CFC, an insurance provider focused on emerging risks, has introduced a new insurance policy aimed at reducing the financial risks for banks providing loans to carbon credit projects. This new policy, first deployed with Standard Chartered Bank, seeks to address the financial risks associated with funding carbon reduction initiatives, helping to unlock climate finance in the private sector.
“This is a great example of how lending institutions and the insurance industry can combine the best of their commercial and innovative skills to facilitate greater investment in the nascent carbon dioxide removals market by the private sector and help our planet reach net zero by 2050,” said Chris Leeds, Head of Carbon Markets Development at Standard Chartered Bank.
CFC’s new Carbon Lender Insurance policy aims to mitigate the risks for banks and financial institutions offering loans to carbon credit projects, making it easier for these institutions to support climate-focused initiatives. The product was developed to support Standard Chartered’s efforts in expanding climate finance by de-risking loans for high-quality carbon projects.
The policy comes as global institutions recognise the critical role of private sector funding in combating climate change. George Beattie, Head of Innovation at CFC, noted the significance of private investment, citing estimates from the International Monetary Fund that suggest $2 trillion in annual investment is required by 2030 to meet the global net-zero target by 2050.
“Governments simply don’t have this type of money readily available and it is clear that the private sector is going to play the most vital role. This creates the single biggest lending opportunity for banks and other financial institutions in history, and we believe that insurance can and must play an essential role in helping these institutions de-risk their financing activities directed at high-quality carbon initiatives. We have developed this brand-new Carbon Lender Insurance policy to deliver risk mitigation for lenders. We believe this will open up new opportunities for them to offer financing to high-quality carbon projects and, having taken the lead, hope this signifies the starting gun for the insurance sector to redouble efforts to drive positive climate finance.” Beattie said
The collaboration between CFC and Standard Chartered Bank was facilitated by WTW, highlighting the growing involvement of the insurance sector in climate finance. “Given the significant challenge the world faces to reach its net-zero goals, this deal is an important proof of concept for the role insurance can play in facilitating funding to high-quality carbon projects. Carbon removal methods are crucial for reducing current carbon dioxide levels and must scale rapidly to meet global climate commitments,” said Oliver Colman, Director of Financial Solutions at WTW.