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Mobilizing Private Investment in Climate Solutions: De-risking Strategies of Multilateral Development Banks

July 24, 2023

MDBs can de-risk at the portfolio level by transferring risk to private investors and at the project level by sharing risk with private investors.

To replicate and scale de-risking, we identify four areas that MDBs and other financiers should consider when designing de-risking initiatives or scaling existing operations:

  • Expand the use of financial innovation and encourage learning in partnership with other stakeholders—such as the developing country governments and their DFIs—to share lessons and conditions for scaling.
  • Position de-risking as a mechanism for sector transformation by addressing risks from the entire life cycle of a project within a sector instead of a single asset and tapping into local knowledge, networks, and investors.
  • Encourage an integrated institutional approach through greater collaboration within MDBs across sectors and units to provide a coherent approach to de-risking.
  • Enhance data accessibility and transparency by increasing access to credit and probability of default data at a granular level to facilitate project design, assessment, and the decision-making process.

Executive Summary:

The climate crisis has heightened the urgency of increasing investment in low-carbon and climate-resilient development in developing countries. Multilateral development banks (MDBs) are well positioned to support climate-related investments in developing countries.

Beyond traditional lending, MDBs can reduce, transfer, or mitigate the risks associated with investments in developing countries under certain conditions, mobilizing additional private capital that otherwise would not be available. MDB “de-risking,” therefore, can help reduce the climate investment gap. De-risking can also build trust among borrowers and financiers, create synergies, and support sector development.

MDBs can de-risk at the portfolio level by transferring risk to private investors and at the project level by sharing risk with private investors. To replicate and scale de-risking, MDBs should use and expand financial innovation, learn from experiences and partnerships, position de-risking as an instrument for sector development, promote cooperation among divisions within the MDB, and enhance data accessibility and transparency.

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