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<\/p>\n\n Insurance and guarantees made up 14% of concessional support, but projects still have to be able to pay their own way\n <\/p>\n
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Blended finance will not close the climate funding gap in emerging markets on credit enhancement alone, according to a new Moody\u2019s Ratings report, which says deals scale only when projects progressively become commercially viable. Insurers appear on both sides of that equation, as providers of credit and political risk cover that makes deals investable and as buyers of the bonds that let them scale.<\/p>\n
Moody\u2019s report, \u201cScaling climate blended finance will take more than credit enhancement,\u201d says credit enhancement can crowd in private capital by reallocating risk, but it does not address whether a project is investable or create the revenue to service debt.<\/p>\n
A widening gap<\/p>\n
Citing Climate Policy Initiative estimates, Moody\u2019s says global climate finance exceeded US$2 trillion in 2024, against annual average needs of US$7.8 trillion for 2025 to 2030 and US$9 trillion for 2031 to 2035. Private climate finance topped US$1.2 trillion in 2024, but international climate finance reaching emerging markets and developing economies was only US$197 billion, with 78% coming from public sources.<\/p>\n
The donor base is shrinking. Official development assistance is in decline as governments focus on domestic priorities, with projected cuts of 9% to 20% by 2027 in the data Moody\u2019s cites, which limits development finance institutions\u2019 capacity to crowd in private money. Competition for long-term capital is also rising, because debt markets are increasingly financing data centers and related infrastructure, and climate projects in emerging markets face a higher hurdle in attracting investors on a risk-adjusted basis.<\/p>\n
Donors are responding by shifting from grants to concessional instruments with higher leverage, using first-loss capital, guarantees and subordinated tranches to reduce expected losses for senior investors. Blended finance mobilised US$19.6 billion in 2025, according to Convergence data cited in the report. Moody\u2019s says private-sector mobilisation strengthened last year, led by commercial banks, supported by rising use of guarantees and Brazil\u2019s Eco Invest program, and adaptation financing doubled, though mitigation still took the largest share, dominated by renewable energy.<\/p>\n
Where insurance and guarantees fit<\/p>\n
Guarantees and insurance accounted for 14% of the concessional instruments used in climate blended finance transactions between 2022 and 2024, according to Convergence data in the report. Senior debt took 22%, investment-stage grants 21%, technical assistance grants 18% and subordinated, junior and first-loss debt 13%. Pre-project assistance, which includes technical assistance and design-stage grants, makes up nearly a quarter of the concessional finance MDBs and DFIs provide.<\/p>\n
Moody\u2019s lists insurance as a risk mitigation channel for seven of the ten climate technology categories in its review: nature-based solutions, early-stage transition technologies, nuclear power, public adaptation infrastructure, water resilience, hydropower, and solar and wind. Insurance does not appear in its list for low-carbon fuels, grid infrastructure and geothermal, or energy efficiency.<\/p>\n
The Bahamas\u2019 debt conversion for marine conservation, in November 2024, is Moody\u2019s example of insurance inside a blended structure. The transaction refinanced US$300 million of maturing commercial debt with longer-term debt and targets about US$124 million for marine conservation over 15 years. Its credit enhancement included an IDB guarantee, an impact investor\u2019s co-guarantee and private credit insurance from AXA<\/a> XL. Moody\u2019s says the Bahamas\u2019 relatively strong institutional framework, reflected in a governance score of 2, supported execution, and the deal also included institutional strengthening measures on environmental governance and public debt management.<\/p>\n