ESG: Buyers on the VCM demand more insurance options
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ESG: Buyers on the VCM demand more insurance options

Risk-sharing mechanisms could help drive confidence in the voluntary carbon market, but insurance products are scarce.

Illustration: iStock

Insurance has always played a key role in commodities, where there is no shortage of asset-level risk. It is surprising then that one environmental commodity in growing demand – carbon offsets – lacks an insurance support system.

Despite frequent criticism that the real environmental impact of offsets is oversold, demand for voluntary carbon credits is growing. The voluntary carbon market (VCM) grew in value to $2 billion in 2021, quadruple the figure for 2020. It is projected to grow to $50 billion by 2030, fuelling enthusiasm in the financial sector for its role in a net-zero economy.

Risk-sharing mechanisms could increase confidence in the VCM and boost capital flows. So, developing such products is its latest challenge.

At the macro level, sustainable development agencies are looking for ways to incentivize investors to finance projects in emerging markets.

“The World Bank could come in and provide their expertise through development banks to take away some of the risks from buyers,” points out Chris Leeds, head of carbon markets development at Standard Chartered and board member of the Integrity Council for the Voluntary Carbon Market (ICVCM).

The Multilateral Investment Guarantee Agency offers political insurance to carbon-offset projects.

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