Before pursuing it
Prepare eligible-project criteria, project selection, management of proceeds and reporting. Explain climate benefits and the issuer’s ability to service the debt.
Funding field guide
Choose finance that fits the project’s cash flow and risks.
Understand grants, loans, equity, guarantees and specialised climate-finance structures. Clear comparisons and practical examples show what each instrument changes—and what evidence it needs.
Financial instruments
Start with the repayment and risk question
A funding source is the institution or programme. An instrument is the legal and financial form of support. The same institution may offer several instruments, and a project may combine them. Ask who pays, when cash arrives, who bears losses and which results must be demonstrated.
Preparation
Studies, design and approvals happen before implementation. Identify a preparation budget and what it must resolve.
Construction / delivery
Most capital spending may occur before revenue or verified results. Arrange finance that can cover that period.
Operation
Revenue or budget support must cover maintenance, operating costs and any debt service.
Verified results
Results-based payments arrive after agreed evidence or milestones. Someone must carry the earlier cash-flow and performance risk.
Core instruments
Four core instruments, four different obligations
| Instrument | What it provides | Main obligation or risk | Preparation question |
|---|---|---|---|
| Grant | Funding for agreed eligible purposes, usually without scheduled repayment. | Use, reporting and performance conditions; recovery may apply after misuse or breach. | Which public benefit or barrier justifies grant support, and who funds recurrent costs? |
| Loan | Capital repaid over an agreed period, with interest and other terms. | Debt service, security/covenants and possible currency or refinancing exposure. | Can the borrower pay under realistic downside scenarios? |
| Equity | Risk capital in exchange for an ownership interest. | Ownership dilution, governance rights, variable returns and an exit expectation. | Is there a viable business and a credible route to investor returns? |
| Guarantee | An agreed promise to cover specified losses or obligations if conditions are met. | Coverage limits, exclusions, claim conditions and fees; it does not remove every risk. | Which precise risk prevents financing, and will the guarantee address it? |
Concessional finance offers more favourable terms than a relevant market comparison. The concessional element can sit within different instruments; justify the barrier it addresses and the degree of support. IFC — blended concessional finance principles
Specialised structures
Understand what the specialised structure changes
These approaches can be useful in the right setting. They require suitable institutions, transaction scale and specialist design; their names do not establish project eligibility.
Instrument guide
Green and climate bonds
Use of proceeds
A debt security that allocates proceeds to eligible green projects. The issuer still has to repay investors; a green label is not a source of free capital.
Practical example
A utility financing eligible water-resilience investments must assess both the projects’ environmental case and its own repayment capacity.
Instrument guide
Sustainability-linked bonds and loans
Performance-linked terms
Financing whose financial or structural terms are linked to agreed sustainability performance. Unlike a use-of-proceeds green bond, it may support general corporate purposes.
Before pursuing it
Choose material indicators, credible targets, measurement methods, verification and meaningful contractual consequences. Bond guidance is not automatically the loan rulebook.
Practical example
A borrower might link pricing to a material emissions target. A weak target or unreliable data undermines the proposition even if the contract is labelled sustainable.
Instrument guide
Resilience-labelled bonds and risk-transfer structures
Define the actual product
“Resilience bond” is used for different structures. It may describe debt financing for resilient assets or a structure connected to insurance/risk transfer; the label alone does not specify cash flow or protection.
Before pursuing it
Identify whether the transaction is ordinary debt, insurance-linked risk transfer or a combination. Obtain the term sheet, modelling assumptions, trigger definitions and treatment of residual risk.
Practical example
A bond paying for flood protection and a catastrophe-risk instrument responding to a defined event solve different financing problems. Model each obligation separately.
Terminology is not standardised here. The legal documents must define the structure; for a green use-of-proceeds bond, use ICMA — Guidance Handbook, June 2025.
Instrument guide
Debt-for-climate or debt-for-nature swaps
Sovereign debt transaction
A transaction changes existing debt obligations alongside agreed spending or commitments for development, climate or nature. It requires agreement among the relevant debtor, creditors and transaction partners.
