Insurance is an integral element of every high-value market.
The carbon and natural capital markets are no different.
The core function of insurance is assessing, pricing and mitigating risk, enabling businesses to execute a calculated strategy by replacing the uncertainty of future losses with the certainty of insurance coverage at a fixed premium.
Applying insurance-led analysis to carbon and natural capital projects leads to an increase in standards of delivery, transparency and management, supporting price differentials that encourage quality and lead to greater investment in high-integrity carbon removal and nature restoration solutions.
Kita’s insurance and risk advisory services help reduce risk and scale opportunity by delivering:
The ability to lock in preferred pricing and secure supply
Confidence that strong due diligence and risk management is in place
Reduced balance sheet risks
Improved financing terms and access to wider forms of capital
Capped exposure to market price risk
Flexibility in how eligible claims are settled: opt for cash or replacement like-for-like carbon credits
In a rapidly changing environment, we help clients gain a competitive advantage with confidence.
Carbon market and project risks evolve over time.
It is important to understand how to identify and monitor key risks, such that they can be addressed effectively at each stage, specific to how and when you engage in the market:
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Key Question
What happens if a carbon project underperforms against forecasts?
Detail
Under/non-delivery could occur due to many reasons, including unavoidable losses (e.g. natural catastrophe); avoidable losses (e.g. abandonment & insolvency or fraud & negligence); or carbon losses (change in methodology or insolvency of the standard).
Who might need this cover
Project investors seeking a return on investment (cash or carbon credits).
Buyers who are pre-purchasing carbon credits (ex-ante) and are waiting upon their delivery.
Project developers who must deliver credits to meet a pay-on-delivery contract.
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Key Question
Are you concerned about changes to law or regulation at an international/governmental/national/subnational level which might result in a loss of of your carbon credits?
Detail
This may relate to traditional political risks, such as war or terror, or carbon related risks, in particular for Article 6 markets and CORSIA.
Who might need this cover
This has the potential to impact all parties within the carbon markets.
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Key Question
What happens if a reversal occurs after a credit has been issued?
Detail
Reversals can happen across all types of carbon. For example nature-based solutions could face natural catastrophe, while engineered solutions could suffer leakage of carbon stored underground. Project developers might be required to make good this reversal, Carbon Standards might suffer losses from their buffer, and end users might question the integrity of their claims.
How can Kita help
Our risk advisory services can help identify reversal risk areas and enable risk mitigants to be applied. Our Buffer Depletion Insurance protects against reversal on a portfolio basis.
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Key Question
Do you rely on other parties as part of this transaction? Are you concerned about how you may be affected by their actions?
Detail
This risk can be broken down into three segments: Implementation, Financial and Contractual.
Implementation (abandonment, fraud, negligence, non-delivery of credits)
Financial (non-payment on delivery, insolvency)
Contractual (breach of contract)
Who might need this cover
Investors, buyers, and intermediaries will rely on a counterparty to receive their credits. Likewise, a project developer may rely on a counterparty to successfully implement their project. Insurance can help mitigate these counterparty risks.
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Key Question
Are you concerned that a future event could lead to the invalidation of the project?
Detail
For example, the project is invalidated due to a fraudulent or negligent act, a significant reversal of carbon dioxide back into the atmosphere or a significant shift in methodology.
How Kita can help
Kita can advise on these risks within different projects - stemming from wider counterparty and reversal considerations - and guide clients towards appropriate risk mitigation solutions.
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Key question
Are you worried about your price exposure to carbon, particularly how you might be required to replace lost credits with potentially higher priced credits in the future?
Detail
For companies that trade or invest in carbon credits, market prices can be turbulent. For companies that use carbon credits to meet net zero targets, price poses a wider risk. If a corporate is forced to replace carbon credits due to invalidation, it takes on a potentially uncapped contingent liability by being forced to replace those credits at unknown future prices.
How Kita can help
Kita‘s insurance products help cap exposure to pricing risks, enabling more certainty in financial management.
Kita’s insurance and risk advisory services comprehensively cover different risk profiles and strategies.
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Non-Delivery Insurance
Insurance coverage for delivery risk
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Counterparty Insurance
Insurance coverage for counterparty risk
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Buffer Depletion Insurance
Protecting Carbon Standards’ buffers against depletion
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Political Risk Insurance
Insurance for Political/Host Country/CORSIA risks
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Buffer as a Service
Risk management for Carbon Standard Buffers
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Risk Assessment and Risk Monitoring
Risk assessment across key risks and insurability criteria
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Portfolio as a Service
Assess, manage and mitigate risk across your carbon portfolio