Credit Enhancement for Sustainable Infrastructure

This report by the International Institute for Sustainable Development (IISD) examines the role of credit enhancement in scaling up sustainable infrastructure, particularly in developing countries. It defines credit enhancement as the transfer of project risk to creditworthy third parties to improve financial feasibility. The document identifies supply-side barriers, such as the conservative risk management and incentive structures of multilateral development banks, and demand-side challenges, including low awareness among policy-makers. It concludes that while a Universal Guarantee Facility is being discussed, empowering existing de-risking agencies and increasing domestic investor participation may be more effective strategies.

• Credit enhancement is defined as financial instruments that shift specific project risks to third parties—such as multilateral development banks, commercial banks, and insurance companies—who are better equipped to manage them.
• Sustainable infrastructure is more costly to plan and build because current markets fail to price environmental, social, and economic externalities, as well as natural resources like clean air and biodiversity.
• Multilateral development banks (MDBs) often prioritize loans over guarantees because they treat both similarly on their balance sheets to protect their high credit ratings (AAA/Aa), and employee incentives are typically tied to lending rather than mobilized investment.
• There is a significant lack of awareness regarding available credit enhancement instruments among public policy-makers, institutional investors, and financial advisors in lower-income countries.
• Dedicated credit enhancement providers like GuarantCo and the Credit Guarantee and Investment Facility are effective for smaller projects and local currency risk mitigation but lack the balance sheets to support large-scale infrastructure projects.
• Stakeholders have identified a need for further innovation in mitigating three specific types of risk: currency risk (especially for non-convertible currencies in lower-income countries), refinancing risk due to interest rate volatility, and legal risks related to environmental, social, and governance (ESG) compliance.

APA

Perera, O., Uzsoki, D., & Wuennenberg, L. (2018). Credit Enhancement for Sustainable Infrastructure. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/credit-enhancement-sustainable-infrastructure.pdf

Chicago

Perera, Oshani, David Uzsoki, and Laurin Wuennenberg. Credit Enhancement for Sustainable Infrastructure. International Institute for Sustainable Development, 2018. https://www.iisd.org/system/files/publications/credit-enhancement-sustainable-infrastructure.pdf.

Wikipedia

{{cite report |last1=Perera |first1=Oshani |last2=Uzsoki |first2=David |last3=Wuennenberg |first3=Laurin |title=Credit Enhancement for Sustainable Infrastructure |publisher=International Institute for Sustainable Development |date=October 2018 |url=https://www.iisd.org/system/files/publications/credit-enhancement-sustainable-infrastructure.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{perera2018credit, author = {Perera, Oshani and Uzsoki, David and Wuennenberg, Laurin}, title = {{Credit Enhancement for Sustainable Infrastructure}}, institution = {International Institute for Sustainable Development}, year = {2018}, month = oct, url = {https://www.iisd.org/system/files/publications/credit-enhancement-sustainable-infrastructure.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }