First insurance against fraud in carbon credit market established

London-based broker Howden Group has created the world’s first insurance against fraud and negligence within the carbon credit market in an attempt to scale up the nascent industry. 

Related topics:  insuring the planet,  fraud
Tabitha Lambie | Editorial assistant, Barcadia Media
6th September 2022
carbon credits
"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."
- David Howden, Howden Group chief executive

Carbon credits stem from practices such as planting trees and preserving biodiversity to offset carbon emissions. In 2021 carbon credit trading turnover was close to £2bn but it could increase to above £40bn a year by 2030, according to McKinsey, as the world looks to reach net zero.

However, amid concerns about the quality of credits being sold in the unregulated market, several companies have become reluctant to invest for fear of being misled. 

To combat these concerns, Howden Group has partnered with carbon finance firms Respira International and reinsurance investor Nephila Capital, who were advised by climate risk finance company, Parhelion, to provide cover for third-party negligence and fraud within the carbon credit market. This will help reduce the potential reputational risk of buying carbon credits.

As well as establishing insurance for third-party negligence and fraud within the carbon credit market, Howden has collated a portfolio of verified credits that have also been checked by Respira. These verified credits have been insured as a combined lot to diversify the risk.

Consequently, in the event of fraud or negligence after credits have been sold, Respira will be able to make a claim on the insurance and compensate the buyer.

The insurance for Respira's portfolio was led by Nephila's Lloyd's of London syndicate 2357, alongside other Lloyd's insurers and Zurich Insurance Group, reports Reuters.

Commenting on this world’s first insurance, Charlie Langdale, Howden head of climate risk and resilience, has said:

"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, Respira co-founder and chief executive, added:

“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.”

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