Latest / Second Nature / E175 Insurance Round Table: The Market Nobody Talks About

Transcript

E175 Insurance Round Table: The Market Nobody Talks About · Second Nature

• 0:06
  SPEAKER_03: Last time we saw you was in low carbon's offices, wasn't it?
• 0:11
  SPEAKER_03: When we did the recording.
• 0:14
  SPEAKER_00: I lose track of time.
• 0:15
  SPEAKER_00: Was it about two years ago?
• 0:16
  SPEAKER_02: Feels like two years.
• 0:17
  SPEAKER_02: Maybe it was like it was winter.
• 0:18
  SPEAKER_02: So maybe it was a little bit more.
• 0:19
  SPEAKER_02: You know what?
• 0:20
  SPEAKER_00: I realized this morning I wearing, I was wearing the same, when I left my house there, I was wearing the same outfit basically I was wearing on that podcast.
• 0:29
  SPEAKER_00: And then I was like, oh, but that might be embarrassing if like someone and so then I had another jacket in the office as far as I think.
• 0:35
  SPEAKER_02: That's so funny.
• 0:36
  SPEAKER_02: I literally felt the jumbled sword.
• 0:37
  SPEAKER_02: I was like, literally wore this last time.
• 0:41
  SPEAKER_03: It works the reverse though, because we've now said that I always record in boots, jeans, and a t-shirt.
• 0:46
  SPEAKER_03: I'm going to a posh dinner this evening.
• 0:47
  SPEAKER_03: I'm going to put a suit on to go to a dinner after this.
• 0:50
  SPEAKER_03: But for continuity, yeah, you're right.
• 0:52
  SPEAKER_00: It makes sense.
• 0:54
  SPEAKER_03: In fact, it's um so Gowling the law firm hosting this dinner this evening that I'm going to.
• 0:59
  SPEAKER_03: I went last year to their request and I didn't know them.
• 1:01
  SPEAKER_03: They invited me through George and said, Would I come along?
• 1:04
  SPEAKER_03: So I it was at Somerset House, I think.
• 1:06
  SPEAKER_03: Very lovely posh venue.
• 1:08
  SPEAKER_03: So I turned up, suited, and they went, Oh, we just assumed you'd be in jeans and t-shirt.
• 1:12
  SPEAKER_03: I'm like, Are you disappointed?
• 1:13
  SPEAKER_03: They're like, yeah, kind of.
• 1:14
  SPEAKER_04: I'm like, I have other clothes.
• 1:18
  SPEAKER_03: I was almost like so they invented the caricature of me rather than the actual.
• 1:22
  SPEAKER_03: I was like, I just didn't want it to be rude.
• 1:24
  SPEAKER_03: Like, mad really.
• 1:26
  SPEAKER_03: Different versions of it.
• 1:27
  SPEAKER_03: Often you go somewhere say, Oh, you're a bit overdressed.
• 1:29
  SPEAKER_03: Yeah.
• 1:30
  SPEAKER_05: Well, I'm I I have to be a complete chameleon because half the time I'm talking to wildlife trusts, farming collectives, international NGOs, and things like that.
• 1:38
  SPEAKER_05: And then turn around the same day and you have to walk into Lloyd's of London.
• 1:41
  SPEAKER_05: You've got to have this real shirt, swap the take the green off, take the tractor driver's lip off, stick the blue boring suit on, run into Lloyd's and back out of the same way.
• 1:52
  SPEAKER_00: This is where being a woman has some benefit too in that I wear always the same thing.
• 1:56
  SPEAKER_00: I just tone up or down like jewellery.
• 1:58
  SPEAKER_03: Yeah.
• 1:59
  SPEAKER_03: There's more flexibility, I think, in terms of it's less binary.
• 2:02
  SPEAKER_00: It's like jeans, and then I will put on a blazer or I won't, or I'll put on jewelry or I won't.
• 2:06
  SPEAKER_00: But I actually always basically wear the same stuff.
• 2:08
  SPEAKER_00: Within Lloyd, sometimes it's like this is not fancy enough.
• 2:12
  SPEAKER_00: Who's gonna tell me anything?
• 2:13
  SPEAKER_05: Well, so desperate of people.
• 2:14
  SPEAKER_05: Yeah, exactly.
• 2:14
  SPEAKER_05: Who's gonna tell you off for it?
• 2:16
  SPEAKER_01: We just need more women.
• 2:20
  SPEAKER_03: It's a beautiful segue into opening to what we're we're talking about today.
• 2:24
  SPEAKER_03: Um I've been on a heck of a learning curve in terms of understanding the role of insurance and its impact on natural capital.
• 2:32
  SPEAKER_03: And you've all been incredibly kind in helping me on that journey.
• 2:35
  SPEAKER_03: And I thought I'm not the only person who needs to learn this, so what an awesome topic for a podcast.
• 2:40
  SPEAKER_03: So we're gonna start broad and then dive into some of the detail on it, because you're all very well placed to educate us on that.
• 2:48
  SPEAKER_03: If we do some quick who you are and what we do, and then I'm gonna throw to George my first question.
• 2:52
  SPEAKER_03: But would you like to go first for all?
• 2:54
  SPEAKER_03: Yeah, sure.
• 2:54
  SPEAKER_05: Thank you.
• 2:55
  SPEAKER_05: Um is Will Butler, um, and I am the CEO and founder of a company called Gaia Secure.
• 3:02
  SPEAKER_05: Um, we are the world's first and only currently um insurance broker exclusively for nature regeneration projects.
• 3:11
  SPEAKER_05: Um and you know, for others, it's a side of desk, or might look at carbon, or they might look at some risk consultancy in the area.
• 3:18
  SPEAKER_05: But for us, we're an insurance broker, and on the commercial front end of what we do, it's all about getting insurance policies done.
• 3:25
  SPEAKER_05: But my background is I spent 10 years at Marsh McClennan doing a specialty construction.
• 3:30
  SPEAKER_05: Um, and my dad is a farmer.
• 3:32
  SPEAKER_05: So I grew up farming on a barley farm, the wet towel wrapped around my face, digging grain in a in a barn and things like that.
• 3:39
  SPEAKER_05: So um, yeah, it's coming out of uh out of the sort of specialist insurance world and connecting that a little bit with where I uh where I started is the idea.
• 3:48
  SPEAKER_03: Thank you, Vatali.
• 3:50
  SPEAKER_00: So I'm Natalia Dorfman, I'm the CEO and co-founder of Kita.
• 3:53
  SPEAKER_00: We were the world's first actually specialist insurance company dedicated exclusively to carbon and natural capital.
• 4:00
  SPEAKER_00: We've been operating since December 21, and so we've seen quite an evolution in the market, which I can obviously talk about.
• 4:06
  SPEAKER_00: Um, my background prior to Kita was you always think of Kita as like at the center of the Venn diagram, my experience.
• 4:12
  SPEAKER_00: I studied environmental science.
• 4:15
  SPEAKER_00: I worked in the legal industry doing business development and strategy.
