Backed by major underwriters Tokio Marine Group, Markel, and Apollo, Artio is aiming to restore confidence in carbon markets at a time when reputational and financial uncertainty still threaten their ability to scale.
As markets face a looming supply crunch as 2030 corporate sustainability targets loom into view, Artio insists its insurance model enables early-stage funding of both nature-based and engineered projects, making long-term climate planning viable and investable.
Offtake agreements a ‘bottleneck’ to carbon credit market
There are “significant delivery” risks associated with carbon credits bought through offtake agreements, said Artio’s co-founder and CEO Bilal Hussain. Historically, in over half of cases projects “underperform compared to their plans,” he told AgTechNavigator.
Corporates are often hesitant to pay in advance for stacked credits. “Things can happen” in the intervening three of four years before they get the credits, Hussain said. “We are seeing a lot of activity with offtakes, but we are not seeing corporates take that leap and pay upfront.”
To get more corporates to come in early, Artio provides insurance on the delivery of the credits. “If they don’t get the credits they were expecting or that they bought in advance, Artio will compensate them. This encourages them to be much more active in the early-stage space. We come in super early and that’s the main gap we saw in the market: the developer wants funding so they can execute the project.”
There are situations too where corporates are uncomfortable paying upfront and who want to pay on delivery, he said. In that case there is often a funding gap (more than 90% of projects have such a funding gap, especially the smaller ones, Hussain estimates) where and the developer on the ground doesn’t have the funds to pay for project. That’s when a bank would come in with a debt or loan facility to the developer. “We are also able to insure that to make sure the bank gets their money back if they can’t recover the loan,” Hussain said. “This encourages more institutional capital into the space as well.”
Tackling the funding gap may change the nature of the corporate buyers, Hussain added. “I think collective action can really change the industry. Currently, you see all the headlines taken up by Microsoft and tech players. What we really want to see is a lot more corporates doing pre-purchases and offtakes at a smaller scale.”
Confidence in the market is already growing, according to Hussain. Its offering coverage on global afforestation and biochar projects and plans to add enhanced rock weathering and improved forest management schemes. “We’ve seen a shift in the last 12 months,” he said. “More players are going early stage. They are financing their own project and involved in project governance, enforcing some rules and clauses within agreements.
“That’s a good sign because what you’re seeing is you’re getting due diligence every step of the way now. If you engage early, you can mould the credit into a higher integrity credit because you’ve been involved from day one.”
Carbon projects and political risk
Fully comprehensive coverage can encourage early-stage activity too, the company believes. Political risk, for example, is included in its delivery risk coverage, because of the inherent political risks involved with carbon projects.
Political interference and policy changes can impact the ability of project developers to deliver the credits. For example, in 2022 Indonesia put in place a moratorium on exporting carbon credits.
But Hussain predicts healthy demand for carbon credits, mainly thanks to sustainability targets. “There’s going to be a panic in the next two to three years where they are going to have to source credits to meet their 2030 commitments. And after 2030 they still have a lot of targets for 2050.”