Key Learnings on Guarantees

Guarantees can mitigate political, currency, liquidity, and credit risks for investors. As observed in the cases in this section, such tools can take the form of sovereign, corporate, and financial guarantees. The Galápagos Debt-for-Nature Swap and the Seychelles Blue Bond have helped to mobilize capital markets investors through the use of guarantees. Guarantees can also lengthen loan tenors, as in the case of the AGRI3 Fund. They can also mitigate pipeline credit risk, as for the Asia Climate-Smart Landscape Fund.

The Galápagos Swap used credit enhancement tools to reduce risks for private investors and lower the cost of capital, enabling conservation financing and fiscal savings. Nevertheless, debt conversions require close coordination and dialogue among multiple actors and are highly context-specific. While the Inter-American Development Bank (IDB) and DFC were well-positioned to provide the guarantees in this case, new partners would need to be involved in other jurisdictions.

Guarantees mainly come from a handful of institutions, limiting capacity for scale. CPI has mapped 52 types of cross-border guarantee, with less than 15% of these having a climate focus. With the exception of the Green Guarantee Company, disbursement of these instruments is mainly by multilateral development banks and DFIs, which can lead to slower implementation. These actors can be highly intertwined with political interest and, though they can provide scale, the factors necessary for their roll-out suggest that replication could be challenging.