• 4:18
  SPEAKER_00: Part of that was at the world's largest insurance law firm where I worked with all the insurance and reinsurance companies.
• 4:24
  SPEAKER_00: And then I ended up being global head of new business there, where I led the firm's climate best practice in terms of how we engage with our clients.
• 4:30
  SPEAKER_00: And so it was a combination of, I guess, of those backgrounds that led me to think one, all I want to do for the rest of my career is focus on climate change.
• 4:39
  SPEAKER_00: Two, there's a clear lack of insurance.
• 4:42
  SPEAKER_00: And then three, I suppose my knowledge of the insurance industry, similar to Will, where Will came at it, is you really need new companies to start and forge the way because the established large insurers and reinsurers and the large established brokers will always just take a little bit more time to get to these new spaces.
• 4:59
  SPEAKER_02: Excellent.
• 5:00
  SPEAKER_02: George?
• 5:00
  SPEAKER_02: Hello, Rich.
• 5:01
  SPEAKER_02: I'm George, I'm general counsel at OC.
• 5:03
  SPEAKER_02: Um so I've been working with Rich and Dan since the business started uh five years ago.
• 5:08
  SPEAKER_02: Um so obviously I'm a lawyer predominantly, and that's that's most of my work.
• 5:12
  SPEAKER_02: I work with amazing Hannah Davis and our legal team.
• 5:14
  SPEAKER_02: Um and I've also started working with um our investment team and our people team.
• 5:18
  SPEAKER_02: Uh, so bringing forward all of our strategies relating to investment at people.
• 5:22
  SPEAKER_02: Um, but I also have involved in the insurance portfolio.
• 5:24
  SPEAKER_02: So obviously we've got a large portfolio across the UK real estate and obviously a load of um insurance policy associated with that.
• 5:30
  SPEAKER_02: But obviously, we've got involved uh recently with carbon insurance, which is absolutely fascinating.
• 5:35
  SPEAKER_02: I'm looking forward to learning a lot from you both today.
• 5:38
  SPEAKER_03: So, George, opening question for you.
• 5:40
  SPEAKER_03: Um why does the natural capital market need insurance?
• 5:44
  SPEAKER_03: What's the role it plays?
• 5:45
  SPEAKER_02: I think the answer is because of course it does.
• 5:47
  SPEAKER_02: Because in order for any sector to bring forward something, any kind of institutional products or assets, they need to have a load of risk mitigations, and insurance is a critical part of it.
• 5:57
  SPEAKER_02: So, um, you know, obviously we've seen every major asset class have an incredibly sophisticated insurance sector, and I think carbon is going that way.
• 6:05
  SPEAKER_02: But it's you know, from everything that we've seen over the last couple of years, you know, it's not very often you go onto LinkedIn and you don't see something new and interesting going on in insurance.
• 6:11
  SPEAKER_02: And I think for us, obviously, really critical for investors to be able to show that we can manage the portfolio in a stressed way.
• 6:19
  SPEAKER_02: And for and for buyers, you know, we want to be able to show that we have an insurable asset that they can they can buy and really value.
• 6:26
  SPEAKER_03: So for people who only encounter insurance in their house or their car, help people understand the power of insurance.
• 6:33
  SPEAKER_03: What does it do?
• 6:33
  SPEAKER_03: How does it work?
• 6:34
  SPEAKER_03: What is its function in the natural capital market?
• 6:37
  SPEAKER_05: Yeah.
• 6:37
  SPEAKER_05: Well, maybe it might help just quickly explain um uh a crucial part here about who's on the sofa as well, is that the insurance market is very much split into sort of two layers.
• 6:49
  SPEAKER_05: Um, the first one being the insurance brokers that you uh companies and people often will go to to access policies and the insurance, the specialist insurance market.
• 6:58
  SPEAKER_05: And there's the insurance companies.
• 6:59
  SPEAKER_05: And obviously, you can go direct to insurance companies, or you can go direct to a broker who will then access a lot on your behalf.
• 7:06
  SPEAKER_05: And so the way that the uh the insurance market itself works is complex.
• 7:09
  SPEAKER_05: And Natalia and I are very close partners actually in our two businesses and what we work on.
• 7:14
  SPEAKER_05: Um, because we bring clients access to uh entities like Kita, um, who also sort of go direct to clients as well.
• 7:22
  SPEAKER_05: Um, how the actual sort of insurance works itself, I think, is far better coming from the the original expert.
• 7:28
  SPEAKER_00: Well, I suppose I think I understood your question, not specific to carbon insurance, just more generically insurance.
• 7:34
  SPEAKER_03: If we start there and then dive in.
• 7:36
  SPEAKER_00: So I think of this in three categories.
• 7:41
  SPEAKER_00: One, and this is any type of insurance.
• 7:44
  SPEAKER_00: One is insurance that you are required to have.
• 7:47
  SPEAKER_00: Like it is not a choice, you have to get it unless you buy it.
• 7:51
  SPEAKER_00: This, for example, for UK companies is employers' liability insurance or public liability insurance.
• 7:57
  SPEAKER_00: You have to have these types of cover.
• 7:59
  SPEAKER_00: The second type of insurance is insurance people buy when they are worried they might lose something that they can't afford to replace.
• 8:08
  SPEAKER_00: An example here, which I think is a good example, is bike insurance.
• 8:14
  SPEAKER_00: My bike is like a crappy secondhand bike, and I don't have insurance on it.
• 8:19
  SPEAKER_00: Because if I lost it or someone stole it, I would just buy a new bike.
• 8:22
  SPEAKER_00: My husband has this expensive racing bike, that bike is insured.
• 8:28
  SPEAKER_00: I'm just framing a picture of our middle-aged.
• 8:31
  SPEAKER_00: Um that bike is insured because if that bike was stolen, it would eat into our household finances to replace it.
• 8:40
  SPEAKER_00: And so thus we insure it.
• 8:41
  SPEAKER_00: So the second category of why you insure stuff is because it you're worried about losing it, and if you lose it, it costs you more money than you'd wish.
• 8:48
  SPEAKER_00: So you wish to transfer that cost to an insurance company.
• 8:51
  SPEAKER_00: And then the third category of insurance, again, generically speaking, so I think of insurance that improves your cost of capital or provides you some other financial benefit.
• 9:01
  SPEAKER_00: And I think that's really in the carbon markets where we started, um, in that the insurance that has first been applied to the carbon markets is really aimed to increase your likelihood of closing a deal.
• 9:15
  SPEAKER_00: So, via, for example, reducing the risk to an investor that their investor fails to deliver what they promised, reducing the risk to a bank that their loan fails to be repaid, or reducing the risk to a developer that if you fail to deliver what you promised, you don't suffer that kind of financial loss.
• 9:34
  SPEAKER_00: And all of these things within this bucket of insurance are geared to improve your cost of capital, geared to improve the likelihood, I think, in this market of you getting a deal in the first place.
• 9:44
  SPEAKER_00: So I think of them as the enabling side of insurance, whereas I think the other ones are more of the protection side of insurance.
• 9:53
  SPEAKER_00: Those I'd say are the three generic buckets I usually use to explain.
