1. It’s good for the world.To limit global temperatures below 1.5°C and avoid the worst effects of climate change, the world must halve net greenhouse gas (GHG) emissions by 2030. Projects that offset residual emissions have an “unavoidable” part to play, concedes the IPCC. The World Bank estimates nature-based solutions could provide as much as 37% of requisite GHG reductions by 2030. Unfortunately, many would-be corporate buyers are deterred by an unregulated and opaque market characterized by inadequate risk management and insufficient data. In the absence of enforced controls, insurance strengthens the verification and risk-management processes needed to unlock high-quality credits and attract liquidity.
By fostering developer best practice and buyer confidence, insurance brings the market closer to integrity and scale — and the world to its 2030 climate goals.
2. It’s good for the market.The voluntary carbon market is riding on the coattails of net-zero commitments. The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) estimates annual demand for carbon credits will reach 1.5 to 2.0 gigatons of CO2 (GtCO2) by 2030. Demand could, says McKinsey, be matched by potential annual supply of 8-12 GtCO2. If existing challenges persist, however, annual supply will fall short of its potential. Barriers to growth include a long lead time for credit verification, in addition to scarce financing at point-of-investment, and unpredictable demand and low liquidity at the point-of-sale. Insurance provides all the risk modeling, management, and transfer needed to securitize and legitimize the market.
By easing the burden on suppliers and buyers, insurance can mobilize the investment and innovation capable of meeting — and catalyzing — future demand.
3. It’s good for You.Carbon credits are a cornerstone of net-zero transition plans. In a recent survey of US, UK, and EU organizations across all industries, Conservation International found 89% of corporate sustainability leaders view carbon credits as a valuable tool to mitigate GHG emissions. For companies unable to eliminate carbon entirely, access to “negative emissions” is critical. Despite near unanimity on their importance, the report uncovered widespread reluctance to invest due to concerns about risks caused by lack of market regulation and transparency. Risks could include fraud; digital theft; duplication; loss or damage; and catastrophic events.
Leveraging its capacity for data-driven risk management, verification, and underwriting, insurance can help corporate sustainability officers differentiate between high- and low-quality projects and de-risk their decarbonization plans.