A substantial financing gap needs to be bridged if we want to address the most pressing challenges of climate change for both developed and developing nations. BASE Foundation and UNITAR’s Global Platform for Action Coordination Unit co-hosted an event at Building Bridges Geneva to explore how guarantee mechanisms can contribute to driving investment toward projects holding positive impacts on climate change mitigation and adaptation.

Daniel Magallon, Managing Director at BASE Foundation, started by highlighting that global climate finance requirements are estimated at USD 8–10 trillion annually by 2030, with developing countries needing USD 2.4 trillion per year. However, current investments in these regions fall far short of the necessary scale. Public sector’s and developing countries’ funding is insufficient to reach these targets, meaning that private local investors have an instrumental role to play in this endeavour.

Innovative financial mechanisms, such as risk mitigation strategies and guarantees, are instrumental in mobilising private investment to close this gap.

Sida and SECO, two governmental development agencies pioneering guarantees

Peter Hallbom provided an overview of Sweden’s International Development Cooperation Agency (Sida) and its impactful use of financial guarantees to mobilise private investments for global development priorities. Sida has been offering such guarantees for nearly 20 years, with notable growth in the past decade. These guarantees are central to advancing goals such as climate action, poverty alleviation, and infrastructure development, particularly in least-developed countries.

Sida’s current guarantee portfolio stands at USD 2 billion, with a potential expansion capacity of up to USD 3 billion (2025). As AAA-rated sovereign instruments, Sida’s guarantees can act as first-loss in fund structures, instead of requiring fund managers to provide cash for this protection. Under this approach, Sida enables risk sharing and instils confidence among investors, tackling the high perceived risks of such investments.

“Often, an investor says, ‘I’m happy to invest in Sweden,’ and I reply, ‘What if I provide sufficient risk sharing, either at the capital stack level or the portfolio level, so you can achieve in least developed countries a similar balance of risk and reward that you would expect in Sweden?’”, shared Peter, highlighting how the benefits of guarantees can convince investors to learn and lower the perceived risk over time. While guarantees may involve subsidising costs, they are meticulously priced based on expected losses and regional risk assessments.

Christian Brändli from Switzerland’s State Secretariat for Economic Affairs (SECO) shared insights into SECO’s guarantee programs. These programs are part of a broader, holistic approach to development, which includes technical assistance to drive systemic reforms, improve the regulatory environments, strengthen credit bureaus, and reform transaction systems to reduce the cost of capital for SMEs overall. Christian highlighted that guarantees, leveraging public funding, are particularly valuable when systemic reforms are too slow to address urgent challenges, such as accelerating climate sector investments.

By narrowing the gap between perceived and actual risks, guarantees provide a demonstration effect that attracts further investments. While challenges like currency risks and affordability persist, SECO’s layered approach—blending reforms, credit guarantees, and capacity building—ensures lasting impact and accelerates green investments in developing economies.

Starting and ending with Impact: examples of successful guarantees around the world

Sida has successfully deployed guarantees to drive impactful investments, particularly in renewable energy and climate resilience. For instance, it supported funds like Mirova SunFunder, enabling financing for renewable energy projects across Africa. Sida also works in partnership with larger multilateral development banks. For example, the agency provided a USD 250 million guarantee to the Inter-American Development Bank (IDB) in 2024 to partially absorb the risk associated with loans that the IDB provides to sovereign governments, enabling them to provide additional lending to climate-friendly initiatives in the Amazon region.

To ensure long-term effectiveness, Sida focuses on creating replicable models and designing guarantees with clear exit strategies, allowing markets to mature and risks to normalise over time. The impact of Sida’s guarantee programs has been significant: its USD 2 billion guarantee portfolio mobilises USD 4 billion in investments on the portfolio level.

“I want to stress that under the Swedish guarantee model, the only public money that we use is the official development assistance (ODA) to subsidise the guarantee fee if we deemed it required and suitable. We currently have a ratio of ODA to finance mobilisation of 1 to 70”, Peter pointed out, aligning with the conclusion of the OECD that guarantees are the most effective de-risking mechanisms that exist.

On its side, SECO employs partial credit guarantees to encourage sustainable investments, particularly among SMEs in developing economies. In countries such as Peru, Vietnam, and Colombia, SECO partnered with local banks to provide guarantees for green technology investments by SMEs. “In the case of Peru, USD 5 million that was committed for guarantees, and we were able to support loans in the amount of USD 20 million, recycling the guarantee funds of SECO several times.”

