Guarantees: From Misdiagnosis to Strategic Deployment

The so-called “guarantee gap”—the perceived shortage of guarantee instruments relative to the volume of private investment needed to achieve climate goals—is often misdiagnosed. Interviews with practitioners, guarantors, investors, and deal arrangers point less to undersupply than to misalignment: existing instruments cluster where catalytic impact is lowest, not where it is greatest.

Key Findings

• The constraint is alignment, not supply. The Green Guarantee Group’s Directory lists 53 active climate-aligned guarantee instruments worldwide. Most scale in environments where private capital is already comfortable.
• Guarantees work in the wrong places. They deploy most easily in low-uncertainty, hard-currency, shorter-tenor deals. They remain constrained in long-tenor, local-currency, and policy-risk contexts, which most decisively shape investment decisions in EMDEs.
• The mismatch is deeply embedded in the international financing architecture. Institutional accounting practices, capital treatment frameworks, approval processes, fragmented mandates, and the absence of streamlined governance and coordination mechanisms for guarantee layering and pooling continue to constrain the effective deployment of guarantees. 
• Catalytic impact depends on the strategic targeting of guarantees rather than on the sheer expansion of available instruments. Without changes in deployment practices, additional guarantee capacity alone is unlikely to close the financing gap. 

The findings draw on  interviews with over 30 senior practitioners and experts across multilateral development banks (MDBs), development finance institutions (DFIs), export credit agencies (ECAs), institutional investors, guarantee providers, and development policy researchers conducted between October 2025 and March 2026. The briefing, supported by the Environment Defense Fund, suggests that supply is not the binding constraint: rather, existing instruments remain insufficiently aligned with the risk profiles and contexts where catalytic impact is greatest.

Authors

Perrine Toledano

Director of Research and Policy

Ana Maria Camelo Vega

Senior Economics and Finance Researcher

Themes

• Financing Climate & Sustainable Development

Tags

• Energy systems