How to De-risk Low-carbon Investments

This guide by the World Resources Institute explains the concept of 'de-risking' to bridge the investment gap for low-carbon infrastructure in emerging markets and developing countries. It details how public capital can be used strategically through policy and financial mechanisms to reduce perceived risks, thereby attracting private investment for climate-smart projects.

• There is a significant gap between the demand and supply of investment for clean energy in developing countries. The IEA estimates that annual clean energy investment in these regions must increase more than sevenfold, rising from under $150 billion in 2020 to $1 trillion by 2030.
• Private investors often avoid climate-smart infrastructure in developing countries due to high risk-adjusted returns and perceived risks. These risks include political instability, regulatory uncertainty (such as weak legal frameworks), capital market inefficiencies (including currency fluctuations), and technology-specific risks like underperformance or lack of local expertise.
• De-risking is categorized into two types: policy de-risking and financial de-risking. Policy de-risking involves establishing rules through laws or mandates to provide certainty, while financial de-risking uses public entities to bear a share of the risk through debt, equity, or guarantees to make projects 'bankable' for private investors.
• The Espejo de Tarapacá project in Chile's Atacama desert demonstrates how 'anchor' equity from a public fund can mobilize private capital. The Green Climate Fund provided $60 million in direct equity to cover development expenses and secure a power purchase agreement, which is expected to help the project raise $1 billion from the private sector.
• The Africa Energy Guarantee Facility (AEGF) uses a multi-layered insurance and reinsurance chain to lower risk premiums in Sub-Saharan Africa. Primary insurers are reinsured by Munich RE, which is in turn backed by guarantees from the European Investment Bank and KfW, a structure expected to facilitate approximately $1.4 billion in private investment.
• Climate Investor Two (CI2) employs a 'tranching' strategy in its Construction Equity Fund to offer different risk-return profiles. Tier 1 consists of public donors providing a first-loss buffer, Tier 2 is for commercial investors with reduced risk, and Tier 3 is a senior equity tranche for institutional investors; this model aims to catalyze $2.5 billion in private sector funds.
• While de-risking can leverage small amounts of public capital to attract large private sums, it is not suitable for all projects. Basic infrastructure, research and development, and the creation of enabling environments are identified as sectors best funded by public finance alone.

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} }