Howden launches ‘World-First’ voluntary carbon credit insurance product to help scale the market

Designed to give buyers and sellers of high-quality, verified carbon credits greater certainty and help the voluntary carbon market grow to $50bn by 2030

Howden, the international insurance broker, announced that it has worked with carbon finance business, Respira International, and Nephila Capital, a leading investment manager specialising in reinsurance risk, to develop a carbon credit invalidation insurance solution to increase confidence in the Voluntary Carbon Market.

The product was developed in partnership with Respira and Nephila by Howden, who were advised by climate risk finance company, Parhelion. It was incubated through the product innovation work stream on the Insurance Task Force of the Sustainable Markets Initiative; an initiative led by His Royal Highness The Prince of Wales.

There is no doubt that the Voluntary Carbon Market (VCM) will play a vital role in the transition to a low-carbon future. Various estimates suggest that the market for carbon credits could be worth between $20bn^[1] and $50bn^[2] by 2030.

Trading turnover of the VCM has increased steadily over recent years to just under $2 billion in 2021^[3]. A total of 60% of Fortune 500 companies have now set climate targets and these commitments point to substantial increases in demand for voluntary carbon credits.^[4]

However, the VCM remains complex, particularly for new buyers, and doesn’t deliver consistently for carbon reduction and removals projects on the ground. In order to support future growth, it is critical that the VCM implement processes to improve credibility and transparency and to differentiate independently-verified, high-quality credits from unverified credits, thereby helping buyers to engage with confidence.

Given the anticipated increase in scale and number of newcomers to the VCM, this new insurance solution provides another very welcome layer of security. 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 product of its kind for the VCM, and one of a suite of products that Howden is working on to help to grow the market to the scale needed to support global net zero targets.

Charlie Langdale, Head of Climate Risk and Resilience at Howden, says: “For the voluntary carbon market to grow to $50bn 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.

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.”

Ana Haurie, Co-founder and CEO of Respira, explains: “The voluntary carbon market is an essential piece of the puzzle if we are to reach net zero. 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 channelled into high-quality carbon projects on the ground.”

David Howden, CEO of Howden Group added: “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 to accelerate and de-risk the move to a more sustainable future.”

Capacity came from the Lloyd’s market, with Nephila’s Syndicate 2357 as the lead market.

Maria Rapin, CEO of Nephila Climate said: “From first meeting the Howden and Respira teams at COP26, it’s been a really enjoyable, collaborative process getting this ground-breaking product live. We are proud to support the growth of a market that is so important for climate resilience.”

The new product builds on the success of the work that Parhelion pioneered in the regulated California cap and trade market.

[1]https://trove-research.com/research-and-insight/voluntary-carbon-market-2021-year-in-review-and-2022-outlook

[2]https://www.mckinsey.com/business-functions/sustainability/our-insights/a-blueprint-for-scaling-voluntary-carbon-markets-to-meet-the-climate-challenge

[3]https://www.ecosystemmarketplace.com/publications/state-of-the-voluntary-carbon-markets-2022

[4]https://wwfint.awsassets.panda.org/downloads/power_forward_4_0.pdf