Scaling Green Investments: How Guarantees Drive Clean Energy Growth in EMDEs

The report "Guarantees and Other Risk Mitigation Instruments for Clean Energy: Harnessing Blended Finance to Scale Investments in Emerging Markets and Developing Economies", jointly produced by the World Bank Group, the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the Energy Sector Management Assistance Program (ESMAP), presents a compelling case for how financial guarantees can unlock the massive clean energy investments needed in developing economies. It opens with a stark reality: emerging markets, where energy demand is growing fastest, attract less than 15 percent of global clean energy investment. This imbalance, the report argues, stems not from technological or project limitations but from financial and institutional barriers that deter private investors. Through the strategic use of blended finance and risk mitigation instruments, the report envisions a pathway to channel private capital into the clean energy transition.

Bridging the Climate Finance Divide

To meet global net-zero targets, emerging and developing economies will need over US$1.3 trillion annually in clean energy investments, an ambition far beyond the reach of public budgets alone. The report asserts that the key lies in mobilizing private finance at scale by using public funds more efficiently to de-risk projects. Guarantees are highlighted as particularly potent tools: they absorb political, regulatory, and credit risks that private investors cannot bear. By improving the risk-return profile of clean energy projects, they enable investment that would otherwise not materialize. These instruments, ranging from partial risk guarantees to political risk insurance, act as financial bridges, linking public ambition with private execution.

De-Risking Investments through Blended Finance

At the core of the report is the concept of blended finance, defined as the use of concessional or public capital to mobilize commercial finance for sustainable development. Guarantees sit at the heart of this model. The report categorizes them into several types: political risk guarantees, which protect against expropriation or policy changes; credit guarantees, which backstop loan repayments; and revenue or offtake guarantees, which stabilize returns for power producers. Together, they shift risk burdens strategically, allowing capital to flow where it is most needed. Case studies from Kenya, Nigeria, and Vietnam show how these tools have already helped renewable energy projects secure funding that would once have been out of reach. In Kenya, a partial risk guarantee for an independent power producer unlocked long-term private financing, while in Vietnam, guarantees for power purchase agreements reassured investors wary of policy reversals.

Changing Investor Perceptions

A recurring theme throughout the report is that most investment barriers in clean energy are perceptual rather than structural. Surveys reveal that investors often view emerging markets as unstable due to policy uncertainty, currency volatility, and weak contract enforcement. Guarantees, by absorbing these uncertainties, transform perception into measurable, manageable risk. The report estimates that a single dollar of public guarantee exposure can leverage multiple dollars of private capital, among the highest mobilization ratios across development finance instruments. However, it warns that guarantees remain underused, often confined to small, bespoke transactions. Scaling them up requires harmonizing standards across institutions, creating replicable templates, and building unified platforms that can match investors with de-risked, high-quality projects.

From Pilot Projects to Systemic Impact

The document calls for a new era of coordination among multilateral development banks, bilateral donors, and private insurers. Fragmented efforts, it argues, dilute impact and slow deployment. Institutions such as the Green Climate Fund (GCF) and Climate Investment Funds (CIFs) offer valuable lessons on pooled resources and shared governance. The report also emphasizes the need for local currency guarantees and innovative hedging solutions to counter exchange rate risks that have historically constrained clean energy finance. Yet, financial tools alone are not enough. The authors insist that strong institutions, credible regulation, and transparent governance must accompany financial innovation. Successful examples, such as India's solar park program and Indonesia's geothermal expansion, show that when guarantees are coupled with policy reform, they create virtuous cycles of investment and trust.

A Call to Action for Scaled Transformation

The report urges governments and development finance institutions to prioritize clean energy in their guarantee portfolios and to streamline approval processes that often slow implementation. It calls for integrated digital platforms to track de-risked investment opportunities, for greater data transparency, and for more collaboration among the World Bank, IFC, MIGA, and regional banks. The overarching message is one of pragmatic optimism: the world already possesses the financial tools to bridge the clean energy investment gap. What is needed now is the political will and institutional alignment to deploy them at scale. Guarantees, when wielded strategically, can turn the risks that once held back investors into the engines of transformation, recasting emerging markets from fragile frontiers into the driving force of the global energy transition.