Aon & Future Climate collaboration to strengthen voluntary carbon market

Global insurance and reinsurance broking group Aon is collaborating with Future Climate to build a robust marketplace in order to support scaling of the voluntary carbon market (VCM) and project development.

From what we understand, this will mean that any buyer will be able to take out an insurance policy to protect their investment in the event of non-delivery due to a variety of reasons, which includes natural catastrophes impacting the projects.

Moreover, Brazil was one of the very first countries to use the VCM mechanism, when The Green Climate Fund provided USD 500 million for a REDD+ pilot program to Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Indonesia and Paraguay in 2017.

However, for those who are not aware, private financing through the VCM has been obstructed by market transparency issues, as well as compliance problems stemming from existing projects throughout the region.

Therefore, developing robust Nature-Based Solutions (NBS) that adhere to the standards of quality and integrity is key for attracting strategic global buyers and climate investors across the VCM.

Future Climate has revealed that it is aiming to set a new benchmark for project quality and lead the implementation of projects that align with the evolving expectations of the VCM 2.0.

This will include implementing a number of best practices from the initiation of project development, including:

• All projects being certified under Verified Carbon Standard (VCS) and Climate Community and Biodiversity (CCB ) Standard, and will apply the latest REDD+ methodology (VM0048).
• All projects focusing on conserving large areas of primary forests and directing funding for scientific research and forest restoration.
• Article 6 potential eligibility: The Government is aligned to the global the VCM and the agenda of Article 6 is under discussion by the Brazilian authorities.
• Up to 85% of revenues will reportedly be directed to promote sustainable development, with 50% of the total being directed to local community beneficiaries.

As well as this, Future Climate is also working with Sylvera, the carbon credits ratings agency, to assess project risks and develop pre-issuance ratings for the projects.

And lastly, it has been revealed that Future Climate is planning on embedding insurance into VCM projects, which will ultimately reduce buyer and investor risk, while Aon will provide access to risk capital to scale insurance availability in the market.

“Without proper infrastructure and de-risking mechanisms in place, it is nearly impossible to attract the scale of institutional investor capital that the Voluntary Carbon Market requires for a meaningful progress towards net zero. We are working with Future Climate to help shape better decisions in this area, while exploring solutions that decrease potential volatility and build resilience. By integrating risk and insurance considerations into the project development cycle at an early stage, Future Climate is helping to ensure the best possibility of success for projects in this space,” commented Natalia Moudrak,
Managing Director, Aon’s Climate Risk Advisory.

“Brazil stands to benefit enormously from public and private sector financing into high-quality Voluntary Carbon Market projects. These projects have the potential not only to help sequester carbon, but also to generate additional environmental, social and economic benefits for the local communities. Insurance support will be critical to instill confidence that the project outcomes will be reached, and to help address a range of risks that project developers, buyers of carbon credits, investors and lenders may be concerned with. Aon Brazil is excited about the opportunity to bridge capital and risk to unlock the scale of the market in Brazil, including the important work that Future Climate is leading,” said Thiago Lang, Industry Specialties, M&A and ESG Solutions Leader, Aon Brazil.

“Insurance plays a pivotal role in reinforcing buyer confidence in the Voluntary Carbon Market, especially for nature-based carbon projects. Aon’s risk management expertise attracts institutional investors by clarifying risks and mitigation measures. The Aon-Future Climate collaboration strengthens the Voluntary Carbon Market 2.0 with integrity and transparency, creating sophisticated products that link carbon, financial, and insurance markets. This accelerates the transition to a low-carbon economy, aiming for a net-zero world by 2050,” added Fabio Galindo, CEO, Future Climate.

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