Howden Group Creates First Insurance Against Fraud In Carbon Markets

Howden Group Creates First Insurance Against Fraud in Carbon Markets - Carbon Herald
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UK-based broker Howden Group announced it has helped create the first-ever insurance against fraud and negligence in voluntary carbon-market credits. 

The purchaser of carbon credits (or carbon offsets) can emit a certain amount of CO2 or other greenhouse gases, and one credit equals one ton of CO2 or equivalent greenhouse gas. Last year, the carbon credit turnover was about $2 billion but McKinsey predicts it could reach $50 billion annually by 2030 as countries and organizations are increasingly looking for ways to offset their emissions and reach net zero targets. 

The market is still, however, underregulated and the quality of some of the sold credits remains questionable. This is the reason why many companies and organizations are still unwilling to spend millions on carbon credits. 

Howden, which manages insurance for over $10 billion, has collaborated with carbon finance business Respira and reinsurance investor Nephila Capital to offer cover for third-party negligence and fraud to bring down reputational risk for CO2 credits. 

“If I’m a big shampoo buyer and I’ve told every shampoo buyer in Europe that I’m going to be net zero and it turns out half the credits I’ve bought aren’t worth the paper they are written on because I’ve been lied to, that really is reputationally very damaging for me,” Charlie Langdale, head of climate risk and resilience at Howden, told Reuters.

Relevant: BP Cheated Mexican Farmers On Purchases Of Carbon Credits

Many scams occurred in the voluntary carbon market at the start of the new millennium. In 2016, Britain’s High Court issued winding-up orders for 19 companies, which were part of a scheme where more than 5 million credits were sold for more than $41 million.

Insurers have been reluctant to offer cover for carbon credits because of insufficient data on historic losses and weak legal systems regarding carbon credits in some countries.

Howden and its partners said they have created a portfolio of verified credits and insured them as a bundle to diversify risk for the insurer. In case of fraud or negligence after the selling of the credits, Respira would be able to claim the insurance and compensate the purchaser. The plan for the upcoming months is for bigger companies with diverse credit portfolios to be able to secure their own insurance.  

Insurance backing for carbon credits “underpins the fact these are good quality projects if you can get them insured,” Respira CEO and co-founder Ana Haurie told Reuters.

Read more: Bill Introduced To Deny Carbon Credits For Oil Recovery

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