As climate impacts intensify and financial markets adapt, two new reports —Howden’s Insurability Imperative and the World Business Council for Sustainable Development’s 2025 Business Breakthrough Barometer— reveal a reality that diverges sharply from the prevailing narrative.
Despite headlines about ESG backlash and net-zero retreats, companies are not abandoning climate goals. They are embedding them into core strategy, shifting from compliance to competitiveness. At the same time, insurers are redrawing the boundaries of investability, making insurability a frontline filter for capital allocation.
These trends mark a profound shift in how risk is understood, priced, and managed. Climate change is not tied to political cycles or market sentiment. Its impacts are structural and cumulative, reshaping both the physical world and global finance. As the Barometer notes, ‘where governments lead with clarity, business capital follows’. In the absence of coherent policy, insurers are stepping in to decide what can and cannot be financed. With governments falling short, markets are beginning to price in climate resilience —and for many sectors, it’s no longer optional.
Climate Risk Is Market Risk
The Business Breakthrough Barometer underscores this shift. Despite public skepticism and ESG backlash, most companies are not abandoning their goals. Instead, they are reallocating capital based on a more immediate truth, that climate risk has become business risk
According to the Copernicus Climate Change Service, we are on track to breach the 1.5 °C warming threshold within six years or less. This is not a future concern but a present financial reality. Record heatwaves, vanishing ice and billion-dollar disasters are reshaping how risk is modeled and priced.
As WBCSD president and chief executive Peter Bakker said in an interview: “The climate won’t wait for the market to find consensus. It won’t adjust itself to quarterly earnings. What it demands is system change, in how we price risk, share it, and design markets around physical realities.”
Traditional Planning Is Breaking Down
The economic transition is unfolding in ways that traditional business systems cannot manage. Companies still rely on linear models — forecasts, fixed returns, long timelines — while the net-zero shift is volatile, uneven and often misaligned with policy and consumer behavior.
This misalignment plays out across sectors. EV production is accelerating while charging infrastructure lags. Carbon capture projects are stalling amid weak demand signals, while the decarbonisation of buildings is slowed by outdated codes and permitting bottlenecks. In each case, technological readiness is colliding with systems that are not fit for transition.
As Bakker argues, sustainability must move from reporting to real governance, from targets to embedded decision-making. That means adopting robust frameworks like the ISSB’s S1 and S2, aligning climate strategy with operational and financial reality.
From ESG To Embedded Strategy
The Barometer reveals a decisive shift: 91% of companies surveyed have either maintained or increased their climate-related investments over the past year (as of May 2025). Crucially, 56% cited long-term competitiveness, not compliance, as the main driver.
While high-profile exits from alliances like the Net-Zero Banking Alliance or corporate withdrawal and redesign of net zero targets dominate headlines, many firms are shifting focus. They are beginning to embed climate resilience into core business functions such as capital planning, supply chains and governance. “We’ve got sufficient data to act,” said Bakker. “The perfect mustn’t delay progress.”
Howden’s Warning: Insurability Now Dictates Investability
Nowhere is this financial recalibration more visible than in insurance markets. Howden’s new Insurability Imperative report warns that insurability is becoming a prerequisite for investability. As climate risks escalate, insurers are withdrawing from high-risk zones and redlining regions. What cannot be insured cannot be financed, and what cannot be financed cannot scale.
Historical shocks have prompted similar responses: the Great Fire of London led to fire codes and insurance pools, while 19th-century boiler explosions catalyzed modern engineering standards. Today’s escalating climate risks are driving a comparable redesign in how markets address risk particularly in infrastructure, agriculture, and real estate.
Insurability now operates as an early indicator of systemic viability, determining which assets, sectors, and geographies remain viable. To secure capital companies must increasingly demonstrate resilience through adaptation planning, risk mitigation and long-term feasibility. “Resilience is investable,” Bakker says. “But only if we build the conditions to make it so, together.”
This marks a deeper shift in how risk is understood and priced. Unlike weather patterns, climate change isn’t cyclical—it brings long-term, structural disruption that’s redefining business models and investment priorities. As the Barometer notes, where governments lead with clarity, capital follows. In the absence of coherent policy, insurers are stepping in to decide what can and cannot be financed. With governments falling short, markets are beginning to price in climate resilience and for many sectors, it is no longer optional.
When Policy Stalls, Capital Retreats
Bakker argues that the climate transition depends on aligning three forces: policy, business, and finance. Policy sets direction, business delivers scale, and finance provides capital. When these pillars are aligned, markets function but when they are not, the system stalls.
This disconnect plays out across sectors and is creating tangible capital bottlenecks, with the misalignment especially visible in energy markets. While capital still flows disproportionately to low-risk, mature technologies like solar and wind, funding for capital intensive decarbonisation solutions like hydrogen and carbon capture are falling. In 2024, global investment in clean energy reached a record $2 trillion yet hydrogen investment declined by 42%, and carbon capture by 56%.
These bottlenecks are not down to a lack of ambition but rather structural weaknesses, including lack of regulatory certainty, underdeveloped infrastructure, and crucially a lack of offtake agreements to guarantee long-term market demand. “There must be offtake,” said Bakker. “There must be market creation.”
From Risk Modelling To Risk Leadership
Policy must now evolve to enable markets, not just regulate them. Ninety-four percent of Barometer respondents said clear, consistent policy is essential to unlock climate investment but 54% no longer trust governments to deliver them. That credibility gap is already reshaping capital flows and creating geographic winners and losers.
According to the Barometer, Asia and Europe are increasingly viewed as more attractive for investment than the United States. In the U.S., political volatility has undermined confidence in the Inflation Reduction Act contributing to nearly $15.5 billion in abandoned or scaled-back projects.
“Markets need frameworks that translate ambition into investable pathways and real-world price signals,” Bakker said. Insurability, investability, and effective regulation are now interdependent. Unless policy reflects the full scope of physical and financial risk, not just short-term political cycles, systems that look solid on paper may collapse under pressure.
From Intent to Delivery At COP30
The growing pressure in insurance markets underscores the urgency as attention turns to COP30 in Brazil. “We don’t need another moment of intent” warns Bakker. “We need a moment of delivery.” Two structural shifts are defining this new phase: implementation is moving from public to private actors, those who control supply chains, capital, and operations; meanwhile momentum is shifting from the Global North to the Global South, where climate vulnerability, economic growth, and industrial opportunity increasingly converge.
The climate transition can be profitable, resilient, and equitable if businesses, policymakers, and financial institutions can co-create markets grounded in both physical and financial realities. The markets that align around this are likely to shape the next era of economic leadership.
