” notes Karnovitz.
Challenges old and new
Karnovitz points out that, while climate risks have been a topic of conversation for some time, extreme weather events have become more frequent and severe than ever before. That has resulted in higher economic losses globally, leading to some jitters from the insurance sector.
“In recent years, the insurance industry has raised rates or retracted from high-risk areas, shifting risks onto households, businesses and governments,” she says. “As physical climate hazards materialise, issuers in high-risk areas may be increasingly challenged to obtain insurance.”
In emerging markets, insurance protection gaps are already substantial, and governments are less well placed to provide post-disaster support. This is forcing the need for adaptation financing. Despite a concerted push by multilateral development banks, the amounts being allocated don’t come anywhere close to the likely need.
Even in developed economies like the UK, the need for more adaptation financing is clear. The report finds that increasing spending to 0.5% of GDP would be sufficient to avoid sharp losses in a shock scenario. A different report, by the Climate Change Committee, has estimated that without safeguards in place, the impacts of the climate crisis could destroy about 7% of the UK’s GDP by 2050.
“We expect to see more initiatives to support insurability in high-risk markets and investments in adaptation as damage and losses continue to grow,” adds Karnovitz.
The report also touches on a less-discussed topic: the ways the AI boom is affecting credit risks. Already, we are seeing AI impact on labour markets, with tech titans winning big and small businesses suffering. Meanwhile, the technology itself is forcing the need for power-hungry data centres.
“The impacts of AI are already driving risks for the utility sector as power demand surges, driving up capital investment,” says Karnovitz. “That includes new investment in thermal generation, such as natural gas, sustaining exposure to carbon transition risks for utilities. Likewise, on the human capital front, the impacts of AI are unfolding. An acceleration in adoption could result in large-scale job displacement, intensifying income and wealth inequities.”
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