Wildfires and the rising cost of climate risk, and other finance news to know

Beyond the significant human and environmental toll, the recent and ongoing spate of wildfires underscores how climate risk is increasingly becoming a financial issue.

In European countries, including France, Spain, Greece and Portugal, wildfires have already caused an estimated €3.1 billion in economic damage, with insurers, businesses and households still counting the cost. The longer-term financial impact is expected to grow as property damage, tourism losses and supply chain disruption are fully assessed.

Such events are also exposing a broader challenge for insurance markets. Global insured losses from natural catastrophes reached $107 billion in 2025, with wildfires, floods and storms accounting for 92% of claims, according to Swiss Re. As extreme weather becomes more frequent and costly, insurers are reassessing premiums, coverage and where they are prepared to underwrite risk.

While Europe provides an immediate snapshot of the crisis, the systemic challenge is global, and the implications extend well beyond the insurance sector. As the Financial Times argues, physical climate risks are increasingly becoming investment risks, forcing asset managers, pension funds and other long-term investors to consider how extreme weather could affect their portfolios, valuations and future returns.

Key financial impacts:

Read more: For a broader dive into global mitigation frameworks and performance-based financing, see: From Wildfire Risk to Resilience: The Investment Case for Action.

While physical climate damage mounts on the ground, asset managers are grappling with a very different challenge in their product pipelines: investor fatigue with broad-brush "sustainable" fund labels.

Global product development in sustainable funds hit a record low in Q2 2026, according to Morningstar data cited by Reuters. Europe recorded just 13 sustainable fund launches against 64 closures – a nearly five-to-one liquidation ratio – while the US logged three launches alongside 22 closures.

The pullback stems from a tough multi-year backdrop: higher interest rates hit capital-intensive sectors like renewable energy, leaving the MSCI ACWI SRI Index trailing its broader benchmark (56% vs. 65% over five years), while stricter regulatory scrutiny in Europe and the UK raised compliance risks for generic ESG claims.

In response, capital is shifting away from blanket equity screening and into targeted fixed-income and passive transition strategies, analysts note. Rather than simply divesting from carbon-heavy businesses, asset managers are increasingly structuring funds to finance decarbonization in heavy industries like energy, steel and transport. This aligns with the Forum's Energy Transition Index 2026, which calls for moving beyond simple clean-power investments to scale decarbonization across heavy industry and transport.

The US and Japan have intervened to support the yen, with the US Treasury reportedly selling euros to fund the move – a rare strategy aimed at strengthening Japan’s currency without pressuring the dollar. Analysts say the impact may depend on whether other major central banks join the effort. The yen has struggled in recent years as Japan has moved more slowly than other countries to raise rates.

JPMorgan plans to deploy more than $750 billion into the US housing market over the next decade, including a 40% increase in mortgage lending aimed at helping more than 500,000 customers. The move comes as high borrowing costs and elevated home prices continue to keep buyers on the sidelines.

African countries are seeing stronger investor demand, according to Citi. The New York-based bank says it has helped raise $6.2 billion in sovereign bond deals this year – 70% more than in the same period last year – as improving market conditions support borrowing.

South Korea is proposing higher taxes on high-value and investment properties as it looks to cool a housing market that has continued to rise despite tighter mortgage rules. The move could increase costs for property investors and forms part of broader efforts to contain financial stability risks.

The world has lost an estimated 2.6 billion barrels of oil since the US-Iran conflict began, according to Saudi Aramco, leaving global inventories depleted despite efforts to reroute supplies. The company's CEO warned that continued disruption could have "a significant long-term impact on the world economy".

How are banks changing their approach to the transition? European lenders are being pushed to move beyond broad climate commitments and set clearer emissions targets for the financing they provide. Read more about the next phase of climate strategy in banking.

Egypt highlights a broader challenge for emerging markets: the high cost of managing currency and interest-rate risks in sovereign debt markets. Seham Farouk, Senior Expert, Sustainable Finance and PFM, Minister of Finance Technical Office, Egypt Government, explores how new bond structures could help reduce the risk premium investors demand.

The first digital inclusion social bond marks a new approach to financing development goals through capital markets. Claude Dyer, Lead, Digital Governance and Partnership, World Economic Forum, and Fangfang Jiang, Digital Financial Service Practice Group Asia Lead, IFC, explain how the $500 million issuance could help channel private capital towards digital finance and small businesses in emerging markets.