Long-Term FX Risk Management

The Long-Term FX Risk Management instrument, developed by The Lab in collaboration with the International Finance Corporation (IFC) and The Currency Exchange Fund Management Company (TIM), aims to unlock climate-relevant investments in emerging markets. By offering long-term fixed and inflation-linked cross-currency swaps, interest rate swaps, and local currency loans, the instrument addresses the financial uncertainty caused by currency mismatches in capital-intensive clean infrastructure projects. A proposed pilot requires USD 250 million in donor risk capital to provide up to USD 1 billion in hedging capacity, potentially supporting USD 1.5 billion in clean investment projects and reducing annual greenhouse gas emissions by 1.7 MtCO2.

• The instrument addresses a critical barrier where capital-intensive clean infrastructure projects in underdeveloped capital markets must rely on hard currency financing, creating risky mismatches between local currency revenues and foreign currency repayment obligations.
• The implementation involves two complementary entities: TIM (via a subsidiary called Interest Rate Exchange or IRX) will provide long-term fixed and inflation-linked cross-currency swaps and interest rate swaps, while the IFC will provide direct local currency loans and cross-currency swaps.
• The pilot requires USD 250 million in donor risk capital, split between a USD 200 million risk capital for IRX and a USD 50 million first loss tranche for IFC, to potentially generate USD 915 million in total hedging capacity.
• Based on a simplified scenario focusing on onshore wind and solar PV, the instrument could support USD 1.45 billion in total project value, leading to annual GHG reductions of 1.7 MtCO2 and a cumulative reduction of 39.3 MtCO2 over the assets' operational lifetimes.
• The instrument identifies three primary market niches for pipeline development: local currency Power Purchase Agreements (PPAs) and Feed-in Tariffs, resilient utilities, and green credit lines, with the first two representing opportunities exceeding USD 5 billion each.
• The proposed pilot timeline aimed for operationalization by late 2015, with the first transaction targeted for Q4 2015 or Q1 2016.

APA

Escalante, D., & Frisari, G. (2015). Long-Term FX Risk Management. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2015/04/Long-Term-FX-Risk-Management-Lab-Phase-3-Analysis-Summary.pdf

Chicago

Escalante, Donovan, and Gianleo Frisari. Long-Term FX Risk Management. Climate Policy Initiative, 2015. https://www.climatepolicyinitiative.org/wp-content/uploads/2015/04/Long-Term-FX-Risk-Management-Lab-Phase-3-Analysis-Summary.pdf.

Wikipedia

{{cite report |last1=Escalante |first1=Donovan |last2=Frisari |first2=Gianleo |title=Long-Term FX Risk Management |publisher=Climate Policy Initiative |date=April 2015 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2015/04/Long-Term-FX-Risk-Management-Lab-Phase-3-Analysis-Summary.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{escalante2015longterm, author = {Escalante, Donovan and Frisari, Gianleo}, title = {{Long-Term FX Risk Management}}, institution = {Climate Policy Initiative}, year = {2015}, month = apr, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2015/04/Long-Term-FX-Risk-Management-Lab-Phase-3-Analysis-Summary.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }