How to De-risk Low-carbon Investments

The document addresses the investment gap for climate-smart infrastructure in developing countries, where high perceived risks lead to high risk premiums and non-bankable projects. It defines de-risking as the reallocation or reduction of risk through policy measures (establishing rules and mandates) and financial measures (using public capital to bear risk). Three examples illustrate these mechanisms: the Green Climate Fund's anchor equity in Chile's Espejo de Tarapacá project, the Africa Energy Guarantee Facility's multi-layered insurance chain, and Climate Investor Two's tiered tranche structure. The guide concludes that while not applicable to all projects, strategic de-risking leverages small amounts of public capital to mobilize large-scale private investment.

• There is a significant gap between the demand for and supply of investment for clean energy in developing countries; annual investment needs to increase more than sevenfold, from under $150 billion in 2020 to $1 trillion by 2030, excluding adaptation costs.
• Private investors often avoid climate-smart infrastructure in developing countries due to high risk premiums driven by perceived risks, including political instability, contradictory regulatory frameworks, fragmented capital markets with currency fluctuations, and technology-specific risks such as underperformance or lack of local expertise.
• De-risking is categorized into policy de-risking, which uses laws and mandates to establish stable rules, and financial de-risking, where public entities use debt, equity, or guarantees to share or transfer risk to encourage private investment.
• The Espejo de Tarapacá project in Chile, combining a 300-megawatt pumped-storage hydroelectric plant and a 561-megawatt photovoltaic solar plant, used $60 million in direct equity from the Green Climate Fund as 'anchor' investment to signal quality and attract an expected $1 billion in private sector funding.
• The Africa Energy Guarantee Facility (AEGF) employs a chain of risk-sharing involving primary insurers (like ATI), a reinsurer (Munich RE), and guarantees from the European Investment Bank and KfW to facilitate approximately $1.4 billion in private investment for energy projects in Africa.
• Climate Investor Two (CI2) utilizes a tiered tranche structure for its Construction Equity Fund to attract different investor types: Tier 1 (public donors) provides a first-loss buffer, Tier 2 (commercial/DFIs) is de-risked by Tier 1, and Tier 3 (institutional investors) receives guaranteed returns as senior equity.

APA

World Resources Institute (2022). How to De-risk Low-carbon Investments. https://www.wri.org/insights/de-risking-low-carbon-investments

Chicago

World Resources Institute. How to De-risk Low-carbon Investments. 2022. https://www.wri.org/insights/de-risking-low-carbon-investments.

Wikipedia

{{cite report |author=World Resources Institute |title=How to De-risk Low-carbon Investments |date=22 July 2022 |url=https://www.wri.org/insights/de-risking-low-carbon-investments |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldresourcesinstitute2022how, author = {{World Resources Institute}}, title = {{How to De-risk Low-carbon Investments}}, institution = {World Resources Institute}, year = {2022}, month = jul, url = {https://www.wri.org/insights/de-risking-low-carbon-investments}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }