The climate crisis has heightened the urgency of increasing investment in low-carbon and climate-resilient development in developing countries. Given their expertise, operating model, relationship with country governments, and the interface between public and private sectors, multilateral development banks (MDBs) are well-positioned to support climate-related investments in developing countries.  

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Beyond their traditional lending, MDBs can reduce, transfer, or mitigate the risks associated with investments in developing countries under certain conditions, thereby mobilizing large volumes of additional private capital that otherwise would not be available. MDB “de-risking,” therefore, can contribute to reducing the climate investment gap, building trust among borrowers and financiers, creating synergies, and supporting sector development.  

To replicate and scale de-risking to effectively mobilize private investment, MDBs should continue using and expanding financial innovation, learn from experiences, position de-risking as an instrument for sector development, promote cooperation among divisions within the MDB, and enhance data accessibility and transparency. 

Key Findings

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.

At the project level, MDBs can offer financial tools to manage political and regulatory risks. These can significantly improve the risk-return profile of climate projects and deploy additional private capital and know-how.

Enhanced data accessibility and transparency are needed for designing and deploying de-risking initiatives at scale. Potential investors have insufficient knowledge of performance data, which results in delays in designing de-risking initiatives. Although data on the credit history and probabilities of default in emerging markets exist, such information is available only to a subset of MDBs and development finance institutions (DFIs), creating inefficiencies and bottlenecks to scaling.

Partnerships with MDBs bring financial and nonfinancial additionality and benefits for de-risking. Here, additionality can be defined as the specific inputs brought by MDBs that do not exist from other sources of finance. Without the MDB, these investments would not have happened and climate action would have been reduced.

We identify four proposals 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.


The gap in financing climate-related investments in developing and emerging countries persists due to project- and country-related risks that prevent private investors from investing. Increasing attention is being paid, where appropriate, to the strategic use of public resources to de-risk investments to catalyze private finance and mobilize additional capital for climate-related projects.

MDBs have expertise and financial tools for de-risking, but implementation at scale has yet to materialize. This paper addresses the following questions: What are the risks that inhibit private sector investment in climate projects in developing countries? What are the barriers that prevent MDBs from widely using de-risking instruments such as guarantees? Based on selected case studies, we seek to shed light on the lessons learned and tease out the salient features of innovative de-risking instruments and structures that MDBs can apply, replicate, and scale.

About this Paper

This paper focuses on the potential for MDBs to mobilize private capital at scale. MDBs are well placed to facilitate low-carbon and climate-resilient development as conveners, financiers, and project implementers at the nexus of the public and private sectors and the developing and developed worlds. Yet MDBs’ potential to mobilize private finance for climate-related investments remains largely untapped.

The objectives of this paper are (1) to provide insights into the innovative financial de-risking instruments and structures used by MDBs to catalyze private finance for climate investments and (2) determine the potential and conditions for replicating and scaling these mechanisms successfully, which would enhance the role of MDBs as “mobilizers” to narrow the climate investment gap.

This analysis highlights the risks that are preventing the private sector from investing in climate projects in developing countries as well as the barriers that thwart MDB efforts to scale de-risking. It does so through case studies of Room2Run, Impact Loan eXchange Fund I, RenovAr, and the Pacific Renewable Energy Program, which illustrate de-risking at the portfolio and project levels. From these cases, we identify features and characteristics that could be replicated and scaled in other contexts and draw lessons for improvement.