Industry urged to look to take carbon securitisation lead

Insurers have been told there is a major opportunity to support a move to scale up the nature-based carbon market.

In a new report, ‘Insuring Nature-based Solutions in the UK’, created by carbon market experts, BeZero Carbon, in partnership with international insurance broker, Howden, and UK insurance broker, Blackford, insurers have been told there is a significant opportunity for the insurance industry to securitise the nature-based carbon market and unlock the capital needed to scale it.

It added the importance of Nature-based solutions (NbS) could not be underestimate given the role it will play in meeting climate goals and can help arrest the loss of biodiversity, both in the UK and globally.

The report reveals that the voluntary carbon market will be worth an estimated $50 billion in annual revenues by 2030, and NbS are projected to generate $800 billion by 2050. This represents a huge opportunity to create a new insurance market estimated to be worth $1.3 billion globally and up to $2-4 billion in blue sky scenarios.

Ronan Carr, Chief Research Officer, BeZero Carbon said: “Nature-based Solutions are crucial to achieving global net zero targets. There are no scenarios where deforestation or ecosystem degradation can occur simultaneously to successful climate action. The nature-based carbon offset markets are crying out for insurance solutions in order to scale quickly.”

In the absence of regulation, the report authors explains how insurance can be used to raise standards and help to professionalise the voluntary carbon market in order to increase buyer confidence and drive demand for the high-quality NbS needed to support global climate goals.

For those developing NbS, insurance has the power to remove barriers to growth and improve risk management by expanding from adjacent markets, partnering with investors, and leveraging technology.

Charlie Langdale, Head of Climate Risk and Resilience at Howden added: “Insurance has a significant role to play in society’s journey to a low-carbon future both by de-risking companies’ and industries’ transition to low-carbon energy sources and in helping to increase confidence behind the removal of carbon from the atmosphere.”

“Soon enough, regulation will come into this market and certain risk management controls will be mandated, but the insurance industry shouldn’t be waiting for this to happen – we have an important role to play now,” he added. “There is a huge pool of untapped modelling skills, data and capacity that could be used to accelerate the growth of NbS, a market that has the potential to provide up to 30% of the climate mitigation required to limit global warming to 1.5 degrees.”

The report said that by building on existing relationships in agriculture, finance and industry, the insurance sector is perfectly placed to support clients as they look to expand into, or finance, the emerging markets for carbon and NbS.

It outlined a variety of strategies the insurance industry can adopt to stimulate and grow NbS solutions. Adjacent markets, such as timber or crop insurance, and existing insurable risks, such as professional liability and natural catastrophe, provide a natural starting point and could be bolstered via partnerships with established players using pilot schemes and sidecar investments. It highlights that there will also be the need for products like credit insurance to protect the banks and investment houses financing long-term projects.

Tom Aldridge, Founder and Managing Director, Blackford explained: “Insurance fosters confidence which, in turn, attracts investment. In order to grasp the opportunities associated with Nature-based Solutions and carbon markets, as an industry, the insurance sector must transition to a more proactive position; helping build the knowledge and comfort required for future capital investment in this fast-developing area.”

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