• 9:57
  SPEAKER_05: Yeah, and ultimately insurance is there to um for, you know, for in the vast majority of when we're talking about commercial insurance, it's there to provide financial security in the event of a trigger, whatever that trigger may be.
• 10:13
  SPEAKER_05: And um, you know, the the closest comparative market that I always use because we come at this from the angle of the nature project developers themselves, rather than looking at it from the transactional side, um, is when you look at a construction project.
• 10:28
  SPEAKER_05: If you're buying a house of someone, you're not going to buy insurance yourself on the purchase of the house.
• 10:35
  SPEAKER_05: You look at although that is available, and you know, these are how markets develop.
• 10:39
  SPEAKER_05: The construction industry, you have a contractor and you have a project owner who is insured to the guilds for all sorts of losses.
• 10:47
  SPEAKER_05: Nobody ever sees where that is, and that's just a market standard.
• 10:50
  SPEAKER_05: Um, and that covers the building of that property until the point of sale, and then you have a property insurance yourself.
• 10:57
  SPEAKER_05: You would not buy a house if that contractor was uninsured.
• 11:00
  SPEAKER_05: And this is how markets then become standardized and scaled, and that's where we're now coming into, I think, the specialist side of things, the nature markets.
• 11:08
  SPEAKER_03: So when we first started, George, I I think probably 21, it wasn't possible for us to place a policy.
• 11:14
  SPEAKER_03: So I think on your leadership, we we probably placed one of the first carbon policies.
• 11:19
  SPEAKER_03: So when you started to interact with the in the sector, what did you first find and how has that developed over the past few years?
• 11:25
  SPEAKER_02: Yeah, I think we first came across it.
• 11:26
  SPEAKER_02: So we acquired Dorback in um December 24, and that was an estate where there was an existing plantation, woodland carbon code.
• 11:33
  SPEAKER_02: The previous owners had like a timber kind of style insurance policy over it, and it really obviously got us thinking we were inheriting this project with a number of years, maybe two or three years since it was first planted.
• 11:44
  SPEAKER_02: And we were taking on this asset and it was moving towards a verification point.
• 11:48
  SPEAKER_02: And we thought we've got to, we've got to do something here.
• 11:51
  SPEAKER_02: We we don't we don't want to kind of just take take the view because it's it's a maturing product project.
• 11:56
  SPEAKER_02: So went out to went out to market.
• 11:58
  SPEAKER_02: We ended up placing a carbon cancellation um policy.
• 12:01
  SPEAKER_02: But really, it was a it was as much of a kind of a risk um risk investment as it was a commercial investment for us to start working with underwriters, start understanding how policies work.
• 12:11
  SPEAKER_02: And it's um and as I said, like that this is developing every day, right?
• 12:14
  SPEAKER_02: There's new products coming to market now.
• 12:16
  SPEAKER_02: So the product we place then, I'm sure is going to change and our strategy is going to change over the next few years into something very different.
• 12:22
  SPEAKER_03: And did we the model that we'll articulate through the brokerage route?
• 12:25
  SPEAKER_03: Did we work through a broker and then an insurer?
• 12:27
  SPEAKER_02: Absolutely, yeah.
• 12:28
  SPEAKER_02: So we've we've worked with Gallagher, um, who've um who look after our kind of wider insurance portfolio.
• 12:32
  SPEAKER_02: So yeah, went through the broker route, ended up um placing the policy with CFC.
• 12:36
  SPEAKER_02: Um and you know, it as I said, it's it's been a great journey for us to uh to explore kind of how that policy works in practice.
• 12:42
  SPEAKER_02: You know, we've had tweaks to policy wording as a result of things that have happened and we've discovered about the project after due diligence.
• 12:48
  SPEAKER_02: Um yeah, and and uh a good a good investment, as I said, you know, we've we've learned a lot, but we wanted to put the money on the table.
• 12:54
  SPEAKER_02: We couldn't be um a business who says, oh, insurance is vital for this market, but not actually placing business for us and and you know, um improve that.
• 13:04
  SPEAKER_03: I hadn't um until you were telling that story, I hadn't thought about this for quite a few years.
• 13:08
  SPEAKER_03: So one of the first meetings we had when we set up OC was with a group of brokers and insurers.
• 13:13
  SPEAKER_03: You brought a whole room full of people together to hear what we were going to do and conceptually we hadn't bought any land at this point.
• 13:19
  SPEAKER_03: It was just an idea.
• 13:20
  SPEAKER_03: And there was a guy in the room who was he was just about to retire, wasn't he?
• 13:23
  SPEAKER_03: He was like a week away from retiring.
• 13:24
  SPEAKER_03: He's like, I'm so gutted because this is awesome and I want to do this.
• 13:28
  SPEAKER_03: Um he sent me the most amazing note afterwards, but I haven't thought about that.
• 13:32
  SPEAKER_02: I think I um the providing memory I've got of that was you scared the light, the life out of a few people in that room.
• 13:37
  SPEAKER_02: They were like, they had no that they weren't they weren't experts as as you guys are, I don't think is fair to say.
• 13:42
  SPEAKER_02: I think they were wanting to explore it and we were exploring it.
• 13:44
  SPEAKER_03: And it was everything as well.
• 13:46
  SPEAKER_02: Yeah, the ambition, the scale was was something that they just probably weren't.
• 13:49
  SPEAKER_02: Maybe they came to the meeting probably maybe not expecting that level of this is how it's gonna work and this is what we need.
• 13:54
  SPEAKER_03: Remember the um well, as long as you don't invite people to come worlds for me, it's fine.
• 13:57
  SPEAKER_03: I'm inviting people to come wilds for me.
• 13:59
  SPEAKER_03: And they're like, okay, that just got more risky.
• 14:04
  SPEAKER_01: Not good for the insurers to hear.
• 14:07
  SPEAKER_05: I I once had a conversation with someone recently about how he had bison on his estate, and there was a pub nearby, and there was uh he was asking whether he could insure against the risk of people getting drunk and trying to ride his bison.
• 14:19
  SPEAKER_05: And uh, and these you know, these conversations can take you everywhere.
• 14:24
  SPEAKER_05: It's very good fun.
• 14:26
  SPEAKER_03: Um, can you give us a feel for how you've seen the market develop since founding?
• 14:31
  SPEAKER_03: So you know, you're one of the first, the first.
• 14:34
  SPEAKER_03: What have you seen developed since then to get us to where we are now?
• 14:37
  SPEAKER_00: So I think you can divide the development into the underlying development of the market and the deal structures itself, and then the development of the insurance policies.
• 14:49
  SPEAKER_00: So I'd say first on the market and the deal structures.
• 14:52
  SPEAKER_00: And again, I am talking widely about the global market.
• 14:55
  SPEAKER_00: So this is relatively generic statements.
• 14:57
  SPEAKER_00: But when we first started, we saw a lot of deal structures that weren't insurable.
• 15:03
  SPEAKER_00: So you would sometimes have just really brief contacts, like a couple page contracts between a buyer and a seller that didn't really have anything in there that identified what happened if there was a loss.
