As the world grapples with the increasing impacts of climate change, investing in carbon projects has arisen as an effective way for businesses to offset their carbon emissions. The potential of these markets really is vast. The value of voluntary carbon markets is projected to hit an astounding $250 billion by 2030, as more businesses and lenders enter the market. But the truth is projects can be fraught with significant risk.
To secure investments and encourage participation in vital sustainability initiatives, businesses need a risk-transfer mechanism. While the majority of deals in this emerging space go uninsured, carbon insurance is quickly evolving to fill the protection gap. So how does it offer businesses the safety net they need, while helping to bring more green solutions to life?
What is carbon insurance?
Carbon projects come in different shapes and sizes, from reforestation to developing more sustainable fuels. Businesses everywhere have the opportunity to invest in these projects, purchasing carbon credits to offset their carbon emissions. But since carbon credits are an intangible investment tied to a physical location, they’re also vulnerable to risks such as flooding and earthquakes, financial fraud, political risks and so on. This can lead to the non-delivery of credits, the cancellation of existing credits and prevent lenders from entering the market.
Carbon insurance products are designed to safeguard against these risks. Designed for carbon credit investors and project lenders, the best insurance policies offer invaluable protection and build confidence in the market, giving the world a powerful tool in the bid to reach net zero.
Why does carbon insurance matter?
As businesses increasingly dive into carbon markets, taking out insurance should be seen as core to the planning process. After all, who can afford to lose their investments for nothing when it transpires a project is built on fraud, or after a natural catastrophe has stopped the project in its tracks? The threat of credits not being delivered or being invalidated means risk mitigation is a decision that can’t be taken lightly.
Carbon insurance products have been specifically developed to fill this protection gap. Not only does a comprehensive policy empower businesses to support sustainable initiatives, it also helps them to manage environmental risks proactively, to protect themselves and their bottom line no matter what’s round the corner.
The right policy also builds business resilience. With environmental regulations becoming more stringent and public scrutiny on carbon emissions intensifying, there is increasing pressure for businesses to demonstrate environmental responsibility. Purchasing carbon credits is an effective way for businesses to comply with changing regulations. And by combating the risks involved they can prove they are responsible corporate citizens—also helping to attract more environmentally-conscious consumers, investors and stakeholders.
Perhaps most importantly, carbon insurance is a step towards long-term sustainability. By integrating carbon insurance into their risk mitigation and sustainability strategies, businesses can futureproof their operations against evolving environmental challenges and carbon insurance requirements—and help to build a brighter future for everyone.
Navigating the carbon market
With climate risk rapidly climbing the agenda for governments, regulators and businesses worldwide, it’s time to close the protection gap and help drive the sustainability projects the world needs to thrive.
Carbon markets are still an emerging space. But the insurance products exist right now to support businesses in their projects, whether by lending crucial cover for financial loss or the expertise to pick the right project to invest in.
Download our new carbon report to learn:
- How the carbon market works
- Opportunities and risks you need to be aware of
- How insurance can help drive the carbon transition
