BOLSTERING CLIMATE ACTION: CARBON PROTECT™ INSURANCE REDUCES RISK IN CARBON MARKET

THE SITUATION:

To keep climate change in check, the United Nations has established a goal of net-zero greenhouse gas emissions globally by the year 2050. Carbon removal projects have emerged to help achieve this aggressive goal. They range from natural methods (such as planting trees) to technology-based methods (such as direct air capture).

To fund these activities, individuals and companies can invest in credits to offset their own carbon emissions, which is a key component of many corporate environmental, social and governance (ESG) efforts. The market for these credits has become known as the “carbon market.”

THE CHALLENGE:

Because carbon offsets are subject to various risks – such as the risk of reversal, where stored carbon can be re-released into the atmosphere – they may sometimes be canceled or invalidated.

Oka, The Carbon Insurance Company™, saw an opportunity to underwrite certain voluntary carbon credits, thereby reducing risks and building investors’ confidence in carbon offsetting – ultimately driving carbon removal and climate action.

Oka sought commercial and legal advice to develop a first-to-market carbon insurance product.

OUR OBJECTIVE:

An interdisciplinary McDermott team, led by Michael Halsband and Mike Byrne, took a solutions-oriented approach to addressing Oka’s needs. They partnered closely with Oka to create an international carbon insurance product that would both appeal to prospective clients and protect Oka’s interests.

THE OUTCOME:

Oka succeeded in launching an international Lloyd’s syndicate-in-a-box and a US service company providing first-of-its-kind insurance protections against carbon credit risks.

To help make it happen, the McDermott team brokered introductions between Oka and a variety of key commercial contacts (at global insurance giant Lloyd’s and related agencies), facilitating first-to-market speed and guiding Oka through the process of standing up its insurance platform and executing on its business plan.

Working across practices, McDermott lawyers also drew on their deep knowledge, years of experience and strong understanding of the insurance industry to help Oka draft an innovative insurance policy from scratch. Until then, other companies exploring carbon and carbon-related products had always leaned heavily on existing property catastrophe exposures. The McDermott team went several steps further to write in cancellation, invalidation and reversal coverage due to catastrophe triggered by certain covered circumstances.

Critically, the McDermott team approached the insurance policy with a business mindset, understanding that they needed to protect Oka’s interests – but Oka also needed to be able to sell the policy. McDermott precisely balanced those concerns in drafting a completely new type of insurance product for Oka.

“The McDermott team were ideal partners to help navigate the complexities of launching an innovative and global insurance solution for the most important challenge we face collectively. We needed deep functional expertise and creative problem-solving skills to meet the opportunity, and they were able to bring both,” said Chris Slater, CEO of Oka.

DIG DEEPER:

Upon entering the market with its new insurance offering, Oka successfully partnered with a respected climate action platform to make insured carbon credits available to more than 300 global enterprises. The collaboration aims to build investors’ trust in the carbon market: In the event of specified unforeseeable and unavoidable post-issuance risks, buyers of Oka insurance-wrapped credits will receive financial compensation.

Although companies are not required to purchase carbon credits, emerging disclosure regulations such as the Securities and Exchange Commission (SEC)’s Climate Disclosure Rule and California Bill AB 1305 provide reputational incentives for purchase. Oka and its partners are leading the curve in providing greater access and transparency in the evolving – and growing – carbon market.

Learn more about our transactional and regulatory capabilities in the insurance industry.