Before pursuing it
Assess net fiscal benefit after fees, debt and legal implications, delivery capacity, monitoring and the credibility of the agreed spending. A swap is not a routine grant application.
Practical example
An environmental commitment can be valuable while a proposed transaction remains too costly or complex. Compare it with simpler financing options.
IMF/World Bank — Debt for Development Swaps: An Approach Framework
Instrument guide
Results-based climate finance
Payment after evidence
Payments are linked to specified, verified results or milestones. The result definition, payment formula and verification arrangements are contractual.
Before pursuing it
Identify who pre-finances delivery, when payment becomes due, how results are checked and who bears under-performance or non-payment risk.
Practical example
Ci-Dev illustrates results-based climate finance for energy-access programmes. Its mandate and arrangements should not be treated as eligibility rules for every results-based facility.
Instrument guide
Carbon finance and Paris Agreement Article 6
Distinct cooperation routes
Carbon revenue may support eligible activities, but it depends on the applicable standard, methodology, verification and market arrangements. Article 6.2 concerns cooperative approaches and transfers; 6.4 establishes a UN mechanism; 6.8 concerns non-market approaches.
Before pursuing it
Check host-country requirements, applicable authorisation, accounting/corresponding adjustments, methodology, safeguards and buyer terms. Do not assume an activity automatically generates internationally transferable credits.
Practical example
A climate-beneficial activity may have no eligible methodology or viable crediting economics. Test those issues before putting carbon revenue into the base financial case.
Use the current approved rules and host-country arrangements. UNFCCC — Article 6.4 rules and regulations
Instrument guide
Blended finance
Combine capital for a reason
A structure combines concessional/development support with commercial finance to address a financing barrier. The blend must explain what each contribution does and which risks each party bears.
Before pursuing it
Demonstrate additionality, proportionate concessional support and a route towards commercial sustainability. Model the cash-flow priority and allocation of losses; there is no standard grant percentage.
Practical example
A preparation grant, loan and guarantee may each solve a different problem. Adding all three without an identified barrier can create complexity without attracting investment.
Design checks
Test the complete financing structure
A financeable structure needs five answers
- Use of fundsWhich activity or cost does each source finance?
- Cash timingAre funds available when expenditure falls due?
- Repayment or returnWho pays, in which currency, from which revenue or budget?
- Risk allocationWho carries construction, demand, climate, performance and credit risk?
- Evidence and obligationsWhich conditions, safeguards, reporting, verification and remedies apply?
Compare the whole cost, including preparation, fees, monitoring, verification and ongoing administration. A more elaborate structure is useful only if it solves a material financing problem.
Official sources
Read the guidance for the decision you are making
Reviewed 26 September 2026. The notes distinguish retrieved documents from official indexed extracts and unresolved details. Our diagrams and examples explain preparation choices; they are not official approval charts.
- IFC — blended concessional finance principles
Minimum concessionality, additionality, market development, sustainability and standards; explanatory principles, not an open application window.
- ICMA — Guidance Handbook, June 2025
Distinguishes use-of-proceeds and sustainability-linked structures; voluntary market guidance, not a funding commitment.
- ICMA — Sustainability-Linked Bond Principles
KPI selection, target calibration, financial characteristics, reporting and verification.
- IMF/World Bank — Debt for Development Swaps: An Approach Framework
Analytical framework for sovereign debt exchanges; transaction feasibility must be assessed separately.
- World Bank Ci-Dev — results-based climate finance
An institutional example of results-based payments supporting energy access, not general eligibility for all climate projects.
- UNFCCC — Article 6 overview
Article 6.2, 6.4 and 6.8 are distinct cooperation routes.
- UNFCCC — Article 6.4 rules and regulations
Use current approved standards, procedures and host-country arrangements, not an informal negotiating draft.
Work with the practice
Turn the guide into a useful next step
Start with a non-confidential description of the country, project owner, climate problem and decision needed. We can help organise the evidence and compare preparation options; the fund or financier decides access and approval.
