Allianz, the multinational financial services company based in Germany, is offering a variation on the standard letters of credit (L/C) provided for the construction and development of clean energy projects.

A discussion posted on the Allianz web site, recognises that a record-breaking US$1.8 trillion of global investment reached clean energy projects in 2023, and the company known primarily for its insurance and asset management services says its surety-backed L/C could fit well with investments in low carbon energy transition products.

Surety-backed L/C advantages

"Sometimes, companies will find that their suppliers or buyers specifically require a guarantee in the form of an L/C," says Allianz Trade's Dan Lewis.

While L/Cs are traditionally issued by banks, he explains how, as an alternative, Allianz Trade offers surety-backed L/Cs that have several advantages.

"They cost less and require less collateral than traditional L/Cs. This frees up capital for companies to deploy in more profitable ways," he concludes.

How they work

The surety-backed L/C combines elements of a traditional L/C with the additional security provided by a surety bond.

Used to guarantee payment or performance under a contractual agreement, it is backed by the creditworthiness of both the issuing bank and a surety company.

In construction projects, it guarantees the performance and payment for contractors and subcontractors.

The discussion posted on the Allianz web site, The clean energy boom: how to mitigate risks and take advantage of opportunities can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.