International insurance broker Howden has announced the launch of a carbon credit invalidation insurance product to increase confidence in the voluntary carbon market (VCM). The product was developed in partnership with Respira International, a carbon finance business, and Nephila Capital, an investment manager specializing in reinsurance risk.
The partnership was advised by Parhelion, a climate risk finance company. It was incubated through the product innovation work stream on the Insurance Task Force of the Sustainable Markets Initiative, an initiative led by Prince Charles.
The VCM will play a vital role in the transition to a low-carbon economy, Howden said. Estimates suggest that the market for carbon credits could be worth between $20 billion and $50 billion by 2030. Trading turnover of the VCM has increased steadily over recent years, rising to just under $2 billion in 2021. A total of 60% of Fortune 500 companies have set climate targets, and these commitments indicate substantial increases in demand for voluntary carbon credits.
However, VCM does not deliver consistently for carbon reduction and removal projects on the ground, Howden said. The broker said it was critical for VCM to implement processes to improve credibility and transparencies, and to differentiate independently verified, high-quality carbon credits from unverified credits.
Howden’s new insurance product will add another layer of security, the company said. The product, which is wrapped around books of independently verified, high-quality carbon credits, provides cover for third-party negligence and fraud. It is the first of its kind for the VCM, and one of several products that Howden is working on to help grow the market.
“For the voluntary carbon market to grow to $50 billion by 2030, buyers need to be able to trust that the carbon credits they are buying are removing the promised volume of carbon from the atmosphere,” said Charlie Langdale, head of climate risk and resilience at Howden. “The added layer of security provided by this product, combined with independent verification from established, reputable bodies, will help buyers to purchase with confidence and should drive more buyers towards high-quality projects like those in Respira’s portfolio.”
“The voluntary carbon market is an essential piece of the puzzle if we are to reach net zero,” said Ana Haurie, co-founder and CEO of Respira. “Respira is committed to improving integrity and transparency in the market, and this product will appeal to the many corporates and financial services companies who wish to engage in buying high-quality carbon credits as part of their own pathways to net zero and carbon projects keen to provide buyers with the highest assurance. This will enable much-needed capital to be channeled into high-quality carbon projects on the ground.”
“This is a perfect example of the insurance market doing what it absolutely must do to drive climate resilience – bringing the client, insurer and broker all to the table to create brand-new products that help accelerate and de-risk the move to a more sustainable future,” said David Howden, CEO of Howden Group.
Capacity came from the Lloyd’s market, with Nephila’s Syndicate 2357 as the lead market.