The
world’s first climate-focused guarantee company is set to unlock billions in
climate finance for developing countries by providing guarantees for
institutional investors buying green bonds issued and listed on the London
Stock Exchange (LSE) and green loans issued in the private credit market.
The Green Guarantee Company
(GGC), developed by the Development Guarantee Group, which was co-founded with
Cardano Development, celebrated the launch of its operations with a Market
Closing Ceremony at the LSE over the weekend. GGC will use guarantees to help
borrowers in developing countries improve their credit ratings to access global
capital markets like the LSE.
The company is receiving
capital from the United Kingdom’s Foreign Commonwealth & Development Office
(FCDO) through its MOBILIST programme, the Green Climate Fund (GCF), the
Nigeria Sovereign Investment Authority (NSIA), the United States Agency for
International Development (USAID) with Prosper Africa, and Norfund.
GGC will leverage an initial
$100 million from these investors to provide up to $1 billion of guarantees
underpinned by an investment grade rating of BBB/Stable from Fitch Ratings.
Initially, it will focus on private credit and the LSE green bond market but
plans to expand to other major exchanges. It will seek to raise additional
capital from the private sector as it scales its operations, targeting a
guarantee capacity of $5 billion or more by 2035.
GGC’s cover will prioritise
green infrastructure, renewable resources, alternative energy, and clean
transportation. Guarantees will be prioritised for issuers from countries
eligible for official development assistance in Africa, Asia and Latin America,
including India, Indonesia, Brazil, Bangladesh, Philippines, Egypt, Vietnam,
and Kenya.
Guarantees are pivotal to
enable developing countries to access long-term hard currency debt financing to
combat climate change. By helping to improve the credit ratings of assets to
above investment grade, guarantees enable borrowers in developing countries to
access a far bigger pool of capital at a lower cost.
GGC also plans to support
borrowers in delivering a high standard of reporting on the climate impact of
the green bonds and loans it guarantees. The company will work with issuers to
build their capacity to deliver quality and consistent reporting to help make
green bonds and loans from developing countries an attractive asset class
deserving of larger allocations in global climate debt portfolios.
Christopher
Marks, Board Director at GGC, says: “GGC will
provide pivotal support to enable issuers from developing countries to gain the
financing they need to combat the impact of climate change on their
populations, particularly the poorest. This support is critical as both
increased fiscal pressure post-pandemic and downward pressure of sovereign
ratings of developing countries will limit their private sectors’ access to
global debt capital markets at a time when climate action is becoming
increasingly urgent.”
Andrew Mitchell, UK Minister of State in the FCDO, says: GGC’s ambition to unlock $1
billion in climate finance is a clear illustration of the powerful role that
public markets can play in mobilising the capital needed to realise the climate
transition in emerging markets. The UK’s recent International Development White
Paper highlighted the need for greater investment in these markets, including
from the private sector. MOBILIST’s investment in GGC delivers that vision by
mobilising new sources of finance through new vehicles that can crowd in new
investors at scale. The UK is proud to support GGC through MOBILIST and as one
of the largest donors to the GCF.
Henry
Gonzalez, Deputy Executive Director of GCF, says: “GGC
will make a fundamental contribution to GCF’s mission to mobilise global
capital at scale for climate finance. GCF is proud to be an anchor investor in
this unique institution. This will further unlock global debt and guarantee
markets for climate action, supporting the most vulnerable communities across
the developing world.”
Gillian
Caldwell, USAID’s Chief Climate Officer, says: “We
need to use all of the tools available to us to crowd in climate finance to the
places that need it the most, and investment grade guarantees are one of the
most powerful tools we have. USAID is proud to be supporting GGC in catalysing
climate finance into developing economies.”
British
Robinson, Coordinator of Prosper Africa, says: “GGC
– an example of the kind of systemic change the development finance system
needs to meet our global climate responsibilities – a privately-run company
entirely focused on accelerating the de-risking of climate investments. GGC
crowds in large pools of capital that can fund adaptation and mitigation
projects needed across Africa.”
Aminu
Umar-Sadiq, Managing Director and CEO of NSIA, says: “As a
long-term investor of Nigeria’s sovereign wealth, our strategy is underpinned
by our adoption of sustainable investment opportunities that uphold
environmental stewardship. Given the global urgency of positive climate action,
our alignment with GGC will further expand access to climate adaptive
solutions, particularly within emerging markets. This re-affirms our focus on
creating shared value for the people and the planet.”
Cathrine
Kaasen Conradi, Investment Director at Norfund, the Norwegian Government’s
Investment Fund for Developing Countries, says: “Norfund
is proud to play a role in establishing GGC. We believe this model has the
ability to mobilise considerable capital for investments that mitigate or adapt
to climate risks. GGC has the right team, the right instrument, and a promising
capital structure to achieve their ambitious goals.”
Boo Hock Khoo, Chairman of The Development Guarantee
Group, says: “Climate financing from developed to
developing countries will be central to the success of the world’s collective
efforts to keep global warming to 1.5 degrees. Greater mobilisation of
long-term pension, insurance, and other global institutional capital will be
needed. This makes the creation of an investment grade guarantor backing
climate-focused debt instruments to these investors via the world’s major
financial markets is both timely and critical.”
Joost
Zuidberg, CEO of Cardano Development, says: “Cardano
Development is delighted to mark the launch of GGC, established by the
Development Guarantee Group, which was co-founded with Cardano Development. At
Cardano Development, we recognise the indispensable role that guarantees play
in facilitating access to long-term debt financing, in particular to mobilise
the much-needed additional private capital resources required to tackle climate
change in developing countries and contribute to enhanced capital market
interest and ultimately ensure lasting economic growth in these regions.”