A report from Howden Group and Pollination says that, “The insurance sector has a critical role to play in unlocking finance for nature at pace and scale.”
The report – Through the Wilderness: The Role of Insurance in Unlocking Nature Finance – says, “We are in a decisive decade for the future of our climate and nature. Delivering on global nature positive and net zero ambitions will require significant acceleration of private sector capital flows towards activities that benefit nature. The insurance sector can make a major contribution to helping unlock and scale the financial flows that are critically needed to mitigate and adapt to climate change and conserve and restore nature.”
The insurance industry can maximise its impact, the report says, by delivering risk transfer solutions across a range of emerging opportunity areas for nature finance, including environmental markets.
The report notes that “Nature markets trade an estimated $9.8 trillion worth of goods or services annually, with over 40 per cent of this value being derived from agricultural products.” It says, “Developments are helping to better incorporate the value that nature provides to our global economic, financial, and social systems – including new standards and methodologies to support nature markets, frameworks to evaluate and disclose nature impacts and dependencies, and natural capital accounting methods.” This, it says, is where the insurance sector can accelerate transformation.
Megan Flynn, Managing Director, Global Head of Advisory at Pollination, said, “We face existential, global challenges in the dual climate and biodiversity crises. Success in this decisive decade hinges in our ability to reverse financial flows from activities that degrade nature towards a new, nature positive economy.
“Private investment still lags public and philanthropic funding for nature, in part owing to high perceived risks in the context of uncertain revenue streams in nascent markets. Mobilising capital towards the restoration and protection of nature at pace and scale will depend upon overcoming these barriers to investment. The insurance sector has a key role to play in delivering the risk transfer solutions needed to help unlock nature transactions.”
The report finds that emerging experience in adapting and designing new products for regenerative agriculture, coastal, and forest systems demonstrate nascent but growing capacity across the insurance sector. The industry has a significant opportunity to scale and adapt existing products, as well as to deliver new solutions, to drive a step change in nature finance.
The report says that the sector can best drive this agenda forward in partnership with public and private actors, delivering a set of priority interventions to reduce barriers to investment into nature.
Rowan Douglas, Chief Executive, Climate Risk & Resilience at Howden, said, “Insurance has a significant role in creating value and mobilising finance towards the natural capital we must protect. This report creates a path for insurance to help evaluate ecosystem risks and create the governance systems to reduce, manage and share risks, to both protect natural assets and mobilise public and private capital to align with nature.”
The report describes four key roles for the insurance sector to unlock finance for nature:
Risk transfer to mobilise capital
- Adapt crop insurance solutions for transition finance for regenerative agriculture
- Scale use of existing insurance products for nature-based debt instruments
Protecting natural assets
- Scale use of parametric products
- Incentivise habitat restoration through resilience insurance
Enabling trading in environmental markets
- Expand insurance coverage for carbon markets
- Adapt offerings for other environmental markets
Governance
- Investigate where traditional insurance incentivises nature and biodiversity loss
Read the report, Through the Wilderness: The Role of Insurance in Unlocking Nature Finance