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MDBs Urged to Boost Climate Finance via Guarantees

A major scaling up of existing guarantee products and the creation new green guarantee facilities by multilateral development banks are needed to mobilise private capital in developing countries to accelerate the transition to net zero, a new report says. According to ‘Better Guarantees, Better Finance’, published by the Blended Finance Taskforce, guarantees currently represent less than 5% of climate finance committed by MDBs. The report calls for “smarter use” of public capital in guarantee products which address credit and currency risks, are streamlined to reduce transaction costs and which are structurally linked to project development. Greater use of such guarantees will help to meet an estimated fivefold increase in climate finance – to an annual level of US$2.4 trillion – needed in emerging markets for sustainable and inclusive growth. Released ahead of the summit for a New Global Financing Pact in Paris, the report calls for world leaders to include a climate mobilisation mandate for public capital, scale and accelerate access to guarantees at existing institutions, and develop new global green guarantee platforms targeting higher mobilisation, lower transaction costs and a structural link to project preparation. “When designed efficiently, with low barriers to access in a way which meets the needs of countries and investors, guarantees are one of the best levers to unlock investment for new investment opportunities in the energy transition,” said Katherine Stodulka, Chair of the Blended Finance Taskforce.

 

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