Task Force on Credit Enhancement for Sustainability-linked Sovereign Financing
Financing resilience through collaboration
What Is Credit Enhancement?
Credit enhancement tools are financial instruments or mechanisms designed to improve the creditworthiness of a debt instrument or borrower by reducing the perceived or actual credit risk for investors. This is typically achieved by substituting or mitigating the borrower’s default risk through external support—most commonly in the form of guarantees, insurance, collateralization, and other mechanisms.
These tools can be provided by third parties (e.g., governments, multilateral development banks, insurers), or structured internally within a transaction. Credit enhancement tools aim to secure better credit ratings, lower borrowing costs, and broader investor appeal, particularly for issuers in emerging market and developing economies. They can help attract private investment for sustainable development, particularly when combining with sustainability-linked sovereign financing instruments such as sustainability linked bonds or debt for nature swaps.
What are sustainability-linked sovereign financing instruments?
Sustainability-linked sovereign financing instruments like sustainability-linked bonds (SLBs), sustainability-linked loans (SLLs) and debt-for-nature conversions/swaps are financial products whose terms are explicitly tied to the issuer’s achievement of predefined performance targets. They can change depending on the issuer’s progress toward these targets and ideally lower the cost of borrowing of sovereigns by mitigating long-term sources of sovereign default risk and by appealing to the growing base of ESG-oriented (environmental, social, governance) investors.
Scaling Credit Enhancement
Credit enhancement can be used as a tool to make climate and nature financing more accessible for developing countries.
To scale the use of credit enhancement instruments, public and private actors need to systematically address three critical barriers:
ACCESS
The absence of a comprehensive overview of credit enhancement tools—such as guarantees, risk insurance, and other innovative instruments—prevents developing countries from systematically accessing a broad range of credit enhancement instruments.
EFFICIENCY
The absence of market information, harmonized processes, and standardized products leads to lengthy development timelines and hampers the ability to deliver tailored solutions.
COLLABORATION
Scaling credit enhancement for sustainable, climate- and nature-linked sovereign financing requires greater collaboration across multilateral development banks (MDBs), international financial institutions (IFIs), and private sector actors, leveraging their distinct mandates and capabilities.
INCREASE ACCESS
Improve access to innovative financing solutions
IMPROVE EFFICIENCY
Reduce borrowing costs and attract private investment
FOSTER COLLABORATION
Reduce borrowing costs and attract private investment
Sustainable Sovereign Debt Hub is acting as the secretariat for the new Task Force
Why establish a Taskforce?
At COP28, world’s top multilateral development banks and other international organizations launched a global Task Force on Credit Enhancement for Sustainability-Linked Sovereign Financing for Nature and Climate. Sustainability-linked sovereign financing offers innovative solutions for vulnerable countries facing the triple climate, biodiversity, and debt crisis.
Members of the Task Force include: Agence Française de Développement (AFD), Asian Development Bank (ADB), Asian Infrastructure Investment Bank (AIIB), African Development Bank (AFDB), European Investment Bank (EIB), Green Climate Fund (GCF), Global Environment Facility (GEF), Inter-American Development Bank(IADB), Development Bank of the Latin America and the Caribbean (CAF).
The Sustainable Sovereign Debt Hub (SSDH) serves as the secretariat for the Taskforce. The Climate Champions Team and The Nature Conservancy (TNC) as observers and technical advisors to the taskforce, respectively.
Press Releases
Events
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