Credit Enhancement for Sustainable Infrastructure

The report argues that credit enhancement is essential for closing the USD 90 trillion global infrastructure deficit and scaling sustainable infrastructure, which is often more expensive to plan and build due to unpriced environmental and social externalities. It identifies key barriers to adoption, including a lack of public sector expertise, misaligned incentive structures at multilateral development banks (MDBs) that favor loans over guarantees, and the administrative complexity of asset recycling under Basel III. The authors suggest that while a Universal Guarantee Facility is being discussed, empowering existing dedicated de-risking agencies and improving collaboration between providers may be more effective. The report also highlights the need for innovation in mitigating currency, refinancing, and legal risks related to environmental and social compliance.

• Credit enhancement is defined as financial instruments that transfer specific project risks to creditworthy third parties, such as multilateral development banks, insurance companies, and export credit agencies, who are better equipped to mitigate those risks.
• Sustainable infrastructure is more costly to plan, design, and build because current markets fail to price carbon or the value of natural resources and environmental, social, and economic externalities.
• Multilateral development banks (MDBs) often underutilize guarantees because they allocate capital for them similarly to loans, which could potentially jeopardize their high credit ratings if not managed conservatively.
• Employee incentive structures at MDBs are misaligned, as performance evaluations typically reward the generation of loans rather than the use of credit enhancement products.
• The implementation of Basel III has made asset recycling—the process of selling loans off balance sheets—administratively difficult or impossible when credit enhancements like guarantees are in place.
• There is a significant lack of awareness regarding available credit enhancement solutions among public policy-makers, institutional investors, and financial advisors in developing countries.
• Stakeholders identify three primary areas where further innovation in credit enhancement is needed: currency risk, refinancing risk, and legal risk associated with environmental, social, and governance (ESG) compliance.
• The authors express skepticism toward the proposed Universal Guarantee Facility due to high expected overheads and lead times, suggesting instead that existing de-risking agencies should be further capitalized.

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} }