Private Initiative to Provide Guarantees for Climate Bond Issuers
The world’s first climate-focused guarantee company will leverage an initial US$100 million from the US, UK, Nigeria and private investors to provide guarantees for institutional investors to buy green bonds.
The Green Guarantee Company (GGC), developed by the Development Guarantee Group, co-founded with Cardano Development, saw its launch on 2 February 2024 and will use guarantees to help borrowers in developing countries improve their credit ratings to access global capital markets.
The GGC will use guarantees to help borrowers in developing countries improve their credit ratings to access global capital markets like the London Stock Exchange (LSE). It could provide up to US$1 billion of guarantees underpinned by an investment grade rating of BBB/Stable from Fitch Ratings. The company plans to initially focus on private credit and the LSE green bond market but plans to expand to other major exchanges. It aims to raise additional capital from the private sector as it scales its operations, targeting a guarantee capacity of US$5 billion by 2035.
Its guarantee criteria is based on the Climate Bond Initiative’s “Climate Bonds Standard and Certification Scheme”, a labelling scheme for bonds, loans and other debt instruments. Potential recipients must be listed on the Development Assistance Committee List of Official Development Assistance Recipients published by the Organisation for Economic Co-operation and Development.
Among the priority projects are green infrastructure, renewable resources, alternative energy, and clean transportation, with issuers from countries eligible for official development assistance in Africa, Asia, and Latin America, including India, Indonesia, Brazil, Bangladesh, Philippines, Egypt, Vietnam, and Kenya first in line.
Guarantees will be provided subject to its guarantee policy, with transactions undergoing an initial due diligence screening against investment objectives and criteria. A screening note will be reviewed by internal Impact and Investment Committees and a diligence report prepared by independent in-country climate consultants, upon which approvals can be provided. A borrower may need to address gaps. A strategy is then developed with consultants and the borrower.
The guarantees are hoped to help secure credit at a time when higher market and amid downward pressure on the sovereign ratings of developing countries. Many issuers in these countries are finding it increasingly difficult to access the global debt capital markets. “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, said GGC director Christopher Marks.