🔎 What’s going on?
Last week, Munich Re and ERGO invested in the largest public-private climate initiative in Europe, Climate-KIC to accelerate innovation in the nascent carbon removal industry.
💶 Fantastic, what does it mean?
Most of us are familiar with what insurance companies do, they provide protection against financial losses for people and companies. This is what ERGO does and they are owned by Munich Re. Munich Re is a German fortune 500 reinsurance multi-national company, which means that they provide insurance for insurance companies. Yep insurers also need protection against financial losses!
The insurance groups, in partnership with EIT Climate KIC, Delft University of Technology (TU Delft), and the Swiss Federal Institute of Technology (ETH Zurich) aim to drive climate action by supporting Carbon Dioxide Removal (CDR) solutions through an accelerator. CDR solutions remove carbon permanently from the atmosphere and store it safely over long periods of time (usually through nature or via products). CDR solutions fall into two main categories: nature-based and chemical (aka technological). Nature-based solutions include tree planting (i.e. afforestation and reforestation), soil carbon sequestration, algae/kelp farming, biochar, and bio-energy with carbon capture and storage (or BECCS). Chemical solutions include Direct Air Capture (or DAC) where carbon is sucked out of the air and stored deep underground in rock formations.
This one-year climate removal accelerator will support climate entrepreneurs with CDR ideas. The program has three phases to support every stage of starting, validating, and scaling a startup, and most importantly, there are 25,000 euros of grant money up for grabs per startup. Plus, startups will have access to an ecosystem of experts, including experienced entrepreneurs, startup coaches, CDR policy experts, and climate tech investors. The program is open to entrepreneurs located in Europe. Learn more here.
❓ Why should I care?
Insurers are at the forefront of dealing with climate change. Their main job is to help people and businesses mitigate risk. Climate risk is now the biggest physical threat we face so naturally, their focus is shifting to helping their customers mitigate climate risk. Climate risk, in this case, includes heatwaves, wildfires, hurricanes, and flooding caused by the increasing global temperatures. To put this in context, in 2020, S&P Global estimated that 60% of companies in the S&P 500 Index own assets that are at high risk from climate risk. This is equivalent to a market cap (or company value) of $18 trillion! 😮
Investments in CDR solutions by insurance companies bring a host of benefits, not just for the companies and their shareholders but for communities and society as a whole. These companies are often sitting on huge investment cash that can be put to good use to reduce their future payoffs or liability. Plus, given their size, they can afford to finance investments that are early stage and risky such as CDR technologies.
🚦 Where do we need to be?
We have about 9 years to avoid and reduce as much carbon emissions as we can and for the emissions, we can’t reduce, we need to remove those instead. According to the UN, the world is currently heading towards a 3°C rise in temperature - far above the 1.5°C agreed with the Paris Agreement. In other words, countries and companies are not on track to reach the Paris Agreement.
This is where the carbon removal industry can play a very important role, it can help bridge the emissions gap. Today, the CDR industry is tiny, only removing about 10,000 metric tons of emissions a year, however, Swiss Re recently estimated that the industry needs to grow to the size of the current size of the oil and gas industry by 2050. That’s a trillion-dollar industry, at a minimum!
👤 What can I do about it?
First and foremost, all companies should measure and reduce their emissions. This is always the recommended default because it means companies are placing an internal price on carbon. Then it’s favourable to offset emissions in the short term that are unavoidable. The final step should be to draw up a carbon removal strategy that includes investment in CDR solutions. This is quite important as it provides much-needed demand for this nascent industry to grow.
Insurance companies should ideally start insisting that companies have a robust climate strategy that includes climate removal solutions. Separately, as institutional investors, they should also consider directly investing in CDR nature-based and technological solutions to reduce their future liabilities.
Related: Carbon offset ratings provider Sylvera raises seed funding
Photo credit: Photo by Maxwell Ridgeway on Unsplash