How insurance innovation could unlock billions for nature-based climate solutions

January 13 - With some 55% of the world’s GDP either moderately or heavily dependent on nature, according to PwC, much more finance needs to flow away from activities that harm nature towards activities that support it.

Indeed, the U.N. Environment Programme estimates , that annual investments in nature-based solutions (NbS) need to increase from $200 billion to $542 billion by 2030 to tackle the planet’s climate, biodiversity and land degradation crises.

One important channel could be voluntary carbon markets, with the World Economic Forum saying it could be worth between $5 billion and $30 billion per year by 2030, with perhaps two thirds of this channelled into nature-based solutions.

However, in the last three years, only 1.2% of the annual cost-effective potential of NbS has been unlocked by the voluntary carbon market, the WEF says.

One sector that could be key for expanding the voluntary carbon market and other forms of nature finance is the insurance industry, according to a recent report, from insurer Howden and investment and advisory firm Pollination.

”The industry has a significant opportunity to scale and adapt existing products, as well as deliver new solutions, to drive a step-change in nature finance,” the report points out.

”We need to unlock more finance to directly invest in nature restoration,” says Dr Carter Ingram, managing director at investment and advisory firm Pollination. The insurance industry ”can de-risk voluntary carbon markets and credits tied to NbS, and provide an incentive to restore or conserve nature by providing lower premiums if companies do so”.

She adds: ”About $7 trillion is invested in activities that degrade nature, so there is also a case for exploring where insurance incentives cause loss of nature today.”

Charlie Pool, head of carbon insurance at Howden, says insurers’ expertise in managing risk means they can de-risk projects and enhance governance, making ”the economics more attractive to people who want to find this space”.

Earlier this year Howden announced the placement of the first Carbon Credits Warranty and Indemnity (W&I) policy, which provides assurances that the buyers of carbon credits from a forestry project in Ghana can be compensated if social, environmental or financial issues arise that undermine the integrity of the credits.

Such assurances have enabled Mere Plantations, a UK-based company that owns and operates a teak plantation in Ghana, West Africa, to charge a premium for the credits.

Buyers can be confident that the company’s credits ”are legitimate, verified, and have delivered on their actual emissions removals,” says Mark Hogg, CEO of Mere Plantations. ”I am particularly excited to witness the positive impact this product will have and its role in reinstating confidence and integrity in the voluntary carbon market.”

Read full article here: How insurance innovation could unlock billions for nature-based climate solutions | Reuters