NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

The world’s first climate-focused guarantee company is set to unlock billions in climate finance for developing countries by providing guarantees for institutional investors buying green bonds issued and listed on the London Stock Exchange (LSE) and green loans issued in the private credit market.

The Green Guarantee Company (GGC), developed by the Development Guarantee Group, which was co-founded with Cardano Development, celebrated the launch of its operations with a Market Closing Ceremony at the LSE on Friday, 2 February 2024. GGC will use guarantees to help borrowers in developing countries improve their credit ratings to access global capital markets like the LSE.

The company is receiving capital from the United Kingdom’s Foreign Commonwealth & Development Office (FCDO) through its MOBILIST programme, the Green Climate Fund (GCF), the Nigeria Sovereign Investment Authority (NSIA), the United States Agency for International Development (USAID) with Prosper Africa, and Norfund.

GGC will leverage an initial USD 100 million from these investors to provide up to USD 1 billion of guarantees underpinned by an investment grade rating of BBB/Stable from Fitch Ratings. Initially, it will focus on private credit and the LSE green bond market but plans to expand to other major exchanges. It will seek to raise additional capital from the private sector as it scales its operations, targeting a guarantee capacity of USD 5 billion or more by 2035.

GGC’s cover will prioritise green infrastructure, renewable resources, alternative energy, and clean transportation. Guarantees will be prioritised for issuers from countries eligible for official development assistance in Africa, Asia, and Latin America, including India, Indonesia, Brazil, Bangladesh, Philippines, Egypt, Vietnam, and Kenya.

Guarantees are pivotal to enable developing countries to access long-term hard currency debt financing to combat climate change. By helping to improve the credit ratings of assets to above investment grade, guarantees enable borrowers in developing countries to access a far bigger pool of capital at a lower cost.

GGC also plans to support borrowers in delivering a high standard of reporting on the climate impact of the green bonds and loans it guarantees. The company will work with issuers to build their capacity to deliver quality and consistent reporting to help make green bonds and loans from developing countries an attractive asset class deserving of larger allocations in global climate debt portfolios.