Finance & Investment
Can Insuring Nature Encourage the Necessary Action to Protect It from Climate Risks?

COP15 has provided another historic moment in the history of efforts to protect our planet. The Global Biodiversity Agreement, agreed at the UN meeting that ended Monday in Montreal, is a shared commitment by countries around the world to protect 30 percent of our land and seas by 2030. Many have called it a ‘Paris moment’ for biodiversity — something crucially important at a time of plummeting populations of insects, including crucial pollinators; acidifying oceans and a soaring population of more than 8 billion continuing rampant consumption of Earth’s natural resources. Many scientists have warned that we’re causing the largest loss of life since the time of the dinosaurs.

Negotiated over two weeks, the COP15 deal — known as the Kunming-Montreal pact — includes goals to reform $500 billion of potentially damaging subsidies, and restore 30 percent of the world’s degraded land and marine ecosystems.

As ever, and just like at last month's COP27 climate summit, money remains a sticking point. In the final hours of negotiations, nations decided to set up a new fund within the UN’s existing financing mechanism for biodiversity — and talk about creating a separate one in the future. By the end of the decade, richer countries — including the UK and EU nations — will provide $30 billion in aid to protect, enhance and restore biodiversity by 2030.

It is a move that will no doubt appease the group of 150 financial institutions that called on world leaders to make ambitious commitments to preserve nature — or, better still, commitments to nature positivity — in Montreal. The group, which collectively manages more than $24 trillion in funds, pointed to the inextricably linked challenges of climate change and biodiversity loss, and the systemic risks to investors.

COP15 once again highlighted the importance of ensuring money moves in the right direction to bring about lasting environmental protection. One interesting, and relatively new, concept for using financial mechanisms to shield important ecosystems is to use insurance policies to finance protection and restoration in the event they are damaged.

For example, The Nature Conservancy (TNC) recently purchased a coral reef insurance policy in the US to protect the important marine environment surrounding Hawai‘i. It will provide funding for rapid coral reef repair and restoration work across the region should any reefs get damaged by hurricanes or tropical storms.

Our coasts are at serious risk from intense storms and erosion — and coral reefs provide the best natural defense against these and other climate-related threats. Despite covering less than 1 percent of the ocean floor, they provide critical ecosystems to more than 25 percent of marine life, provide millions of jobs globally, protect coastlines from storms and erosion, and offer a vital food source for local populations.

In 2021, the Hawai‘i State Senate passed a resolution asking for reef insurance to be evaluated as a viable approach to environmental protection. A feasibility study found that coral reefs in Hawai‘i could be similarly insured against natural disasters. The TNC-developed policy will be triggered if wind speeds exceed 50 knots (57 mph) sufficiently close to reefs. Pay-outs of up to a maximum of $2 million will allow for immediate repair and restoration efforts, and will be in place throughout the 2023 hurricane season.

Reef insurance was first trialled in Mexico back in 2019. Local businesses and the government bought a policy to cover and protect the Mesoamerican Reef, just off a coastline that houses some of the country’s famous Mayan ruins. The environmental group MAR Fund then took out a policy to protect the same reef that also stretches south of Mexico to Belize, Guatemala and Honduras.

In 2020, the policies paid out following storms in Mexico and Belize — prompting an admission from Secretary of Ecology and Environment Josefina Huguette Hernández Gómez that “the cost is higher when you have the loss of biodiversity or corals than what you pay in insurance.”

Up to now, environmental conservation has relied on philanthropy, business intervention and government grants. Using insurance is an innovative way of channelling private sector money to pay for biodiversity conservation.

“By investing in nature, our insurance and finance partners are demonstrating its value as a critical natural, cultural and economic resource,” says Ulalia Woodside Lee, Executive Director at TNC Hawai’i.

For a $110,000 premium, the Hawaii'an state will get up to $2 million of insurance protection until the end of December 2023.

“Even with just the flood-risk reduction value — usually that’s enough to make a business case to say, yes, we need to protect these reefs," says Eric Roberts, a senior risk and resilience program manager at TNC. With Hawai‘i’s reefs providing coastal flood protection to property and jobs worth more than $836 million, and the state’s reef fisheries generating $13.4 million a year, it is a compelling argument.

While the COP15 agreement has been warmly welcomed as a breakthrough moment, much of the criticism aimed at the latest climate negotiations at COP27 centered on a failure to effectively link biodiversity with wider climate-caused environmental damage. Coral reef insurance is a concept that dovetails the “loss and damage” conversations on helping poorer nations cope with climate disasters and build resilience.

As a 2020 reef insurance feasibility study by TNC concluded, “an unprecedented, coordinated global effort among public, private and philanthropic sectors will be required for reefs to survive beyond the end of this century.” Wider rollout of these types of insurance policies could help provide the protection they need.