Landscape of Guarantees for Climate Finance in EMDEs

Cross-border guarantees are an important but underused tool for mobilizing private climate finance. A recent OECD evaluation found that guarantees leveraged 26% of all mobilized private finance between 2018-2020 and were among the preferred risk mitigation tools of private investors.

Studies suggest that larger and more effective credit guarantee facilities have the potential to mobilize 6-25 times more financing than loans. Their importance is even greater in emerging markets and developing economies (EMDEs), where geopolitical uncertainty and financial instability often hinder investment. Yet, the landscape of guarantee instruments and actors is fragmented.

Climate Policy Initiative has conducted a mapping exercise to better understand the landscape of guarantees for EMDEs. This aimed to highlight key gaps in the uptake of guarantees for climate finance and identify areas where further research is needed to increase their scale and effectiveness for climate finance in EMDEs.

Methodology

CPI undertook a scoping analysis to gain a baseline understanding of the global landscape of guarantees. We identified 52 different cross-border guarantee instruments from 34 key entities. These entities fall into four main types of provider:

1. Multilateral development banks (MDBs),
2. Development finance institutions (DFIs),
3. Export credit agencies (ECAs), and
4. specialized institutions.

Specialized institutions operate similarly to private sector organizations but are funded by governments and development institutions, generally focusing on guaranteeing specific types of risks in specific situations.

For each guarantee instrument, we analyzed key product criteria including: type of financial instruments guaranteed, sector and climate focus, geographic coverage, and type of risk covered.

We covered commercial, political, and currency risks for debt investments such as loans, bonds, and any other form of debt. Although less common, we also covered guarantees for equity investments, focusing only on political and currency risks, which are relevant in EMDEs. We categorized guarantees as either climate-agnostic, for a variety of projects including climate-related ones, or climate-exclusive, solely for climate-related projects.

While representative of the range of major cross-border guarantee facilities available for climate-related investments in EMDEs, our study is not exhaustive and does not delve into the ways in which guarantees are used at the national level to mobilize finance. Nevertheless, this scoping analysis provides valuable insights into the landscape of guarantee instruments and identifies avenues for further research to fill knowledge gaps on the effectiveness and scaling of guarantees.