How Climate Policy Is Being Built Into The Financial System

For most people, climate policy still sounds like something debated at environmental conferences or negotiated in international treaties but increasingly, it is being implemented somewhere else entirely.

Mark Keenan | March 12, 2026

For most people, climate policy still sounds like something debated at environmental conferences or negotiated in international treaties. But increasingly, it is being implemented somewhere else entirely. 

Instead of being decided openly through legislation, many of the most consequential climate policies are now emerging through financial regulation and banking rules that few citizens ever see or vote on.

A quiet shift has been taking place over the past fifteen years. Increasingly, climate policy is not being implemented through laws that voters can see and debate. Instead, it is being embedded into the plumbing of the financial system itself.

That change matters because the financial system decides who gets credit, who receives investment, and which industries survive. Once climate criteria are built into lending rules, capital requirements, and investment standards, the effects reach far beyond environmental policy. They begin shaping the entire economy.

To understand how this works, it helps to start with a concept that emerged in financial circles two decades ago: “stranded assets.”

The idea is simple. Many “fossil-fuel” companies hold large reserves of oil, gas, or coal on their balance sheets. These reserves are treated as valuable assets because investors assume they will eventually be extracted and sold. But if governments enforce strict carbon limits, a portion of those reserves could become unusable.

In that case, assets that appear valuable today might suddenly lose much of their worth. They would become “stranded”—investments that can no longer generate the expected returns.

At first glance, this may sound like a narrow issue affecting energy companies. But the concept quickly expanded beyond that. Once climate policy was framed as a financial risk rather than merely an environmental concern, it captured the attention of banks, regulators, and institutional investors.

The logic was straightforward: if climate policy might reduce the value of certain industries, then financial institutions should measure and manage that risk.

Over time, this argument moved from academic discussion to regulatory practice.

One important step was the rise of climate-related financial........

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