Risk, whether real or perceived, matters. It is the biggest barrier preventing private capital from flowing into investments and, given the enhanced risk profile of low-carbon technologies, it is even more crucial for climate finance investments. Higher risks demand higher returns and higher financing costs, making low-carbon technologies even less competitive.
While not all risks need to be reallocated, whenever risk falls onto a party not suited or not willing to bear it, risk coverage instruments (such as guarantees) can be key to unlocking private resources without depleting public budgets.
CPI has observed this phenomenon time and time again in our case studies.