Sustainability Language

Sustainable Finance & Investment

De-risking

The use of policy measures and public financial instruments to reduce, share or reallocate investment risk so that private capital flows into sustainable projects.

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Definition

De-risking means reallocating, sharing or reducing the existing or potential risks associated with an investment. WRI divides it into policy de-risking — government measures that lower regulatory or market risks — and financial de-risking, where public institutions and climate funds deploy instruments such as guarantees, concessional loans, equity and insurance to absorb part of the risk. Deployed strategically, public resources can make previously unbankable projects attractive to commercial and institutional investors.

References

Overview

What it means

Public money changing the risk equation rather than paying the whole bill — each public dollar positioned to mobilise several private ones.

How it is used

De-risking is the operating logic of blended finance in clean energy and development finance; instruments include guarantees, lines of credit, mezzanine finance and insurance products.

Why it matters

Emerging-market clean-energy investment remains far below net-zero needs largely because of perceived risk; de-risking is the principal policy answer.

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