Project-based guarantees in climate finance: enhancing the effectiveness and scale
Finance for Development Lab
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Abstract: This paper makes a significant contribution by providing a structured framework for assessing and improving the effectiveness and scalability of project-based guarantees in climate finance. By systematically analyzing how guarantees mitigate risk and mobilize private investment, the paper clarifies the optimal conditions under which guarantees outperform alternative climate finance tools, such as concessional loans and subsidies. This enables policymakers and financial institutions to strategically design guarantees that maximize their leverage effect, effectively address investor risk perceptions, and significantly boost climate investments. As a result, the paper informs practical policy decisions, facilitating more efficient allocation of public resources toward instruments capable of attracting substantial private sector involvement in climate finance.