Nature based solutions need investment, but uncertainty and risk can make securing finance challenging. This article explores how insurance can help bridge that gap, build investor confidence and support the delivery of nature restoration projects.
Introduction
Although nature-based solutions (NBS) create opportunities for ecosystems to be restored and more resilient, there are challenges with financing them. Investors can be reluctant to put in capital due to perceived risk, which can make it hard to get sufficient funding to deliver these projects. Insurance plays a significant role in bridging this gap – but is also seen as an opportunity for funding NBS on the grounds of the resilience outcomes they can provide.
In a recent episode of the Better Insurance Network’s SUSTAIN podcast, GaiaSicura’s CEO, William Butler, spoke with the founder, Anthony Ireland, about how the insurance industry can support nature restoration.
The conversation highlighted a key opportunity: by bringing together ecological expertise and insurance knowledge, the industry can help build confidence in nature-based solutions, protect investments and unlock the necessary finance for restoring nature, whilst slowly building the case for insurers to take NBS into account more as part of their own portfolio risk management.
This ambition reflects the origins of GaiaSicura. William takes us back to the beginning, explaining how a trip to Scotland with his colleague Jack Watt, who works in the sustainability team at Marsh where Will cut his teeth, helped bring together a group of insurance professionals at a summit hosted by the Insurance Institute of London. Their discussions highlighted a gap in knowledge between the insurance industry and nature, as well as a growing interest in how the two could work together. This led William and Jack and the other summit members to establish the Nature and Sustainability Committee at the Insurance Institute of London, helping encourage greater industry involvement. Shortly afterwards, William went on to set up GaiaSicura, with the aim of bridging this gap and helping insurance play a greater role in supporting nature restoration.
Threats to Nature
During the interview Will talked about how ‘climate change and climate shocks are becoming so much more of a reality over the last few years’. He goes on to discuss the reality of these weather changes and their impacts on farmers. He says that the last three years have been disastrous for them: ‘wetter than wet, followed by drier than dry’, with wildfires and floods adding additional pressures.
These examples highlight a growing challenge for nature stewards and nature restoration projects: climate-related risks are becoming harder to predict, in turn making it more difficult for investors to assess potential losses and commit capital. The right insurance can help address some of this uncertainty, provided the insurance is tailored to the specific risks each project faces. As William says, these challenges ‘bring this into real scope; nature is tangible ... you can physically see the resilience nature brings’.
The Role of Insurance
This is where insurance has an important role to play. Nature-based solutions such as natural flood management, regenerative agriculture, and natural capital projects can still face risks that make investors hesitant to input capital or buyers purchase outcomes. We explore this further in our [Natural Flood Management report], looking at the role nature-based approaches can play in building resilience and managing risk. Confidence is critical for capital to mobilise, and insurance is designed to create that confidence in a way that finance recognises, transferring risks from nature projects and their financiers and helping them become more commercially viable. Will discusses how ‘people have started to realise that we have built these clever frameworks to get money to pay for nature-based solutions; however, no one has confidence in the market, and what insurance does is build that confidence’.
By adapting existing insurance products to the specific risks associated with nature, the insurance industry can support projects that would otherwise struggle to secure sufficient investment. William says, ‘We are sitting in the middle as a translation point’; we are bringing together ecological and on-the-ground farming work and translating it into a language for the insurance side. This is important for both sides to understand how they can help, work with one another and make a change that benefits all. Insurance is more than something that protects against nature losses; it will also help unlock the necessary finance for nature to be protected and restored efficiently.
Tailored Insurance
As Will and Anthony discussed, making insurance work for nature-based solutions requires a clear understanding of the specific risks each project faces and how these can be addressed through appropriate cover.
At GaiaSicura, William explains that ‘every placement made is bespoke’, ensuring it is what is right for that project but also showing the nascent state of this market. This reflects GaiaSicura’s commitment to putting the client first and maintaining an ‘independent, values-driven’ approach. This is key to the right policies being applied to the right projects.
However, tailoring insurance does not mean reinventing the wheel. William also highlights the importance of building on existing frameworks and adapting them to individual client needs. Creating too many approaches risks fragmenting the market and discouraging participation. As he explains, ‘if someone else throws another thing in the mix and tries to dilute this pool, it’s not going to grow; it’s going to keep having people disincentivised’.
This highlights the importance of having a balance between developing bespoke insurance solutions and maintaining a joined-up insurance market. By building on existing frameworks while adapting cover to the specific risks associated with those projects, the industry can encourage participation without additional complexity.
Through combining ecological expertise with insurance knowledge, GaiaSicura can help bridge the gap between nature-based projects and the financial protection they need to unlock investment, whilst addressing the fundamental issues the market faces regarding their portfolio resilience and exposure to nature degradation.
The Opportunity Ahead
Nature-based solutions need more financial capital put into them. The insurance industry provides the tools and expertise that can make this happen. Collaboration between the nature and finance spaces can help make nature restoration projects more investable through security. Insurance will not only protect nature and cover losses for investors and buyers but is also a key enabler of investment in nature.
Listen to the full episode here
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Speak with the team
If your organisation is involved in the development or delivery of a natural capital or nature restoration project, our team of experts can help you understand how risk transfer and nature insurance fits within your wider risk management strategy.