Political Risk Insurance
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On this page: Political risk insurance is helpful for stimulating many types of investment in Emerging markets and developing economies. Read more below, or download the following reports: Strategic Guidance for Country System Assessments and Guidance for Countries in Assessing ERC Projects, or the Mobilizing ERC Finance Report.
Political risk insurance (PRI) can help mobilize ERC financing through broadly insuring against general political risks that deter international financiers from investing in EMDEs or mitigating ERC-specific political risks, such as around Article 6 authorization. PRI is offered by private insurance providers and public entities, such as DFIs, and can cover the full range of general political risks such as civil conflict, expropriation, and change of government policy. Addressing general risks is helpful for stimulating many types of investment in EMDEs, including across EAP where across most countries’ political risk ranges from medium to high.1 Mitigating general political risks in EMDEs may be particularly useful for mobilizing finance for certain types of ERC activities, such as nature-based ERCs of which most of the global potential exists in EMDEs, and for international ERC trade such as governed by Article 6 that can help enhance mitigation beyond NDCs while channelling financing to EMDEs. The most salient ERC-specific risk for financiers is around Article 6 authorization, that (a) authorization is obtained from a host government but is later revoked or rescinded; (b) authorization is obtained from a host government, but a subsequent corresponding adjustment is not made by the host government; or (c) authorization is obtained from a host government, but the government subsequently changes laws and policies for all projects which results in an outcome that prohibits transfer of ERCs from the host country. Such risk could be covered by breach of contract coverage, but only if such a letter meets the requirements to be considered a contractual relationship.2 Footnote 1: Aon, Aon Political Risk Map – Q1 2023, 2023. Footnote 2: World Bank, State and Trends of Carbon Pricing 2023, 2023.
This section is intended to be a living document and will be reviewed at regular intervals. The Guidelines have not been prepared with any specific transaction in mind and are meant to serve only as general guidance. It is therefore critical that the Guidelines be reviewed and adapted for specific transactions. Unless expressly stated otherwise, the findings, interpretations, and conclusions expressed in the Materials in this Site are those of the various authors of the Materials and are not necessarily those of The World Bank Group, its member institutions, or their respective Boards of Executive Directors or member countries. For feedback on the content of this section of the website or suggestions for links or materials that could be included, please contact the PPPLRC at ppp@worldbank.org.
Updated: April 5, 2024
TABLE OF CONTENTS
UNLOCKING GLOBAL EMISSION REDUCTION CREDIT
1. Introduction to Emission Reduction Credits
• The World Bank's Emission Reduction Program
• Classification of Emissions Reduction Credit
• Policy Context of Emissions Reduction Credit
• Current Landscape of ERC Financing
• Financing structures to address key risks
• Debt: Example of Emission Reduction-Linked Bond from Vietnam
• Equity: The London Stock Exchange and Foresight Sustainable Forestry
• Fund: Liveligoods Carbon Fund 3
3. Key Enablers of ERC Finance
• Credit Risk in ERC Finance Transactions
• Political Risk for ERC Activities
• Rights to ERCs and Their Benefits
• Government Engagement and Public Sector Participation
4. Scaling Finance for ERC Generation
• Key Findings to Scale Up Private Sector Capital for ERC Activities
• Expand ERC-Backed Debt Issuance