On top of demonstrating the leverage power of guarantees, these programs showed that, despite higher upfront costs, sustainable technologies delivered long-term financial viability through operational savings. Over 50 companies received loans through this initiative, with only 2–3 defaults recorded over two decades.

SECO’s collaboration with the Private Infrastructure Development Group (PIDG) further highlights its role in enabling credit enhancements for infrastructure projects through GuarantCo. “It’s a pooled donor funding, Christian explained, so that we pay equity into GuarantCo, which then provides guarantees to local banks or infrastructure projects in developing countries. They can use our equity at least three times to issue guarantees.”

With nearly 50 percent of its exposure in least-developed countries and a 9 percent default rate, GuarantCo has proven effective in attracting private-sector investment to high-risk regions. SECO further prioritises unlocking domestic capital in partner countries, as seen in Nigeria and Kenya. In Nigeria, PIDG supported the establishment of a local guarantee company, enabling pension funds to invest in infrastructure, while a similar initiative in Kenya addressed currency risks and strengthened local financing ecosystems.

Through the SDG Impact Finance Initiative, SECO also partners with SDC, Luxembourg and UBS Optimus Foundation to provide junior equity for impact funds, mobilising additional private capital. 

Equipping refugee camps with sustainable energy: the business case for a Philanthropic guarantee

Mark Gibson, from the Coordination Unit of the Global Platform for Action on Sustainable Energy in Displacement Settings (GPA), highlighted the need to decarbonise humanitarian operations, which remain heavily dependent on approximately 11,400 fossil-fuel-based generators in operation (estimation across six UN agencies and the ICRC). They consume over USD 100 million annually in fuel and emit nearly 200,000 tons of CO₂ each year. While transitioning to cleaner alternatives (such as solar or solar-hybrid systems) is a clear solution, the estimated cost of USD 236 million remains a challenge. “This sort of capital is not available, especially for non-core humanitarian activities, even where we can present a relatively short payback period because most of our partners are working on an annual budgeting cycle”, Mark noted. Two additional barriers impede the adoption of business models which reduce upfront costs for the installation of solar energy, such as Power Purchase Agreements (PPAs), leasing, or subscription-based models, as they further prevent long-term projections:

• Termination clauses: the humanitarian organisations must add clauses in their contracts that these can be cancelled within a 30-day notice. 
• Political risks: as situations in refugee camps and other fragile areas can be volatile, despite the camps having an average lifespan of 18 years, these are seen as temporary infrastructure.

To address the risks of unamortised assets in case of early closures, BASE Foundation and the GPA conceptualised a philanthropic guarantee mechanism that would enable to cover eventual losses. The mechanism includes a 12-month liquidity facility to cover risks if contracts are terminated early, providing time to redeploy energy systems or secure alternative tenants. If no solution is found within 12 months, the guarantee covers unamortised financial commitments. “The philanthropic guarantee would function by collecting commitments from philanthropists who agree to pay only in the case that this specific risk happens, the money doesn’t have to be there upfront.” Daniel complements, “That’s what is very innovative”.

The concept of the guarantee is inspired by an American fund called MCE Social Capital, which aggregated USD 150 million in a philanthropic guarantee backed by 145 philanthropists. Each philanthropist committed a ticket of USD 1 million, and remarkably, after 12 years of operations, each philanthropist has in fact only paid on average USD 6,000 annually.

Scaling the guarantee of impact

Finally, Daniel called for greater innovation and collaboration between development organisations, private-sector partners, and philanthropists. Drawing parallels with the insurance industry, he illustrated how pooling and distributing risks can build confidence and unlock necessary investments: “Insurance companies are very good at distributing risk among a chain of different stakeholders. They don’t bear the full risks themselves but pass part of them to reinsurance companies, which distribute these risks further using financial products. This is what we must learn and replicate in the development world if we really want to scale investments.”

Importantly, the revolving use of guarantees presents a powerful opportunity to scale investments and address financing gaps in challenging markets: unlike one-time grants or fixed capital injections, guarantees allow funds to be reused once obligations are repaid or the guarantees are no longer required. This continuous cycle multiplies their impact over time, making guarantees an efficient and sustainable financial tool for mobilising private capital.

Daniel illustrated this potential with the example of Peru, which is expected to mobilise 10 to 12 times the initial amount in SME credit lending. Such leverage demonstrates the transformative ability of guarantees to unlock significant financing with relatively modest inputs.