• 15:17
  SPEAKER_00: Um or where the due diligence abilities for us to sort of identify what is what is the actual underpinning to this arrangement was challenging.
• 15:26
  SPEAKER_00: That is not a problem anymore.
• 15:29
  SPEAKER_00: I would say one significant shift in terms of progress has been the underlying deals now are almost always structured well.
• 15:39
  SPEAKER_00: They have appropriate clauses that insurance companies would look for, appropriate outlined recourse, they're clear on the obligations of each party.
• 15:49
  SPEAKER_00: All of this much, much better.
• 15:51
  SPEAKER_00: And I think that's because you have more companies that have in-house legal, you have more sophisticated financial institutions looking to finance or lend to these projects.
• 16:00
  SPEAKER_00: Um, so that is much better.
• 16:01
  SPEAKER_00: It makes the total addressable market that we can actually consider larger.
• 16:06
  SPEAKER_00: That's excellent.
• 16:07
  SPEAKER_00: On the insurance side, I think innately, as both key to ourselves have developed more types of insurance, and we now have other people, both brokers and insurance companies, also in the market.
• 16:19
  SPEAKER_00: I'd say the big change to insurance is the increase in availability and wider depth of options that companies have access to.
• 16:29
  SPEAKER_00: I think realistically, right now, this has positives and negatives.
• 16:33
  SPEAKER_00: The positive is obviously you have more options, right?
• 16:36
  SPEAKER_00: So for someone like you who's experienced, you've already investigated the market, that's a positive.
• 16:43
  SPEAKER_00: For people who are still maybe slightly earlier, haven't bought a policy yet.
• 16:48
  SPEAKER_00: I think it can add additional levels of confusion when you have policies that are similar but not identical, maybe named something different.
• 17:00
  SPEAKER_00: Uh, you can cover delivery, you can cover reversal, you can cover this.
• 17:04
  SPEAKER_00: There's sometimes you can move into a stage of a market where it's positive because there's more options, but it might create more complexity for the buyers.
• 17:12
  SPEAKER_00: And I think that's where we are right now.
• 17:14
  SPEAKER_00: I still think it's a big positive uplift from where we started, uh, but I think that's where we are now.
• 17:19
  SPEAKER_00: I think the next one is does it feel complex?
• 17:22
  SPEAKER_02: Um, I think you're right about the way that um policies are positioned sometimes.
• 17:26
  SPEAKER_02: So I think often they will do similar things, but be called something very, very different.
• 17:30
  SPEAKER_02: So, yeah, certainly when we've looked at it, you hear about, oh, there's a new policy coming out.
• 17:33
  SPEAKER_02: And then when you look at look at the underlying kind of cover, it's either very different.
• 17:38
  SPEAKER_02: And I was thinking, oh, it's quite similar to, I thought it was gonna be similar to what we've got, or it's the reverse.
• 17:43
  SPEAKER_02: Yes, absolutely.
• 17:44
  SPEAKER_05: And I would say, you know, that's why there is a there is a danger with the broking market getting more involved as well, where you have non-specialists or you have people who sort of just see it as a market opportunity getting involved and not being able to accurately articulate those differences.
• 18:00
  SPEAKER_05: And so, you know, I spent six months before getting regulated talking to Natalia and the team at Kita, talking to the others in the market about what are the differences, what do these mean?
• 18:10
  SPEAKER_05: Because if I'm sitting in a room with yourselves, for example, I need to be able to accurately understand exactly what the differences are and what those options mean for your needs, because needs of your business will be very different to the needs of an environmental farming collective or the wildlife trust.
• 18:26
  SPEAKER_05: You know, it's it's gonna be a real interpretation issue in that.
• 18:29
  SPEAKER_02: And those needs change like probably much.
• 18:32
  SPEAKER_02: Change all the time.
• 18:32
  SPEAKER_02: Yeah, yeah, yeah.
• 18:33
  SPEAKER_05: Exactly that.
• 18:34
  SPEAKER_05: I I have still to, you know, for the four months since we were regulated, we have I've not had two placements the same, not once.
• 18:40
  SPEAKER_00: Yes, I said we kind of the same.
• 18:42
  SPEAKER_00: Actually, what you said makes a lot of sense.
• 18:44
  SPEAKER_00: Uh, I just emphasize it for anyone who's listening and who's thinking about this for your own business.
• 18:49
  SPEAKER_00: I think when you said you bought a policy, but you recognize that how you utilize insurance will change, and thus the policy that you bought, the next one inevitably will probably be different.
• 19:02
  SPEAKER_00: I think recognizing that is very helpful.
• 19:05
  SPEAKER_00: I think sometimes people get themselves into a slight almost intellectual challenge of trying to forward, sort of forecast exactly what they're going to need at every single future point in the lifetime of a 20, 30 year project.
• 19:22
  SPEAKER_00: And that is impossible.
• 19:24
  SPEAKER_00: And so what we, as well as I'm sure you often work with people on is okay, where are you today?
• 19:29
  SPEAKER_00: What are the risks you're facing within a whatever the contractual period is?
• 19:33
  SPEAKER_00: We often do five to seven year type policies.
• 19:35
  SPEAKER_00: How can we best protect you then?
• 19:38
  SPEAKER_00: At the end of that policy, what you look like, what the market looks like is vastly different.
• 19:44
  SPEAKER_00: But don't worry about that now.
• 19:45
  SPEAKER_00: We have ample time to plan ahead and we can make sure at that time the new policy meets your requirements.
• 19:52
  SPEAKER_00: But it's hard to identify what those requirements will be today.
• 19:57
  SPEAKER_02: I think our our strategy is quite dynamic.
• 20:00
  SPEAKER_02: Chris, and when Chris uh Winter and I sit down to talk about insurance periodically, we often have a different view of what we now need.
• 20:06
  SPEAKER_02: Um, so yeah, and I said going back to the the kind of the breadth of policy that is there now, it's it's great because we now have more options and that makes a big difference as well.
• 20:14
  SPEAKER_02: So we can still choose the right the strategy we think is best for business at that time, but with maybe a larger playing field to look at.
• 20:20
  SPEAKER_03: Was there any sort of ideas, concepts, sort of values you had found in the company that actually the market hasn't developed in a way you thought it would, or things that are more or less prominent than you thought they would be?
• 20:33
  SPEAKER_00: You know, actually, in some amazingness, it actually has developed exactly how we wanted it to.
• 20:41
  SPEAKER_00: I think probably what I obviously didn't wholly understand is you know the complexity in getting here, because it is obviously very complex and ever-changing market.
• 20:51
  SPEAKER_00: But what we thought our founding thesis and our current thesis is like you said, without insurance, this market and any market cannot scale.
• 21:04
  SPEAKER_00: Thus, we can be a huge enabling force via being a specialist insurance company.
• 21:09
  SPEAKER_00: So, in essence, if we make specialist insurance policies available, we can unlock capital that goes into high quality projects.
• 21:17
  SPEAKER_00: So insurance plays the two roles of helping to identify the highest quality projects and then helping to unlock the capital that goes into those projects.
