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Pioneering corporates today are investing in carbon projects and portfolios in order to meet internal or regulated carbon offset targets. However, stakeholders are increasingly demanding that companies demonstrate that those carbon credits remain valid even in the face of bad weather, accidents, breakdowns or natural disasters.
“We have committed to buying forestry credits in the UK to meet our net zero targets - but our legal and procurement teams raised the red flag that we have no guarantee or recourse should those units not materialize. CarbonPool’s insurance would protect us against this risk.”
Buyer of carbon credits for UK subsidiary of one of the world’s largest energy producers
Asset managers generating financial returns as well as carbon credits from assets under management (such as timber and afforestation carbon credits) will be exposed to carbon reversal risk in an unexpected event, like a forest fire or natural disaster. CarbonPool’s permanence insurance can underwrite carbon removals that have been sold, credited against emissions reduction targets, and retired.
“Our institutional investors are increasingly seeing carbon credits as a revenue stream and some are asking to receive specific numbers of carbon credits to offset their own emissions. We would need insurance to be able to offer this.”
Manager of a carbon credit fund at an industrial forestry asset manager
Developers today face difficulty attracting investment into their projects, as buyers are cautious about investing in projects whose outcome – delivery of carbon credits – is not guaranteed. Developers who can say that an insurance company has evaluated and will insure their projects gain instant credibility, making it easier to attract both project investors and credit buyers.
Further, there is increasing pressure from buyers of carbon credits on carbon developers to guarantee credits. Bad weather, natural variability in nature-based projects, and technical failures are real threats to the project delivery and permanence and there is no clarity on who bears the cost of that risk. Today, many developers create their own buffer pools – keeping aside credits that they could otherwise sell to increase their economic returns. An insurance contract could provide the same protection as a buffer pool for likely a far more attractive cost depending on the risk of the project.
“We are very happy with the results of the pre-underwriting, especially the independent validation of our carbon curve and the detailed risk assessment. With this insurance, our investors and clients will be able to protect their carbon removals against natural hazards and similar risks.”
Developer of several mangrove afforestation projects