A cross firm team has advised on the launch of the world’s first climate-focused guarantee company, the Green Guarantee Company (GGC), which will provide $1 billion in climate finance for developing countries.
The finance will be mobilised 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 GGC, which will be managed by the Development Guarantee Group, 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 through its MOBILIST programme, the Green Climate Fund, the Nigeria Sovereign Investment Authority, the United States Agency for International Development with Prosper Africa, and Norfund.
GGC will leverage an initial $100 million from these investors to provide up to $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.
GGC’s cover will prioritise green infrastructure, renewable resources, alternative energy, and clean transportation. Guarantees will be prioritised for issuers from African and Asian countries eligible for official development assistance, 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.
The team from Gowling WLG which worked on the deal was led by Alasdair McKenzie (partner, banking and finance), Davey Brennan (partner, corporate) and James Breffit (legal director, corporate and funds), with support from Sharon Ayres (partner, investment management), Kam Dhillon (principal associate, financial services regulation) and Oratile Jonas (associate, investment funds).
Alasdair McKenzie commented: "The GGC will be crucial to developing countries accessing climate financing and tackling climate change on a global scale. We know these countries are bearing a significant brunt of the effects from the climate crisis and struggle to gain the relevant investment needed to implement green projects and infrastructure, but this financing will help to provide a long-term, sustainable solution. We are proud to have played a role in initiating this company and are excited to see the impact in has in the coming years."