Global insurer Tokio Marine Kiln (TMK) has announced a partnership with Kita, a carbon credit insurance specialist, to provide political risk insurance for developers and investors in carbon credit projects.
The company noted that it is among the first in the Lloyd’s market to offer this type of policy, which aims to mitigate financial risks related to political instability affecting the sale and export of carbon credits.
The new product, led by Ed Parker (pictured above), head of special risks at TMK, insures project developers and investors against risks such as confiscation, nationalisation, forced abandonment, license cancellation, and political violence. The cover will address losses should a host country revoke agreements that enable the credits to count towards external offsetting strategies.
With increasing political volatility in various regions, TMK highlights that carbon credit projects face heightened risks from geopolitical developments impacting their ability to sell credits. This insurance product aims to mitigate these evolving risks, providing much-needed certainty for investors and fostering confidence in the voluntary carbon market.
The availability of this cover is also expected to enhance the viability of new projects and support the initiation of high-quality projects, with rigorous assessments by Kita and TMK providing additional reassurance to investors.
Parker noted the critical timing of this initiative, emphasising the vital role of offsetting strategies as the world strives towards net zero.
“This issue is even more pertinent now as so many industries are facing increasing regulation around their offsetting and developers simply cannot afford to keep investing in the creation and maintenance of projects if they won’t be able to sell the credits when they are revoked. Our partnership with Kita will provide much-needed security against these risks and make the development of carbon projects more sustainable long-term,” he said.
James Kench, head of insurance at Kita, also highlighted the impact of political uncertainty on the financing of high-quality carbon projects.
“Political risk insurance has the potential to significantly mitigate the risks associated with correspondingly adjusted credits and protect anyone investing or operating in politically uncertain environments. In collaboration with TMK, Kita's new Carbon Political Risk Cover provides protection against traditional political risk and contract frustration perils, as well as bespoke coverage for carbon delivery failure,” Kench said.
The new carbon political risk cover, developed by Kita in collaboration with TMK, provides comprehensive protection, helping to unlock more investment in the voluntary carbon market and drive climate action.
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