Nikolai Braiden, an early adopter of blockchain, is our resident FinTech expert. He strongly advocates for financial technology’s transformative potential in reshaping digital payment and lending systems and has extensive experience advising startups on leveraging technology to drive innovation and advancement within the industry. In this discussion, we explore a critical intersection of finance and climate action: the challenge of funding carbon projects. While investor appetite is high, many deals stall over a fundamental hurdle—the risk that a buyer won’t pay. We delve into a new Non-Payment Insurance policy from Kita, a specialist Lloyd’s of London coverholder, designed to break this deadlock. We’ll discuss how this innovative financial product works to unlock capital, the practical benefits for both lenders and project developers, and its strategic role in scaling the global carbon and natural capital markets.
Many banks and investors are interested in carbon projects, yet deals often stall due to counterparty credit risk. How does your new Non-Payment Insurance policy directly address this barrier, and could you walk us through a scenario where it unlocks a previously stalled project?
This is the central friction point we’re seeing in the market. You have incredible, high-integrity carbon projects and willing lenders, but the whole structure is built on a promise of future payment for the carbon credits. If the buyer of those credits is unknown or unrated, the bank simply can’t approve the loan. This Non-Payment Insurance policy steps directly into that gap. It effectively acts as a guarantee. Imagine a large-scale reforestation project in a developing nation. The project developer has a five-year offtake agreement with a corporate buyer, but that buyer isn’t a blue-chip company. A bank would look at that and say the credit risk is too high. By wrapping that offtake agreement with this policy, the risk is transferred. The bank is no longer exposed to the corporate buyer; they are now exposed to an A-rated Lloyd’s syndicate. That stalled deal suddenly becomes bankable, and the capital flows.
Your policy transfers counterparty credit risk onto A-rated insurance balance sheets. Can you elaborate on the practical benefits this provides for a lender, such as reducing loss-given-default and supporting regulatory capital relief? Please provide a step-by-step example.
The practical benefits are immense, and they go right to a bank’s bottom line and regulatory requirements. Let’s walk through it. First, a bank analyzes a loan for a carbon project. Due to the nature of the counterparty, the bank’s internal models might assign a high probability of default and a high loss-given-default, meaning if the deal goes bad, they expect to lose a significant portion of their money. This makes the loan very unattractive. Second, under banking regulations, this high-risk loan requires the bank to set aside a larger amount of regulatory capital, which is inefficient and costly. Now, introduce the insurance. By purchasing the policy, the bank effectively substitutes the project’s counterparty risk with the A-rated credit risk of the insurer, like MS Amlin. The loss-given-default plummets because the insurer is now on the hook to pay. Consequently, the regulatory capital the bank must hold against that loan is drastically reduced, freeing up their balance sheet to make other loans and investments.
The policy is designed to be flexible across different financing structures, like prepayment and project finance models. How does this adaptability work in practice, and what are the key differences when applying this insurance at a portfolio level versus for a single project?
The adaptability is key because there is no one-size-fits-all model for financing these projects. In a prepayment model, a developer needs capital upfront to get started. The insurance can de-risk those receivables, giving the lender the confidence to provide that crucial working capital before a single carbon credit has been delivered. For a more traditional project finance transaction, the policy can wrap the long-term offtake agreements, making the entire project’s revenue stream more secure and therefore more bankable. The difference when you scale to a portfolio level is one of efficiency and diversification. For a large fund or bank, instead of insuring dozens of individual deals, they can protect their aggregated exposure across multiple projects, buyers, and even different countries under a single policy. This is far more streamlined and can be aligned with broader sustainability milestones, offering a powerful tool for managing risk at scale.
For project developers, securing financing can be a major hurdle. How does the availability of this non-payment insurance change the conversation with lenders, and what tangible improvements in deal terms or approval speed have you seen for developers who utilize it?
For developers, this is a complete game-changer. It fundamentally alters the risk conversation with lenders. Before, a developer would spend months trying to convince a bank’s credit committee that their offtake partner was reliable. The conversation was all about mitigating the buyer’s creditworthiness. Now, a developer can walk in with a term sheet and say, “The payment risk is already covered by a Lloyd’s of London syndicate.” It’s no longer a subjective conversation; it’s a hard, bankable risk transfer. The result is that we see deals moving from the pipeline to approval much faster. More importantly, the terms improve. Because the lender’s risk is so much lower, developers can often negotiate more attractive terms—a lower cost of capital, for example—which means more money goes directly into putting the project on the ground and creating real-world impact.
Given Kita’s recent 450% increase in underwriting capacity and expansion into new project types like Soil Organic Carbon, how does this new policy fit into your broader growth strategy? What other emerging project types are you considering for future coverage?
This new policy is a perfectly logical and strategic extension of Kita’s mission. The massive 450% increase in underwriting capacity gives them the financial firepower, and this product is a new, crucial channel to deploy it. They started by insuring the delivery of carbon credits, which is a supply-side risk. Now, they are insuring the payment for those credits, tackling a critical demand-side risk. It shows they are building a comprehensive suite of risk management tools for the entire carbon value chain. Expanding into new methodologies like Soil Organic Carbon demonstrates they are nimble and responsive to the market’s evolution. As for the future, the clear next frontier is broader “natural capital.” I would expect to see them exploring insurance for projects focused on biodiversity credits, water quality, and perhaps even blue carbon initiatives like mangrove restoration, all of which face similar financing hurdles.
This product is backed by key Lloyd’s syndicates like MS Amlin. What was the process of bringing these partners on board for such an innovative policy, and how does their involvement give confidence to the banks and project developers you aim to serve?
Bringing these major Lloyd’s syndicates on board is the ultimate validation. The process involves an incredibly rigorous due diligence period. Kita would have had to demonstrate a deep, granular understanding of the carbon markets and present a sophisticated underwriting model that proved this new form of risk was insurable in a sustainable way. For partners like MS Amlin, Chaucer, and Tokio Marine Kiln, this isn’t just another policy; it’s a strategic entry into a high-growth market. Their involvement is a powerful signal. When a project developer or a bank sees those globally respected, A-rated names backing the policy, it provides immediate confidence. It transforms the product from a novel idea from a specialized firm into a robust financial instrument supported by the strength and history of the Lloyd’s market.
What is your forecast for the role of insurance in scaling the global carbon and natural capital markets over the next five years?
My forecast is that insurance will become an absolutely essential, non-negotiable component of the financial architecture for these markets. Right now, it’s an innovative solution, but within five years, it will be standard practice. You have to remember, Non-Payment Insurance has been a prerequisite for finalizing deals in traditional trade and project finance for decades. We are simply seeing that proven tool being applied to the climate space. As the carbon and natural capital markets mature and seek to attract trillions, not billions, in capital, this kind of bankable risk transfer will be the bedrock that enables that scale. It will give mainstream institutional investors the confidence they need to deploy capital, moving these vital climate and nature projects from the niche to the core of our financial system.