26 Oct 2026 - 06:30
Susana Campos Martins (*)
The Paris Agreement was credible to financial markets. That was a decisive step. But announcing the direction of the transition is not the same as delivering it. After years of talk the talk, the time has come to walk the walk: turning commitments into stable rules, investment and implementation.
There are two questions that seem central to me today. How can European companies remain competitive if Europe internalizes climate costs faster than other major economies? And how can investors make long-term decisions when energy and climate policy can change with every election? Both questions stem from the same problem:
The climate transition needs ambition, but also credibility and predictability.
The Paris Agreement achieved something that should not be underestimated. In 2015, almost every country in the world signaled a common direction: moving towards a low-carbon economy. Paris did not set a global carbon price, nor did it determine the instruments or the pace of the transition in each country. Even so, markets seem to have believed that something fundamental had changed.
Climate news stopped being merely environmental news. It became economic and financial news.
In the research I have been developing on climate risk and financial markets, we find little evidence that, before Paris, climate concerns systematically moved energy markets. After Paris, the pattern changes. News about climate policy, renewable energy or carbon taxation starts to increase the common volatility of oil and gas companies. Different companies, in different countries, begin to react together to the same climate information.
Paris did not eliminate uncertainty. It changed its nature.
Before Paris, one of the major questions was whether there would be enough international coordination for a global transition. Afterwards, the question became a different one: how will it happen? At what speed? With which instruments? Who will bear the costs? Which technologies will prevail?
Climate change is an externality that markets, on their own, cannot solve. Public policy is necessary. But that makes the quality of that policy even more important. An ambitious target whose instruments, timetable or direction change with each political cycle can create a new source of risk precisely when it is intended to reduce another.
This is where we move from talk the talk to walk the walk. And what matters is not only making the transition, but making it in an orderly way. In an orderly transition, climate action is anticipated and coordinated, limiting abrupt adjustments. In a disorderly transition, late or divergent policies increase economic and financial risks and, at the same time, allow the physical risks of climate change to worsen.
The challenge, therefore, is to reduce two risks at the same time: not delaying action to the point of worsening physical risks, but also not conducting the transition in such an abrupt or inconsistent way that it itself becomes a source of instability.
Portugal helps us understand what this means in practice. The country has been moving rapidly in integrating renewable energy. But the Iberian blackout of April 2025 reminded us that an energy transition cannot be measured only by installed solar or wind capacity. Investment must also be made, at the same time, in the resilience of the electricity system: grids, storage, interconnections, stabilization capacity and better operational coordination. As happens after accidents, the response is not to abandon technologies, but to make them safer and more resilient.
Decarbonization and energy security are not alternative objectives.
A transition that does not guarantee reliable and competitive energy will find it difficult to maintain economic and political support. An energy security strategy that indefinitely prolongs dependence on fossil fuels merely shifts risks into the future.
The same applies to European competitiveness. If Europe internalizes carbon costs without creating the conditions for its companies to invest and compete, part of production may shift to economies with fewer constraints. In that case, European emissions fall without global emissions necessarily falling. For a problem that is, by definition, global, that is not enough.
There is also a lesson from financial markets. In the face of major global shocks, many assets become volatile at the same time, reducing the benefits of diversification precisely when we need them most. Climate risk has this global dimension, just as production, capital, energy and emissions cross borders.
The Paris Agreement did the talk the talk surprisingly effectively: it made the transition credible enough for markets to begin incorporating climate information into their decisions.
Now comes the more difficult part, the walk the walk.
After convincing companies and investors that the transition will happen, we need to give them the conditions to invest in it. Not by eliminating all uncertainty — that would be impossible — but by avoiding the uncertainty we ourselves create through unstable rules, contradictory signals and policies that change with every election.
Paris showed that credible promises can move markets. The next decade will have to show that they can also mobilize investment at the scale required for an orderly, secure and competitive transition.
(*) Susana Campos Martins
Assistant Professor of Finance at Católica-Lisbon School of Business and Economics
Researcher at the Center for Sustainable Finance of Universidade Católica Portuguesa, and at Climate Econometrics, University of Oxford
