The World Bank Multilateral Investment Guarantee Agency (MIGA) announced yesterday the launch of a Letter of Authorization (LoA) template that will essentially provide insurance coverage for private investors that engage in the UN’s newly launched carbon market.
“The LoA represents a significant step forward in de-risking the carbon credits market,” said Hiroshi Matano, MIGA Executive Vice President. “Through the World Bank Group Guarantee Platform, we aim to strengthen credibility and accelerate growth in carbon markets by reducing risk for private sector investments in developing countries.”
The main driving force behind this new mechanism is the high level of perceived risk by buyers. While consulting with stakeholders MIGA heard concerns for all parts of the market – from how credits are generated, to how they are delivered and used, as well as their overall quality and impact.
One of the specific new components is that government commitments will now be accompanied with a clearly defined dispute resolution process, as well as compensation for projects that fail to deliver results.
Double-counting and lack of corresponding adjustments by governments have been acting as road blocks for carbon credits, further exacerbating the low supply of quality credits at a time when demand is set to multiply through the Paris Agreement Carbon Market.
The World Bank Group Guarantee Program works through credit guarantees for the public and private sector, trade guarantees for public sector risk and political risk guarantees.
Developers and investors are encouraged to apply through the MIGA portal in order to take advantage of the risk mitigation on offer or contact the organization for more details.
Private carbon market insurance developing
The World Bank’s move follows private efforts to bring insurance to the carbon markets.
Last week saw leading insurance broker Marsh partner with We2Sure, a company focused on insurance services related to carbon credits, to launch an insurance facility specifically aimed supporting organizations in the U.S., UK and EU to manage the risk of fraud.
Earlier in 2024 global insurance broker Howden announced a partnership with Respira International, a carbon finance company, and Nephila Capital, an investment manager focused on reinsurance risks to create a carbon credit invalidation insurance plan to boost trust in the Voluntary Carbon Market.
Carbon industry specialists like Kita and Oka have also emerged with a focus on establishing insurance for the burgeoning sector.
With an expected convergence of voluntary markets and those developed under the UN, carbon insurance could become a growth sector within the broader insurance industry.
source: carbon herald
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