Carbon insurance is emerging as a growing niche in global climate finance. Insurers and reinsurers are beginning to price risks linked to the reliability of carbon credits generated by forestry and land-use projects in Africa.
The development comes as voluntary carbon markets face renewed scrutiny over credit quality, particularly in large-scale forest conservation schemes such as Zimbabwe’s Kariba REDD+ project.
Zimbabwe, along with Kenya, South Africa and other African countries, is part of a continent-wide expansion of carbon credit generation. Amidst the traction and potential for economic growth, a number of questions are arising. The issues around verification, permanence and governance are prompting financial institutions to consider whether these credits can be reliably insured.
One of Africa’s most prominent carbon projects, the Kariba REDD+ initiative, covers approximately 785,000 hectares of forest in north-western Zimbabwe, spanning three provinces bordering Lake Kariba. The project was developed under the REDD+ framework (Reducing Emissions from Deforestation and Forest Degradation). This is a global standard to generate carbon credits by estimating avoided emissions from forest protection. However, the project has faced scrutiny over its methodology and credit issuance.
In 2025, a review reported by Climate Home News found that a significant number of credits issued under the project were based on overestimated baseline assumptions, leading to concerns that some credits did not fully represent emissions reductions achieved.
The standards body, Verra, which oversees many voluntary carbon projects, has also confirmed that it has taken action to review and adjust credit issuance linked to the project. Verra has said that voluntary carbon methodologies are periodically updated to reflect improved scientific understanding, and that adjustments are part of maintaining environmental integrity.
What carbon insurance covers
Carbon insurance is a set of financial instruments designed to protect buyers, developers and financiers of carbon credits from specific risks. According to industry providers operating in the sector, including CarbonPool, coverage typically includes protection against reversal risk, where stored carbon is released back into the atmosphere due to fire, drought or deforestation. There is also non-delivery risk, where projects fail to generate expected credits.
The insurance cover extends to invalidation risk, where credits are later rejected or cancelled by registries or standards bodies. CarbonPool states that in some cases, claims may be settled through the provision of replacement credits rather than cash, in order to preserve the environmental purpose of the transaction.
Some insurance structures are also being developed within the Lloyd’s of London market, where specialist underwriters are exploring carbon-linked risk products. These are aimed at supporting investment into nature-based solutions.
Tinotenda Mushaigwa, a climate finance economist, said these products are intended to reduce uncertainty for corporate buyers seeking to meet net-zero commitments.
“Insurance can help provide the confidence that buyers need when they are entering a market where delivery risk, quality uncertainty and long-term performance are still evolving.”
Why Zimbabwe matters to insurers
Zimbabwe is considered a key case study for carbon market risk due to its early adoption of large-scale forestry carbon projects and its reliance on land-based emissions reductions. But the combination of ecological exposure and governance concerns has made pricing risk more complex for insurers.
Carbon projects in Zimbabwe are primarily nature-based, meaning they depend on long-term forest preservation. Malcom Chapeyama, a forester and forest governance researcher in Sikumi forest reserve, said these types of projects are generally considered more exposed to various risks.
“These include wildfire and drought risk, land-use change, monitoring and verification uncertainty, and long-term political and regulatory shifts,” said Chapeyama.
Insurance players say these factors increase the difficulty of modelling “permanence risk”, which refers to whether carbon stored in forests remains sequestered over decades. In response, Zimbabwe has moved to formalise its carbon market structure.
In 2024, the government established the Zimbabwe Carbon Markets Authority (ZiCMA) to regulate carbon projects and oversee credit issuance. The authority is intended to align Zimbabwe’s carbon market with Article 6 of the Paris Agreement, which governs international carbon trading. During the launch, officials said the system is designed to improve transparency, reduce double counting, and provide a central registry for carbon credits.
The system is still in early stages of implementation, and its effectiveness in addressing historical concerns remains under review.
Why insurers are entering the market
Insurance firms and reinsurers are increasingly exploring carbon markets because corporate demand for verified credits is growing, particularly among companies with net-zero commitments. But buyers continue seeking greater assurance that credits will not later be invalidated or found to be overstated.
This has created demand for products that can guarantee delivery of credits, cover reversal or loss of carbon storage and provide compensation if credits are invalidated. Industry stakeholders say these products are still in early stages but are becoming more common as carbon markets mature.
“Corporate buyers increasingly want assurance that the credits they purchase will remain valid over time, and insurance is one tool that can help manage that risk,” said Mushaigwa.
Despite growing interest, carbon insurance remains a challenging market. Mushaigwa said carbon projects typically operate over decades, but reliable long-term datasets are limited. Changes in carbon accounting methodologies can affect credit validity retrospectively.
“Different countries apply different standards and rules for carbon credit generation. Basis risk insurance models may not always align with actual ecological outcomes,” he added.
Carbon insurance is part of a broader effort to stabilise voluntary carbon markets, which remain relatively young compared with traditional commodity and financial markets. While some argue that insurance can help unlock investment into climate projects, Mushaigwa cautions that the underlying measurement challenges in carbon accounting remain unresolved.
For Zimbabwe, the development of carbon insurance is closely linked to efforts to attract international climate finance.
“However, the effectiveness of these systems will depend on the credibility of carbon accounting frameworks and the ability of regulators to enforce consistent standards,” said Mushaigwa.
Carbon market expansion
Zimbabwe is part of a wider expansion of carbon markets across Africa, where governments are seeking to attract climate finance through forestry, agriculture and renewable energy projects.
Kenya has recently launched a national carbon registry as part of its efforts to regulate and track carbon credit generation. According to government communications, the system is intended to improve transparency and support compliance with international carbon trading frameworks.
Analysts say the move could make Kenya one of the more structured carbon markets in Africa, though the system is still being rolled out.
South Africa operates a different model, based on a national carbon tax introduced in 2019. Under this system, companies are required to account for emissions and may use carbon credits to offset part of their tax liability. This creates a more regulated demand for credits compared with voluntary markets elsewhere on the continent.
Financial institutions in South Africa have begun exploring carbon-linked financial products designed to support compliance and investment in emissions reduction projects.
Africa is expected to play a growing role in global carbon credit supply due to its large areas of forest and land suitable for nature-based climate solutions. According to the World Bank, nature-based solutions such as forestry and land-use projects account for a significant share of potential emissions reduction opportunities in developing economies.
Market analysis from Ecosystem Marketplace has shown that voluntary carbon market values peaked in 2021–2022 before declining amid scrutiny over credit integrity and corporate net-zero claims. While still an emerging market and work in progress, carbon insurance is increasingly seen by industry players as part of the infrastructure needed to support the expansion of climate finance in Africa.