The organisation seeks to provide $1bn of guarantees to mobilise climate change-related investment for borrowers in developing countries, backed by capital from various state-level investors.
The Green Guarantee Company (GGC) formally launched its operations with a market closing ceremony at the London Stock Exchange (LSE) on February 5. The GCC aims to leverage an initial $100m (€93m) of capital from range of lenders to supply up to $1bn of guarantees to help borrowers in developing countries to access global capital markets.
The guarantees will be provided to institutional investors buying green bonds issued and listed on the LSE, as well as green loans issued in the private credit market. They will be supported by an investment grade rating of BBB/Stable from Fitch Ratings, and will boost the ability of target companies to borrow on international capital markets at lower cost. Initially, GCC will focus on private credit and the LSE green bond market, but plans to expand to other major exchanges.
Sources of capital
The company was established as the world’s first guarantee provider of its type by the Development Guarantee Group (DGG), which was founded in the UK in January 2021 by Lasitha Perera and Boo Hock Khoo. DGG’s main institutional shareholder is Dutch-based Cardano Development, a fund manager and incubator.
The initial capital for GCC comes from the UK’s Foreign Commonwealth & Development Office’s Mobilist programme, the Green Climate Fund (GCF), the Nigeria Sovereign Investment Authority (NSIA), the US Agency for International Development (USAID) with Prosper Africa, and Norway’s Norfund. GCC says it will seek to raise additional capital from the private sector as it scales its operations, targeting a guarantee capacity of at least $5bn by 2035.
In December 2022, the GCF said it would initially contribute $40.5m to the GGC, and would make subsequent investments up to an overall total of $82.5m as GGC scaled up. The US said at the Dubai COP28 climate summit that it would contribute $5m in technical assistance through USAID’s EDGE Fund, $3m in seed funding from the Prosper Africa presidential initiative, and $2m from the US State Department.
GGC is part of a growing effort to use green guarantees as a cost-effective tool to encourage private investment in developing markets dogged by perceptions of high risk, allowing borrowers to access the long-term hard currency debt financing needed to tackle climate change.
Christopher Marks, GGC’s board director, said GGC support would be pivotal in enabling issuers from developing countries to obtain the financing they need to combat the impact of climate change, which is often most acute for the poorest people.
“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,” he said.
Cover will focus on investments in green infrastructure, renewable and alternative energy, and clean transport. Priority will be given to issuers from countries eligible for official development assistance, including India, Indonesia, Brazil, Bangladesh, Philippines, Egypt, Vietnam, and Kenya.
GGC said it would also help borrowers to build their capacity to deliver a high standard of reporting on the climate impact of the green bonds and loans it guarantees.