(Bloomberg) --Insurance broker Marsh will start offering contracts to protect companies against fraud in the market for carbon credits, after the instruments became the subject of recurring allegations of greenwashing.
The insurance contracts will allow companies in the US, Europe and the UK to gain financial protection in the event that credits purchased in order to offset their carbon footprint prove worthless, the broker, which is a unit of New York-based Marsh & Mclennan Cos., said on Monday.
Carbon credits are supposed to represent 1 metric ton of emissions that have been avoided, reduced or removed from the atmosphere, which is achieved through investing in projects in areas such as reforestation. In practice, however, studies have uncovered
Last year, the voluntary carbon market sank more than 20% in volume to just $1 billion, according to MSCI Inc.
Marsh said that scenarios under which its insurance kicks in include if a company has purchased counterfeit certificates, or purchased certificates representing projects that don't actually exist, as well as outright theft. The new facility is backed by insurers Sompo Holdings Inc., Brit and Talbot. Companies using it will also gain access to technology that can identify duplicate and counterfeit certificates and monitor projects.
Companies using carbon credits are "exposed to fraudsters seeking to take advantage" of their efforts to offset their carbon footprints, said Rupert Poland, UK digital asset leader at Marsh. "This new facility will not only help de-risk investments for businesses from a financial and reputational perspective, but also support the integrity and expansion of the wider carbon credit ecosystem."
London-based Howden Group, a broker that manages more than $38 billion in insurance premiums, is among pioneers in the market for insuring carbon credits. In 2022, Howden
