Nature fintech needs insurance to scale at pace

By Rebecca Delaney

May 14 - (The Insurer) – Insurance is critical to shortening the adoption curve of nature fintech, a new report has argued, although large-scale updates to new insurance and risk transfer mechanisms beyond parametric insurance remain limited.

The report by nonprofit Nature Tech Collective advocated for greater use of nature fintech, which refers to the convergence of financial services, digital technologies and nature-based solutions.

It argued that assigning a monetary value to nature and leveraging nature tech will enable businesses to adopt tools and frameworks that translate natural capital into measurable, actionable financial metrics, while also fostering conservation and restoration efforts.

“Nature fintech has the potential to be a powerful tool for risk mitigation. By integrating financial

innovation with nature-based solutions, it enables businesses to anticipate, quantify and hedge against environmental risks, whether from climate change, biodiversity loss, or supply chain disruptions,” said the report.

“Advanced analytics, AI-driven climate risk assessments, and tokenised insurance mechanisms can help companies proactively manage exposure to ecological and financial volatility.”

The report continued that nature fintech will help to lower three key barriers to scaling up the addressable market: insufficient nature data; missing digital infrastructure; and a lack of market depth and liquidity to finance nature-positive investments.

“Given that nearly every sector on Earth faces exposure to nature risk, the addressable market for nature fintech solutions is gargantuan,” it said.

“Yet, the lack of data and innovative financing models that can bridge the gap of misalignment in terms of risk and timeline expectations presently sought by traditional financing sources keeps meaningful nature-positive action at bay.”

Insurance for nature-based solutions has a critical role in shortening the adoption curve of nature fintech, the report continued.

“Insurance companies cannot and will not reduce insurance premiums or be able to de-risk investments without the necessary data to support this change,” said Nature Tech Collective.

“The market pressure for insurance to adapt and evolve is already present, as are the technologies to measure and assess the state of nature. However, large-scale updates to nature data and the construction of new insurance vehicles are limited.”

The report added that innovation can be directly supported by integrating nature tech into the insurance sector to provide a baseline of nature-related data in key geographies, which would enable insurers to build new products using predictive models.

While these conversations are taking place around the broadening of insurers’ nature-related data and product suite, there remain significant financing shortfalls.

A survey by the World Economic Forum (WEF) last month highlighted that several key barriers remain to increase financial institutions’ (FIs) financing to the nature-positive transition.

The majority of respondents (86%) said that the most important change in the wider ecosystem to increase nature-positive financing was increased data availability, followed by policy changes to incentivise action on nature (83%) and increased data quality (78%).

Other responses included increased corporate demand for financing/underwriting nature projects, and clearly attractive economics for financing nature. Mechanisms to reduce risk or change the risk profile lagged at 58%.

The report by WEF in collaboration with Oliver Wyman offered a corporate assessment guide for FIs, including insurers, banks and investors.

It noted that guidelines are currently being developed to aid FIs in forming their own nature transition plans, with frameworks including the Taskforce on Nature-related Financial Disclosures, and the Glasgow Financial Alliance for Net Zero.

Survey participants were asked the areas where they would most like guidance from industry standard setters and think tanks in order to enable their organisation to increase financing to the nature-positive transition.

The majority (78%) said quantification of risks, or risk scenario analysis. This was followed by quantification of opportunities, and financing needs from real economy companies (both 75%).

Less than two-thirds (61%) said they would like guidance on mechanisms, instruments or blueprints across insurance and investments.

WEF offered 11 indicators to help FIs to assess corporate clients’ and portfolio companies’ progress and forward planning on nature, beginning with an assessment of nature-related impacts and dependencies, including material risks and opportunities.

For material nature-related issues, FIs require portfolio companies and clients to develop and articulate ambitions, then over time setting targets. They also require proof points demonstrating that nature ambitions and targets are being embedded into a firm’s activities, the report said.