• 21:25
  SPEAKER_00: And on the basis that insurance exists, you help enable more sophisticated financing structures.
• 21:31
  SPEAKER_00: So non-payment insurance is a type of insurance, for example, that is geared towards banks who do lending.
• 21:36
  SPEAKER_00: If non-payment insurance doesn't exist, you don't really get banks that do lending.
• 21:42
  SPEAKER_00: And so that was our thesis that insurance will help unlock financing for high quality projects.
• 21:48
  SPEAKER_00: And actually, I do think that is what we are seeing in terms of the specific deal structures that the insurance is enabling.
• 21:57
  SPEAKER_00: Obviously, we are not a magic bullet for the insurance.
• 22:00
  SPEAKER_00: Entirety of the market, and there are other challenges within the market that impede flows of capital.
• 22:05
  SPEAKER_00: But from the perspective of enabling these types of more sophisticated financing structures to get money into the deserving projects, I think we are seeing our thesis actually executed upon in real time.
• 22:20
  SPEAKER_00: Like it's getting better all the time.
• 22:22
  SPEAKER_00: So I say that makes me happy.
• 22:26
  SPEAKER_03: So you're you're watching this develop from a different chapter looking into the industry.
• 22:31
  SPEAKER_03: When was it that you first thought there's a gap for the pure nature side?
• 22:35
  SPEAKER_03: And then that I want to fill that gap.
• 22:37
  SPEAKER_05: Yeah, I guess it's interesting from a personal perspective.
• 22:41
  SPEAKER_05: I've always been very interested in the rural economy, obviously, from my background with my dad and how I grew up.
• 22:47
  SPEAKER_05: Um, I was involved to a sort of very much lesser degree with the BNG biodiversity net gain um policy uh prior to it being released and prior to becoming legal.
• 22:59
  SPEAKER_05: I was talking to Natural England about how insurance can assist with that.
• 23:02
  SPEAKER_05: So actually, I came at it originally from the biodiversity net gain world.
• 23:07
  SPEAKER_05: And that was my first introduction to natural capital in a major way.
• 23:11
  SPEAKER_05: Um and so taking that on, I then started talking to the likes of keto and understanding a bit more about the carbon markets and similarities and differences there.
• 23:20
  SPEAKER_05: Um I then, you know, still in my old role, I was then uh much more interested in the role that insurance should and could be playing in furthering these markets, which, you know, when we boil it all down, we're planting trees, birds, bees are around, you know, it's it's a massively positive impact.
• 23:37
  SPEAKER_05: Um so I set up and uh still do chair the Nature and Sustainability Committee for the Insurance Institute of London, sort of CPD bringing insurers together um to talk about this sort of thing.
• 23:49
  SPEAKER_05: And but it wasn't until I had a bit of a um a catalyst a year ago and actually walked away from my old role to take a career break um uh following a holiday up in Scotland on a kayak.
• 24:02
  SPEAKER_05: Not a holiday, actually it was a work trip.
• 24:03
  SPEAKER_05: Um maybe that's the context, uh right context for it.
• 24:07
  SPEAKER_05: Um, but uh had left, left and walked away from my old role and really started talking to the likes of uh the environment bank and Keita on the other side.
• 24:16
  SPEAKER_03: And did you leave with the expressed intention of setting up a business?
• 24:21
  SPEAKER_03: Fascinating.
• 24:21
  SPEAKER_05: No, no, I left, I left to um try and actually get into conservation directly.
• 24:26
  SPEAKER_05: And I wanted to be working with entities that were doing uh doing the work on the ground.
• 24:31
  SPEAKER_05: And BNG was my focus then.
• 24:33
  SPEAKER_05: And I went interviewing, I was uh did a hundred interviews around the market at various different agencies, and every single one went, sorry, uh this isn't the right time for someone with your background, but can we talk to you about insurance?
• 24:47
  SPEAKER_05: Can we ask you questions about risk?
• 24:49
  SPEAKER_05: Can we see, you know, we've got this?
• 24:50
  SPEAKER_05: And I quickly realized I was effectively consulting for free as part of an interview process.
• 24:55
  SPEAKER_05: Um great week.
• 24:58
  SPEAKER_05: Just interview people who've got really good ideas.
• 25:01
  SPEAKER_05: We're literally just about to do exactly that.
• 25:03
  SPEAKER_03: We're not, we're not.
• 25:04
  SPEAKER_05: Um and uh but yeah, then so that it grew out of that.
• 25:08
  SPEAKER_05: And I I I realized um originally I was going to set up as a risk consultant, established that everyone's sick of them.
• 25:14
  SPEAKER_05: So insurance broking was a natural step because that's what I was doing.
• 25:17
  SPEAKER_05: I you know, if I say so myself, was reasonably good at it.
• 25:21
  SPEAKER_05: So that's that's where it um moved from there.
• 25:23
  SPEAKER_05: So it was a sort of a set of dominoes that led to it.
• 25:26
  SPEAKER_05: Um actually it was Natalia that gave me the kick, and I I explained this to her over dinner the other night, um, where uh I had a conversation with you, um, and you said, Well, why don't you just do it yourself?
• 25:37
  SPEAKER_05: And I thought, oh, well, actually, not a terrible idea.
• 25:40
  SPEAKER_03: So here we are.
• 25:41
  SPEAKER_03: And had you guys thought about the nature side of things before and dismissed it and thought, no, we're gonna stay purely in carbon, or it just hadn't um been a line that you thought you'd explore?
• 25:51
  SPEAKER_00: Actually, the opposite, to be honest.
• 25:53
  SPEAKER_00: I think we always I don't really see carbon and nature as wholly differentiate different things, like they're quite clearly interlinked.
• 26:04
  SPEAKER_00: Um, they can have different outputs.
• 26:06
  SPEAKER_00: You get a carbon credit or you get a biodiversity net gain unit.
• 26:10
  SPEAKER_00: But the underpinning is the same.
• 26:12
  SPEAKER_00: And so when we went into building Kita, again, our ethos was, as I said, it's always been a climate change-focused ethos.
• 26:21
  SPEAKER_00: It's always been about how do you unlock capital for the best projects, but it was never really pure carbon.
• 26:26
  SPEAKER_00: It was always wider than that.
• 26:28
  SPEAKER_00: What we started was with the carbon markets, because when you start a new business, particularly in a new, like no one's done it before.
• 26:36
  SPEAKER_00: You just need to have a specific message.
• 26:38
  SPEAKER_00: It doesn't work that well to be like, we're doing carbon and we're doing this and we're doing that.
• 26:42
  SPEAKER_00: It was just, let's just call it carbon insurance, clear message.
• 26:46
  SPEAKER_00: But no, we've always seen it as wider than that.
• 26:49
  SPEAKER_00: And so now actually we likewise carbon natural capital called environmental attribute credits, et cetera.
• 26:56
  SPEAKER_00: It's this kind of I think one of my co-founders calls it the sort of unpriced environmental externality that that no one's really looking at, no one's really ensuring, no one's really thinking about as much.
