Insurance Arrives for Carbon Markets as World Bank and Private Sector Align

The World Bank’s Multilateral Investment Guarantee Agency (MIGA) has unveiled a new initiative aimed at lowering the risk for private investors in carbon markets. The scheme supports the UN’s Article 6 carbon credit system under the Paris Agreement and is expected to drive more private capital into projects in developing countries.

Drone shot of a tree-planting project in a developing country. AI generated picture.

A key part of this move is the introduction of a standardised Letter of Authorisation (LoA), which allows host governments to formally endorse carbon credit transactions. These LoAs will be protected by guarantees from the World Bank Group’s Guarantee Platform, offering coverage against political and contractual risks often cited as major hurdles to investment.

‘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 program will also include a formal dispute resolution system and a compensation process for cases where carbon credits are not delivered as expected. These additions aim to enhance transparency and accountability, two critical factors that have long impacted confidence in the market.

Double-counting of carbon credits and missing ‘corresponding adjustments’ from governments have previously limited the scalability of international carbon trading. MIGA’s mechanism seeks to address these issues while encouraging broader regulatory alignment.

This public-sector development mirrors a surge in private-sector efforts to ensure carbon credits. Just last week, Marsh and We2Sure launched a new insurance facility aimed at protecting carbon transactions from fraud. Earlier this year, Howden, Respira International, and Nephila Capital joined forces to offer invalidation insurance in the Voluntary Carbon Market. Meanwhile, specialists like Kita and Oka are also building new products for this fast-growing niche.

As voluntary and compliance markets continue to converge, demand for trustworthy insurance mechanisms is only increasing. MIGA is now welcoming applications from developers and investors ready to tap into this evolving space.