Earlier this month, I participated in the panel “Funding the Future: Capital Flows for the Climate Transition,” moderated by the Financial Times’ Simon Mundy, at the ClimateImpact Flagship Summit. Alongside venture, growth, and institutional capital experts—including Sebastian Peck (KOMPAS VC), Michelle Robson (Odyssey Investment Partners), and Christian Schaefer (Goldman Sachs)—I represented the insurance perspective, aiming to unpack how risk perception shapes flows into carbon markets.
Reaching net zero demands more than just decarbonisation. Carbon offsetting, as described by the IPCC, is “unavoidable.” Nature-based solutions alone could deliver around 37% of required greenhouse gas reductions by 2030, according to The World Bank. Yet, despite this significant potential, investment remains far below what’s needed.
The primary issue? Trust. Investors, buyers, and lenders perceive carbon markets as risky due to issues around transparency, inconsistent standards, and high-profile greenwashing events. Barriers mount in emerging markets, where political instability and regulatory uncertainties amplify caution. As one policy blog observed, even if carbon credit prices rise, “underlying project and political risks will affect the ability and willingness of the private sector to enter new carbon markets.” Investors either demand a prohibitive premium or avoid projects altogether, significantly limiting available capital.
At a practical level, carbon projects struggle to secure traditional financing. Mainstream lenders may not recognise future carbon credit revenues as stable or creditworthy assets. A forest conservation project promising future carbon credits lacks the financial certainty of, say, a power plant backed by guaranteed electricity sales under long-term contracts.
Without the ability to borrow against expected carbon credit revenues, project developers are forced to rely on equity funding or limited grants, stifling growth. High upfront costs for project measurement, verification, and certification compound the problem, and uncertainty around future credit pricing further deters lenders.
“Carbon markets are not yet fully integrated into financial systems. Regulatory uncertainty, fragmented market structures, and inconsistent valuation methodologies continue to pose challenges, while concerns about credit quality and permanence further limit mainstream adoption. Many financial institutions remain hesitant to classify carbon credits as financial assets due to price volatility and liquidity constraints. Commercial lending against future carbon revenues and using carbon credits as collateral remain uncommon in today’s carbon market.”
Financial Regulatory Pathways for Scaling Carbon Markets, Clean Cooking Alliance (2025)
Carbon projects have been swimming upstream on their own, trying to attract capital in a high-risk, low-trust environment. This vicious cycle—risk perception restricting capital, thus preventing market maturity and momentum—has severely limited climate progress.
Learning from Successful Climate Markets
These challenges aren’t unique. Other segments of the climate economy once faced similar issues but overcame them through targeted public and private risk-sharing mechanisms.
Renewable energy transitioned from speculative ventures to stable investments thanks to clear public policy interventions: long-term power purchase agreements (PPAs), feed-in tariffs, and tax incentives provided predictable revenue streams and reduced upfront costs. Banks responded positively, unlocking large-scale financing and enabling rapid sector growth.
Electric vehicles similarly benefited from robust public-private collaboration, including government-funded R&D, battery factories, consumer subsidies, and widespread charging infrastructure. These interventions significantly reduced risk for manufacturers and consumers alike, fueling rapid market expansion.
Emerging technologies like green hydrogen and carbon capture and storage (CCS) are following suit, leveraging government-backed guarantees, subsidies, and financial incentives and, in so doing, creating the ‘right’ conditions for private investment.
Carbon markets, by contrast, lack such systematic support. Without the risk-mitigation mechanisms that have unlocked capital flows elsewhere, markets have remained undercapitalised and projects struggled to scale.
Insurance as Essential Climate Infrastructure
Insurance is the critical missing piece required to scale carbon markets. It’s more than just another financial instrument. Insurance underpins financing by addressing its primary barriers—risk perception and bankability—transforming carbon projects from speculative investments into credible financial assets.
Oka’s tailored policies transfer the core risks—execution uncertainty, credit invalidation, developer insolvency, and political instability—away from developers and investors, creating the stable, predictable financial conditions required to unlock upfront project financing.
Public-sector support further amplifies this impact. Institutions like the World Bank’s Multilateral Investment Guarantee Agency (MIGA) are already exploring measures—such as sovereign guarantees and blended finance structures—designed to absorb risks that private capital alone can’t manage comfortably.
Together, private-sector insurance solutions and public-sector guarantees create a powerful ecosystem of trust. They not only improve investor confidence but fundamentally redefine project and credit bankability. This structured approach to risk mitigation isn’t just financial engineering: It’s about building the necessary confidence to rapidly scale climate solutions and accelerate progress towards net zero.