First and Second Loss Capital Facility

The document describes first-loss and second-loss capital facilities as mechanisms to absorb initial investment losses to encourage co-investor participation in high-risk climate sectors. It outlines the roles of commercial and concessional stakeholders, the impact on sovereign fiscal space, and the typical timelines for establishing blended funds.

• First-loss facilities absorb the earliest layer of investment loss using donor capital, concessional equity, or subordinated debt to attract co-investors, while second-loss facilities provide a subsequent protective layer via mezzanine equity, guarantees, or subordinated debt after the first-loss tranche is exhausted.
• These tools are particularly effective for adaptation projects that lack stable revenue and long-term returns, and they are applied to sectors including nature-based solutions, distributed renewables, climate-resilient infrastructure, and agri-SMEs.
• The use of donor capital in these structures typically reduces senior returns by 3–8%. The time required to establish these funds varies by type: 6–12 months for existing blended funds, 12–24 months for new national funds, and 6–18 months for MDB/DFI platforms.

APA

Climate Policy Initiative (2025). First and Second Loss Capital Facility. https://www.climatepolicyinitiative.org/toolkit-instrument/first-and-second-loss-capital-facility/

Chicago

Climate Policy Initiative. First and Second Loss Capital Facility. 2025. https://www.climatepolicyinitiative.org/toolkit-instrument/first-and-second-loss-capital-facility/.

Wikipedia

{{cite report |author=Climate Policy Initiative |title=First and Second Loss Capital Facility |date=21 October 2025 |url=https://www.climatepolicyinitiative.org/toolkit-instrument/first-and-second-loss-capital-facility/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatepolicyinitiative2025first, author = {{Climate Policy Initiative}}, title = {{First and Second Loss Capital Facility}}, institution = {Climate Policy Initiative}, year = {2025}, month = oct, url = {https://www.climatepolicyinitiative.org/toolkit-instrument/first-and-second-loss-capital-facility/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }