A specialist guarantor that will provide guarantees to mobilize climate finance from global credit and capital markets to support climate mitigation and adaptation projects in emerging markets.
At the end of 2021, the size of the global green bond market exceeded USD 1 trillion, however, green bond issuance by emerging markets (excluding China) accounted for less than 3% of this total. This significant climate finance gap is driven predominantly by a lack of capacity on both sides of the equation.
For institutional investors in global credit and capital markets, the perception of risk in emerging markets is typically greater than the actual risk on the ground. This misperception of risk persists despite research by Moody’s, the global credit rating agency, which demonstrates that the risk of a green project defaulting in an emerging market is not materially greater than in a developed market over a 10-year period.
Equally, for borrowers in emerging markets seeking to access global credit and capital markets, there is a lack of understanding of the required standards in terms of transparency and reporting that is expected by institutional investors in those markets.
The Green Guarantee Company, managed by the Development Guarantee Group, seeks to be a trusted intermediary which uses guarantees to help build capacity and understanding between investors and borrowers creating confidence over time to a point that the need for a guarantee becomes redundant and long-term market transformation is achieved.
“The Green Guarantee Company is a globally scalable climate finance solution that requires long-term patient capital to be able to provide the guarantees and achieve its objectives. For this reason, we decided to seek the support of the Lab in helping us showcase the Green Guarantee Company, providing it with a global platform to build awareness of its mission and to help it attract the investment it requires,” – Lasitha Perera, Managing Partner at the Development Guarantee Group.
The instrument could potentially mobilize billions of dollars of capital for climate projects in emerging markets, enabling accelerated decarbonization. GGC’s climate mitigation impact numbers derive from a balanced mitigation portfolio of carbon avoidance projects, like renewable energy and green buildings. According to the proponent Development Guarantee Group, GGC is expected to deliver carbon avoidance of 32 million tCO2e on its initial USD 2 billion guarantee portfolio. A pilot is planned for South Africa, with the offer expected to roll out globally after that.
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