• 27:11
  SPEAKER_00: And that is where we come in more widely.
• 27:15
  SPEAKER_03: When um so it was in the first few weeks of founding OC, myself, George, George's colleague Matt, who's um general counsel for our parent company, we we all we sat down and scribbled all the things that needed to be true for OC to work as a company.
• 27:29
  SPEAKER_03: And really high on that list were insurance and debt funding capabilities, which is why we did the deal with Trados, we did, and also ratings curves.
• 27:38
  SPEAKER_03: So for people who might not be familiar with how they interact, how relevant and associated are things like ratings curves and insurance?
• 27:46
  SPEAKER_03: Do they interact?
• 27:47
  SPEAKER_03: Are they completely separate?
• 27:48
  SPEAKER_03: Do they help you evaluate projects?
• 27:50
  SPEAKER_03: How do they cross over with the insurance project?
• 27:52
  SPEAKER_00: You mean ratings curves in terms of like an A rating, B rating?
• 27:55
  SPEAKER_03: A B0, a silver, a type rating of a project.
• 28:00
  SPEAKER_00: So I think there's differing opinions on this within the insurance industry, um, even potentially within us, to some extent determined by the type of insurance that any company might specialize in the most.
• 28:13
  SPEAKER_00: Generally speaking, we're very positive on ratings agencies, and I think we have good relationships with them.
• 28:17
  SPEAKER_00: So I think they are an essential, useful part of the market.
• 28:20
  SPEAKER_00: I think where we where we don't necessarily use them as frequently is I suppose the distinction in what we consider and what a rating gives you.
• 28:32
  SPEAKER_00: So again, I often simplify things in podcasts, so apologies if to any listener.
• 28:37
  SPEAKER_00: But a rating simplistically is giving you a quality score at that point in time.
• 28:42
  SPEAKER_00: As of this moment in time, you are an A or B or whatever.
• 28:46
  SPEAKER_00: When we're looking at our insurance policy, we are often looking at the likelihood that the project we are insuring will deliver upon its promises or its expectations over a coming significant period of time, so over the next five years, let's say.
• 29:01
  SPEAKER_00: So equality rating at the time in which we are giving the insurance policy is useful, but what we are more interested in is what is the likelihood this project will deliver over its time frame.
• 29:14
  SPEAKER_00: And thus, what we focus more on in our risk assessment is that sort of likelihood of delivery curve, but also benchmarked against other projects in the market.
• 29:24
  SPEAKER_00: So we do a lot of benchmarking exercises.
• 29:26
  SPEAKER_00: So projects like this have performed like this.
• 29:31
  SPEAKER_00: Uh this project, as compared to its peer projects, is tracking like this, and that helps to give us more certainty on the error bar we might be considering that then more directly influences the premium.
• 29:47
  SPEAKER_00: And so I suppose again, just to note, we like the rating because it is a good assessment of the project at a point in time, but I care less about the project on the day we ensure it.
• 29:57
  SPEAKER_00: I care more about the project over the coming five to seven plus years.
• 30:01
  SPEAKER_00: Um, and so we focus more on that forward-looking curve.
• 30:04
  SPEAKER_00: And so thus a rating is certainly helpful, but it is not uh our pricing is not directly correlated to the rating itself.
• 30:13
  SPEAKER_02: How evolved is the data?
• 30:14
  SPEAKER_00: Do you know what actually is really good now because three things?
• 30:21
  SPEAKER_00: One, my one of my other co-founder, he comes from hedge funds, he always says, even though people always say there's no data in the carbon markets and natural capital, there actually is because so much of the data is public.
• 30:31
  SPEAKER_00: So in some ways, actually is a lot of data because all that historic data is publicly available on a registry.
• 30:36
  SPEAKER_00: So everyone has that.
• 30:37
  SPEAKER_00: That's not a USP.
• 30:39
  SPEAKER_00: We then, because we were first, we have, even if we haven't insured every project, we've gotten so many projects have sent us their data.
• 30:48
  SPEAKER_00: And the vast majority of projects that have sent us their data to do underwriting are projects that aren't yet issuing, the early stage projects.
• 30:56
  SPEAKER_03: In terms of are we talking about hundreds of projects in terms of the density?
• 30:59
  SPEAKER_00: Yeah.
• 31:00
  SPEAKER_00: Like lots.
• 31:01
  SPEAKER_00: Lots of projects, definitely hundreds.
• 31:03
  SPEAKER_03: Yeah.
• 31:03
  SPEAKER_00: Um, so you then get this proprietary data that's not publicly available.
• 31:07
  SPEAKER_00: And then third, and again, you write about this all the time, but we have very extensive data scientists who have access to the live data, the satellites, the et cetera, et cetera.
• 31:17
  SPEAKER_00: And so you then are able to actually sense check the historic data, the proprietary data we've received against the actual live views of the project and how they're performing, what the natural catastrophe risk is, what the everything that they say, you're able to sense check it live.
• 31:32
  SPEAKER_00: And so the combination of these three data points that sort of come in at these varying levels is able to give you actually a pretty strong picture that enables you to do benchmarks.
• 31:42
  SPEAKER_00: The benchmarks aren't perfect, uh, particularly for some types of methodologies where there's not that many projects to benchmark.
• 31:48
  SPEAKER_00: You know, you can only benchmark so well.
• 31:50
  SPEAKER_00: But as long as we are able to benchmark against a sort of similarity curve, um, it is there's a lot of data.
• 31:58
  SPEAKER_00: And I think I like it when we also work with our investor clients and also ourselves, because again, you might want a triple A project, but it might not exist.
• 32:10
  SPEAKER_00: And so, thus, of the available projects to me in the type and the location I want, how am I able to identify if my project is a top, middle, or low performer?
• 32:22
  SPEAKER_03: I mean, that's a real that's helpful.
• 32:23
  SPEAKER_03: That's a real example.
• 32:24
  SPEAKER_03: So you look at the B0 rating.
• 32:26
  SPEAKER_03: So we had Tommy on the podcast recently do some really exciting stuff.
• 32:29
  SPEAKER_03: They are yet to rate a nature-based project a triple A, because of their methodology.
• 32:35
  SPEAKER_03: There hasn't been one globally yet.
• 32:37
  SPEAKER_03: Might we get there one day?
• 32:38
  SPEAKER_03: I hope so.
• 32:39
  SPEAKER_03: But there hasn't been one yet.
• 32:40
  SPEAKER_03: So you're absolutely right.
• 32:41
  SPEAKER_03: In the absence of that, you then need to look, okay, well, in that second basket, where can I get some confidence and some information about it?
• 32:47
  SPEAKER_05: And I would say that's the key word is confidence.
• 32:49
  SPEAKER_05: There is a assurance and insurance make confidence.
• 32:54
  SPEAKER_05: And I think when you're looking at how you scale a market, the confidence piece is in many, many aspects the part that's really lacking.
• 33:02
  SPEAKER_05: Um I think the insurance is coming to meet where the ratings have been around for a little longer and uh in that sense.
• 33:07
  SPEAKER_05: But when you look at other markets within the insurance industry, there is very little reliance on any rating agency necessarily in them.
