The nature-based carbon market: a $1.3billion opportunity for the insurance industry

• The voluntary carbon market will be worth an estimated US$50 billion in annual revenues by 2030
• The Nature-based Solutions market could provide up to 30% of the climate mitigation required to limit global warming to 1.5 degrees

A new report, ‘Insuring Nature-based Solutions in the UK’, released today by carbon market experts, BeZero Carbon, in partnership with international insurance broker, Howden, and UK insurance broker, Blackford, outlines the significant opportunity the insurance industry could play in securitising the nature-based carbon market and unlocking the capital needed to scale it. Nature-based solutions (NbS) have a large role to play in meeting climate goals and can help arrest the loss of biodiversity, both in the UK and globally.

The report reveals that the voluntary carbon market will be worth an estimated US$50 billion[1] in annual revenues by 2030, and NbS are projected to generate US$800 billion by 2050[2]. This represents a huge opportunity to create a new insurance market estimated to be worth $1.3 billion globally and up to $2-4 billion in blue sky scenarios.

In the absence of regulation, the report authors explain how insurance can be used to raise standards and help to professionalise the voluntary carbon market in order to increase buyer confidence and drive demand for the high-quality NbS needed to support global climate goals.

For those developing NbS, insurance has the power to remove barriers to growth and improve risk management by expanding from adjacent markets, partnering with investors, and leveraging technology.

Ronan Carr, Chief Research Officer, BeZero Carbon explains: “Nature-based Solutions are crucial to achieving global net zero targets. There are no scenarios where deforestation or ecosystem degradation can occur simultaneously to successful climate action. The nature-based carbon offset markets are crying out for insurance solutions in order to scale quickly.”

Charlie Langdale, Head of Climate Risk and Resilience at Howden added: “Insurance has a significant role to play in society’s journey to a low-carbon future both by de-risking companies’ and industries’ transition to low-carbon energy sources and in helping to increase confidence behind the removal of carbon from the atmosphere.”

He continued: “Soon enough, regulation will come into this market and certain risk management controls will be mandated, but the insurance industry shouldn’t be waiting for this to happen – we have an important role to play now. There is a huge pool of untapped modelling skills, data and capacity that could be used to accelerate the growth of NbS, a market that has the potential to provide up to 30% of the climate mitigation required to limit global warming to 1.5 degrees.”

The report explains how, by building on existing relationships in agriculture, finance and industry, the insurance sector is perfectly placed to support clients as they look to expand into, or finance, the emerging markets for carbon and NbS.

It outlines a variety of strategies the insurance industry can adopt to stimulate and grow NbS solutions. Adjacent markets, such as timber or crop insurance, and existing insurable risks, such as professional liability and natural catastrophe, provide a natural starting point and could be bolstered via partnerships with established players using pilot schemes and sidecar investments. It highlights that there will also be the need for products like credit insurance to protect the banks and investment houses financing long-term projects.

Tom Aldridge, Founder and Managing Director, Blackford explained: “Insurance fosters confidence which, in turn, attracts investment. In order to grasp the opportunities associated with Nature-based Solutions and carbon markets, as an industry, the insurance sector must transition to a more proactive position; helping build the knowledge and comfort required for future capital investment in this fast-developing area.”

Carr concluded: “Whilst insurance products aimed at NbS markets have been slow to take off, efforts to achieve greater standardisation and regulation are gaining momentum, whilst private sector innovations are multiplying in the carbon and natural capital markets, raising the bar for transparency and accountability.

“To capture this opportunity, insurers need to set out a bold and clear strategy of how to integrate insurance solutions into this new market. I hope the sector can take forward the recommendations set out in this report and accelerate this change in the industry.”