In the growing push for sustainability, more and more businesses are turning to carbon markets as a key way of offsetting their emissions and supporting the bid to net zero. The potential of these markets is vast. But they come with associated risks, from natural catastrophes like forest fires to political risks and fraud, which can lead to the non-delivery of credits.
For carbon markets to realize their full potential, businesses need an effective way of safeguarding their investments. Carbon insurance has emerged as a critical tool in this space, mitigating the risks holding businesses back from participating in these markets. At CFC we know it’s vital to calculate these risks with precision, a task complicated by the nature of intangible carbon credits being tied to a physical location. So how do we achieve the accuracy required to address carbon risk head-on?
Identifying and addressing carbon risks
Before entering the carbon market, it was important to undertake robust research to assess the risks at play and innovate products that address the protection gap. Carbon markets, while essential for driving global sustainability efforts, are fraught with uncertainties. Businesses face the risk of non-delivery of pre-purchased carbon credits and carbon credits being cancelled or invalidated after they have been issued. For investors, these risks can be a major deterrent.
To mitigate these risks, we introduced two products to the marketplace: delivery risk insurance and carbon cancellation insurance. These products are designed to protect investors from the financial impacts of undelivered or cancelled carbon credits, ensuring that investments remain secure despite the inherent risks in the market. A third innovative product, carbon lending insurance, lowers the risk for banks and lenders financing carbon-credit projects, helping capital to flow into the market.
Ensuring quality and credibility
With unscrupulous actors and low-quality projects operating in carbon markets, insurance can play an important role in driving investment to quality projects. This helps to build a more confident and successful market, ultimately helping to maximize the commercial opportunity while doing good for the planet.
Central to success is ensuring quality through the underwriting process. We achieve this through rigorous due diligence and access to leading data sources that enable associated risks to be assessed and managed effectively. That’s why we partner with Sylvera.
CFC’s innovative approach to underwriting carbon risks depends on reviewing projects against a strenuous quality framework. By working with Sylvera, CFC can confidently make assessments based on the most reliable data available. This partnership supports their aim of underwriting only the quality end of the voluntary carbon market. Cameron Dawbarn, Commercial Lead - Financial Services & Insurance, Sylvera
Leveraging data for advanced underwriting
To evaluate the risk profiles of different carbon projects with accuracy, we’ve integrated Sylvera’s end-to-end carbon data platform and ratings into our underwriting models. The ratings app provides detailed insights into the quality and performance of carbon projects, so we can screen and shortlist the most reliable projects for businesses to invest in. This means our insurance products are backed by data that reflects real-world outcomes and market conditions.
As the carbon market continues to grow, our partnership with Sylvera provides certainty in an uncertain world. At CFC carbon insurance is backed by data to build accurate risk profiles, identify quality projects and give them the support they need to be a success—helping to bridge the protection gap in these fast-emerging, vital markets.
Have you looked through CFC's carbon report? Using findings from a CFC survey, the report breaks down how the carbon market work, the opportunities and the risks involved, plus how insurance will play a pivotal role.