• 33:15
  SPEAKER_05: You may not insure something if it hits below a certain level, but above that is kind of off your radar because you have your own proprietary models, you have market standard models, you have claims histories, and you have overlays of whatever the new clever data company that's coming in and sold you something that year is.
• 33:33
  SPEAKER_05: So it's and then fundamentally you have underwriter judgment at the front of it.
• 33:37
  SPEAKER_05: And so you may ratings may contribute to a threshold.
• 33:40
  SPEAKER_05: And I think insurance can contribute to ratings, but I don't necessarily think that like a rating is a one and done underwriting tool.
• 33:49
  SPEAKER_05: It's simply part of that toolkit.
• 33:51
  SPEAKER_03: I mean, I literally published a piece this week that even if you wanted it, there isn't a ratings agency for B and G or nature credits, yeah.
• 33:58
  SPEAKER_03: So um I'm hearing that that's something that insurance would potentially help moving forward, but actually it's not limiting your ability to do what you need to do by the absence of that at the moment.
• 34:08
  SPEAKER_00: No, no, absolutely.
• 34:10
  SPEAKER_03: Fascinating.
• 34:11
  SPEAKER_03: Um I'm looking for case studies now.
• 34:12
  SPEAKER_03: I'm looking for practical examples where you can talk us through the role of insurance, something it's facilitated, something you're proud of over the last few years.
• 34:21
  SPEAKER_00: So I think I'll I think in the sort of questions that you sent to us originally, I think one of the questions was what was your first deal?
• 34:32
  SPEAKER_00: So the first case study I'm gonna give is that one.
• 34:35
  SPEAKER_00: I'm not gonna give names because I have because I haven't asked anyone.
• 34:38
  SPEAKER_00: But this one was so this was our first ever deal.
• 34:40
  SPEAKER_04: Yeah.
• 34:41
  SPEAKER_00: It was for our large corporate, um, EU-based.
• 34:45
  SPEAKER_00: And they it was like the exact thing that we thought was going to happen.
• 34:52
  SPEAKER_00: So they had gone out to a developer and they wanted to invest, but they said we can't because there's too much risk.
• 35:00
  SPEAKER_00: The developer knew us and said, why don't you speak to this insurance company?
• 35:04
  SPEAKER_00: We spoke to this corporate, they said, we just can't invest in this stuff without insurance.
• 35:09
  SPEAKER_00: There's political risk, there's natural catastrophe, there's these small businesses, et cetera, et cetera.
• 35:15
  SPEAKER_00: Um they were looking at five projects.
• 35:17
  SPEAKER_00: We looked at one of the projects and said, we can't insure that project for a few reasons.
• 35:22
  SPEAKER_00: So they said, fine, they're not gonna invest in that project.
• 35:25
  SPEAKER_00: The other four we said we could insure.
• 35:27
  SPEAKER_00: And so they invested in them.
• 35:28
  SPEAKER_00: They did prepayments uh at that time.
• 35:31
  SPEAKER_00: Uh, prepayments was more were more common.
• 35:32
  SPEAKER_00: So they did prepayments, we insured it.
• 35:35
  SPEAKER_00: They since have come back to us for I think three or so more policies.
• 35:40
  SPEAKER_00: Um, and they have forward planned their ongoing investments into these projects out to about 2032.
• 35:46
  SPEAKER_00: And so I think as the first kind of justification of what we were trying to do, which was help unlock capital to go into two good projects, it was like that is exactly what we're trying to do.
• 35:59
  SPEAKER_00: They wouldn't have happened without the literature.
• 36:01
  SPEAKER_00: Like I literally had that in writing and an email from them, which actually from insurance isn't really what you want to hear, but we put that to the side.
• 36:09
  SPEAKER_00: Um, so it was just such the epitome of like, oh, that's that's why we built this company.
• 36:15
  SPEAKER_00: And it was the first deal.
• 36:17
  SPEAKER_00: So that was excellent.
• 36:19
  SPEAKER_00: Since then, I think we probably more frequently work with people who are doing some form of investment into the project.
• 36:27
  SPEAKER_00: So it's less I'm prepaying in order to receive credits that I personally am going to retire.
• 36:31
  SPEAKER_00: It's more I'm investing into this project, and then I'm gonna receive a return on it.
• 36:36
  SPEAKER_00: So someone else is usually gonna retire those credits.
• 36:39
  SPEAKER_00: So it's a wholly different deal structure, but it still follows the same underlying ethos that we're helping unlock capital.
• 36:46
  SPEAKER_00: So but that was as one case study, that was like it still sticks in my mind as it goes perfect.
• 36:52
  SPEAKER_03: I mean, we're so early on the nature side of stuff here.
• 36:54
  SPEAKER_03: Is there a case study we can reach towards, yeah?
• 36:56
  SPEAKER_05: Well, I mean, for for me, there's working on all sorts at the moment, and it is so varied, and it's I find it hilarious that we're considered niche when our topic is nature, which is the largest global topic, arguably, that you could be talking about.
• 37:10
  SPEAKER_05: Maybe space is one more.
• 37:11
  SPEAKER_00: There's been once I listened to a podcast where they said, we're talking about like this guy was he was on marketing, he was like, I'm gonna give examples of niche things, like you know, sort of people who are making craft beer in their garage, you know, like women, like I was sorry, this total time I listened to the podcast, I was like, turn that one off.
• 37:30
  SPEAKER_00: Anyway, yes, nature is as niche as you didn't get the canceled.
• 37:36
  SPEAKER_03: Why didn't we say it?
• 37:39
  SPEAKER_05: Oh yeah, yeah.
• 37:40
  SPEAKER_05: Well, luckily hopefully I won't put my foot in it too that bad.
• 37:44
  SPEAKER_05: Um but no, I mean for so for us it is it is all it is all uh you know niche and uh but hugely varied.
• 37:50
  SPEAKER_05: Every, every like I said, every single policy we look at is different.
• 37:54
  SPEAKER_05: You know, in terms of policies placed, the most proud of proud one is the is the first one.
• 37:58
  SPEAKER_05: It was a uh niche uh voluntary credits project up in Yorkshire that needed some form of insurance in order for the SPV to be set up.
• 38:08
  SPEAKER_05: We were able to go into the market, get something that's tweaked enough to satisfy not only their requirements, but actually provide some appropriate cover for the land as well, um, without it costing more than it would otherwise.
• 38:21
  SPEAKER_05: So very proud of that.
• 38:22
  SPEAKER_05: The one I'm most proud of is actually the policy I didn't place, which is I was working with a farmer up um in the north who was doing a BNG project.
• 38:33
  SPEAKER_05: He wanted a quote for insurance.
• 38:34
  SPEAKER_05: And I got the quote back and he went, Oh, that's really expensive.
• 38:38
  SPEAKER_05: Um, because for this stuff it's complex, you're talking about long-term liabilities.
• 38:41
  SPEAKER_05: And I talked him through.
• 38:43
  SPEAKER_03: So just just so we're clear, what what did he want insuring?
