Moody's says insurers are both investors and providers of risk transfer in climate blended finance

Moody's Ratings says insurers sit on both sides of climate blended finance, as investors and as providers of risk transfer. In a report covered by Insurance Business America, the agency argues the structure will not reach the scale needed to close the climate funding gap in emerging markets unless projects become commercially viable on their own. Concessional features shift risk between investors, the report says, but cannot make an unviable project investable or create the cash flow needed to repay debt.

Global climate finance topped $2 trillion in 2024, against average annual needs of $7.8 trillion for 2025 to 2030, according to Climate Policy Initiative estimates cited in the report. International climate finance reaching emerging and developing economies was $197 billion, 78% of it from public sources. Blended finance mobilized $19.6 billion for climate projects in 2025, per Convergence data in the report: about a tenth of that $197 billion, and about 0.25% of a single year of the stated annual need.

Guarantee and insurance products accounted for 14% of the concessional instruments development lenders used in climate blended finance deals in 2022–2024, according to Convergence data in the report. Moody's also notes that official development assistance from donor governments is falling, which leaves less concessional money available to draw in private investors.

The report's worked example is the Bahamas' November 2024 debt-for-nature conversion, which refinanced $300 million of maturing commercial debt and aims to raise around $124 million for marine conservation over 15 years. It was supported by an Inter-American Development Bank guarantee, a co-guarantee from an impact investor and private credit insurance from AXA XL. This publication has covered a comparable structure, an IDB-backed $20 million storm swap for Belize.

Adaptation is the harder case. Those projects tend to produce public benefits such as avoided losses or stronger resilience rather than revenue. Moody's says scaling them will depend on mechanisms that turn resilience into investable value, including insurance-related structures, resilience-linked instruments and availability payments. In weaker governance environments, investors may require political risk insurance, larger guarantees or liquidity support before committing capital.

On the investment side, Moody's says capital markets are usually how successful blended finance deals scale and repeat, and that pension funds and insurers typically need tradable instruments that are large and liquid. Insurers already supply part of the cover: the 14% guarantee-and-insurance share of the concessional stack is a measured figure, not a projection.