IMF Working Papers

The Scalability of Credit-Enhanced EM Climate Debt: What Role Can Guarantees, Collateralization, Securitizations, and Investment Funds Play?

By Peter Lindner, Ananthakrishnan Prasad, Jean-Marie Masse

January 10, 2025

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Peter Lindner, Ananthakrishnan Prasad, and Jean-Marie Masse. "The Scalability of Credit-Enhanced EM Climate Debt: What Role Can Guarantees, Collateralization, Securitizations, and Investment Funds Play?", IMF Working Papers 2025, 002 (2025), accessed January 11, 2025, https://doi.org/10.5089/9798400296505.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper reviews the main types of credit enhancement approaches used to support climate debt issuances by EMDE borrowers. Fragmentation on the part of the providers of credit enhancements was identified as a major factor impeding scalability of credit-enhanced debt. The acceptance of credit-enhanced debt is also hampered by the structural characteristics of the capital markets, especially the fragmentation of the investor base. To place significant amounts of credit-enhanced climate debt with private sector investors, MDBs, DFIs, and other stakeholders should focus on simple and replicable debt structures. Securitizations and investment funds could help fund private sector climate investments in EMDEs.

Subject: Bonds, Climate finance, Collateral, Credit, Credit ratings, Environment, Financial institutions, Financial services, Insurance, Loans, Money, Securities, Securitization, Sovereign bonds

Keywords: Blended finance, Bonds, Climate adaptation, Climate finance, Climate finance, Climate mitigation, Collateral, Credit, Credit enhancements, Credit ratings, Debt-for-climate swaps, Global, Guarantees, Insurance, Loans, Securities, Securitization, Securitization., Sovereign bonds

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