December 2014: The Inter-American Development Bank (IDB) has published a report highlighting the benefits of guarantees for green markets, including by responding to challenges of investing in low-carbon and climate-resilient technologies and activities in Latin America and the Caribbean (LAC). ‘Guarantees for Green Markets: Potential and Challenges’ underscores the important role that national development banks (NDBs) can play in structuring and funding credit-guarantee schemes for domestic markets, and their unique position and capacities to effectively design, implement and promote green market investments.

The publication presents recommendations for designing guarantee instruments for green markets, and discusses how the lack of available funds to finance green projects results from financial and non-financial barriers, such as a lack of technical capacity on the lender’s side, and adverse regulatory environments.

The report explains that guarantee schemes help unlock private investment in green markets, if integrated in well-designed programmes; however, they also have the potential to create markets distortions, which are beneficial only if the guarantee yields correspondingly high economic, social and/or environmental benefits. Therefore, the report concludes, guarantee scheme design must be subject to a comprehensive cost-benefit analysis.

Research for the report included a peer review with relevant actors, following an October 2013 workshop on the role of guarantees in climate finance.

Case studies in the report illustrate that because green markets face multiple investment barriers, guarantees will only be successful if integrated into multifaceted programmes. The report elaborates that NDBs are in the best position to: combine tools, such as blended funding, technical assistance and guarantees; coordinate various stakeholders; convene private and public financial institutions; and maximize the crowding-in of private funds. [Publication: Guarantees for Green Markets: Potential and Challenges]