By Simon Jessop
LONDON (Reuters) - An insurance start-up founded by three former Allianz (ETR:ALVG) executives that aims to guarantee companies buying carbon credits get the permits they've paid for has closed the biggest European climate-focused seed funding round in more than a year.
CarbonPool raised 10.5 million Swiss francs ($12.17 million) in the round led by Heartcore Capital and Vorwerk Ventures, two executives told Reuters, alongside HCS Capital, Revent Ventures and former Allianz board members Axel Theis and Christof Masher.
That is the second-biggest climate finance seed funding round globally and the biggest in Europe since the start of 2023, industry tracker PitchBook said.
The company's approach guarantees companies buying carbon credits will receive the permits they have ordered even if the issuer cannot deliver them - for example, if the forest backing a credit is destroyed by wildfires.
CarbonPool plans to do this by buying high-quality carbon credits that it will keep on its balance sheet and pay out when needed.
Uncertainty on whether permits will be delivered is one issue holding back market growth, co-founder and Chief Operating Officer Nandini Wilcke told Reuters.
"(Buyers) are in the uncomfortable position that right now there's no guarantee that the offsets they buy in advance are actually going to materialise and... in the number that they're expecting and reporting on in their financial disclosures.
"Insurance is basically the missing piece." The approach, currently being assessed by the Swiss regulator, is previously unreported.
Data gathered between 2000 and 2023 and shared with Reuters by industry tracker AlliedOffsets shows the average issuance success rate for carbon permits was just 45%.
Failure to secure the expected credits can leave corporate buyers short of those needed to meet their climate goals.
While companies issuing carbon permits can already insure the assets that back them, no provider currently pays for the value of the carbon credit itself.
"If you have a fire, what they pay you back is the amount of money you spent to put those trees in the ground," said Peter Fernandez, CEO of Brazilian carbon removal start-up Mombak, which is backed by investors including AXA Investment Managers and Bain Capital.
"They don't pay you back the carbon credits that you lost, which is a much more expensive thing."
"What we need is 'you lose carbon credits, you get back carbon credits'."
($1 = 0.8629 Swiss francs)