Dive Brief:
- Insurance broker Marsh, of Marsh McLennan, has issued a carbon credit insurance policy on a carbon removal project in the southern United States, according to an Aug. 6 release. The project from New York-based carbon removal company Chestnut Carbon previously obtained $210 million in the form of a non-recourse project finance credit facility from J.P. Morgan and a syndicate of lenders, according to a July 22 press release.
- Chestnut’s project will create a 60,000 acre afforestation project, planting an estimated 35 million native trees to capture 7 million tons of carbon dioxide for Microsoft, per a January announcement.
- The financing, which is backed by the project itself, is a “first-of-its-kind” for a U.S. carbon removal project, per the July release. Marsh’s insurance policy will serve to help de-risk the investment in the event the credits ultimately aren’t delivered, the Aug. 6 release said.
Dive Insight:
Between 2021 and 2024, over $29.6 billion has been raised and committed for carbon removal projects, according to a 2024 white paper by Morgan Stanley. About 45% ($19.6 billion) of this capital has gone to “nature-based” removals, such as planting new forests (afforestation), reforestation, or revegetation, according to the paper.
Marsh’s policy was underwritten by London-based CFC and protects Chestnut from the risk of non-delivery of the promised high-quality carbon credits to Microsoft, according to the August release. Marsh first announced it would help de-risk carbon credit investments in November 2024.
The policy “underscores the critical role that insurance plays in building confidence in the voluntary carbon credit market, enabling the broader energy transition,” said Amy Barnes, head of climate and sustainability strategy at Marsh, in the release.
J.P. Morgan, which led the financing for the Chestnut project, has delved into carbon removal projects as assets in recent years, acquiring Campbell Global, a timberland focused investment manager, in 2021. In April, it announced it closed its Forest & Climate Solutions Fund, which has about 212,00 acres of forest holdings, after raising $1.5 billion.
That financing was underpinned by Chestnut’s carbon credit delivery contract with Microsoft, where it pledged to provide the credits over a span of 25 years. Just this year, Microsoft has signed contracts for carbon credits from forestry projects in India, Washington state, and across the globe.
The “innovative” financing for Chestnut draws on elements from traditional sectors, especially renewable power projects, per the release. Chestnut called achieving commercial non-recourse financing a “new benchmark in the voluntary carbon market, signaling growing confidence among lenders and introducing a broader investor base to project developers.”
“Not only does this facility provide the capital to accelerate our afforestation and carbon removal initiatives, but it establishes a replicable model for sustainable finance in the voluntary carbon sector,” said Greg Adams, chief financial officer at Chestnut, in the July release.
