POLICY RISK INSURANCE MECHANISM

This initiative was aimed at raising awareness of one of the key constraints to sufficient investment in clean energy technologies in developing countries.

The willingness of the private sector to commit capital to the clean energy and wider climate finance sector will be driven by the perceived risk/return profile of such investments. Key drivers in this risk/reward balance for investors are therefore the anticipated risk of policy and regulatory change.

Policy risk is the biggest risk that investors face in this market, often dissuading investors from allocating capital to this sector. Separate work undertaken by a range of stakeholders including the Climate Policy Initiative (CPI), Parhelion Underwriters, the Organisation for Economic Co-operation and Development (OECD), the United Nations Environment Programme (UNEP) and the World Economic Forum (WEF), identified policy risk as a major barrier to investment flows in to the climate finance sector.