• 38:46
  SPEAKER_05: He didn't know.
• 38:47
  SPEAKER_05: And so that was but he had been told to go and get an insurance option.
• 38:51
  SPEAKER_05: And so we were going through this policy, which was, you know, the bells and whistles, the whole lot.
• 38:56
  SPEAKER_05: It's really more designed around if you are going through a complex large-scale transaction.
• 39:01
  SPEAKER_05: But he wanted to have a look at that.
• 39:02
  SPEAKER_05: And so we went through it all.
• 39:04
  SPEAKER_05: And I went through his circumstances with him.
• 39:06
  SPEAKER_05: He was comfortable holding a bit of cash to cover any any necessity over the 30 years instead.
• 39:12
  SPEAKER_05: And there was no risk to him from a third-party failing because he was doing the work himself, it was his land, he owned it, and he had a succession plan with his kids.
• 39:21
  SPEAKER_05: And so I said to him, Look, I don't, if you're not being told to buy this, you don't need it.
• 39:26
  SPEAKER_05: There is no, like, I'm not here to peddle snake oil.
• 39:29
  SPEAKER_05: There is no necessity for this.
• 39:30
  SPEAKER_05: The insurance, like I said, for us, it's there to enable.
• 39:34
  SPEAKER_05: It's the same for these guys.
• 39:36
  SPEAKER_05: And I think, you know, if you're trying to sit there and shoehorn something in just for the sake of making a bit of brokerage, the market's going to fall over because no one's going to buy it.
• 39:44
  SPEAKER_05: And so that I think that's the one I'm most proud of, probably.
• 39:47
  SPEAKER_03: Um Are we increasingly seeing uh you mentioned it's one of the types of insurance earlier, the requirement insurance.
• 39:55
  SPEAKER_03: As it comes to credit mechanisms, are we seeing jurisdictions where people are having to have an insurance in place now rather than it being optional?
• 40:04
  SPEAKER_00: Yes.
• 40:05
  SPEAKER_03: Um I'm thinking kind of the sort of international markets, whether it's the are we seeing it in the EU ETS yet?
• 40:12
  SPEAKER_03: Are we seeing it in Corsair and things like that?
• 40:14
  SPEAKER_00: Coursey is the one mandated market.
• 40:16
  SPEAKER_00: Might it be helpful?
• 40:17
  SPEAKER_00: I can just quickly outline the insurance policies.
• 40:20
  SPEAKER_00: They might have not necessarily the right names, but I think they're broadly.
• 40:23
  SPEAKER_00: So you have my term non-delivery insurance.
• 40:27
  SPEAKER_00: This is can be either for the seller or the buyer or the investor, but it's basically a credit, could be nature, carbon, etc., but is not delivered as contractually obligated to be delivered.
• 40:39
  SPEAKER_00: So you were supposed to deliver X amount in Y timeframe, and you fail to do so, somebody has lost money.
• 40:43
  SPEAKER_03: And is that almost always a purely numerical measure of the credit?
• 40:47
  SPEAKER_03: So it's not the quality of a credit.
• 40:49
  SPEAKER_03: This would just be one, two, three has been paid.
• 40:52
  SPEAKER_00: Yeah, exactly.
• 40:52
  SPEAKER_00: I was supposed to get 10, I got eight.
• 40:54
  SPEAKER_00: Exactly.
• 40:54
  SPEAKER_00: Uh numerical.
• 40:56
  SPEAKER_00: And that can be the claim can be paid in cash or in replacement credits.
• 40:59
  SPEAKER_00: But yes, it's a number of credits to be delivered at a time frame in the future.
• 41:03
  SPEAKER_00: Um that is was our first policy, probably the most common policy.
• 41:09
  SPEAKER_00: I think all the insurers active in this market have that type of policy.
• 41:13
  SPEAKER_00: The second type of policy is non-payment insurance.
• 41:16
  SPEAKER_00: This is generally for the demand side, usually for banks or commodity trader types.
• 41:23
  SPEAKER_00: Uh, the difference is that basically they are putting money up front in some sort of lending to the project and they're expecting to get repaid in cash.
• 41:31
  SPEAKER_00: That repayment is usually done when the developer basically provides the credits to an off-taker who then pays them so that the developer can repay their financing.
• 41:42
  SPEAKER_00: That's non-payment insurance for banks that gives them capital relief.
• 41:45
  SPEAKER_00: It's an excellent policy.
• 41:47
  SPEAKER_00: Um, you then have political risk insurance.
• 41:51
  SPEAKER_00: Often this is incorporated into the two prior insurance policies I mentioned, but sometimes people want it separately.
• 41:56
  SPEAKER_00: And this is again, political risk insurance covers you against the risk of host countries.
• 42:01
  SPEAKER_00: So expropriation, export license cancellation, forced abandonment, war, terror, civil unrest, these types of things.
• 42:07
  SPEAKER_00: For certain countries, people want this insurance.
• 42:11
  SPEAKER_03: Um would it cover overzealous tariffs being applied?
• 42:14
  SPEAKER_00: It can do.
• 42:15
  SPEAKER_00: Uh, generally, political risk insurance covers.
• 42:19
  SPEAKER_00: Uh are you making a job?
• 42:20
  SPEAKER_00: I don't know if you're making a joke.
• 42:21
  SPEAKER_00: I'm gonna take this seriously.
• 42:22
  SPEAKER_00: No, that was a legitimate question.
• 42:24
  SPEAKER_03: I was just laughing, but it was a legitimate question.
• 42:28
  SPEAKER_00: Um it tariffs, taxes, it generally would cover that when applied in a discriminatory fashion.
• 42:35
  SPEAKER_00: So if it is discriminatory against the insured client or the industry in which that client, something that's discriminatory, then yes, it can be covered.
• 42:45
  SPEAKER_00: Political risk insurance, though, doesn't cover the fair right of a government to legislate.
• 42:49
  SPEAKER_00: So if a government legislates they're going to do tariffs fairly, everyone's impacted, then it wouldn't cover that.
• 42:55
  SPEAKER_00: Okay.
• 42:56
  SPEAKER_00: Um, so I said the non-delivery, non-payment, political risk, you have now the reversal.
• 43:01
  SPEAKER_00: It's probably what you were sort of looking at, the reversal permanence cover.
• 43:05
  SPEAKER_00: That can uh Vera, for example, is doing a pilot to replace buffer contributions with that.
• 43:10
  SPEAKER_00: Uh, and then you have Corsia, which is the policy that enables the uh basically eligibility of credits for Corsia.
• 43:17
  SPEAKER_00: I say those are probably the main primary policies in the market.
• 43:22
  SPEAKER_00: You will also have some others that you could talk about, like professional liability, et cetera.
• 43:26
  SPEAKER_00: But before I pass to you, if I stick on those and answer your question, the only mandatory policy there is CORSIA, in that it is mandated if you wish to be eligible for Corsia and you don't already have certain things applied to your credits.
• 43:42
  SPEAKER_00: Insurance is the only way to make your credit um Corsia eligible.
• 43:48
  SPEAKER_00: The others are still optional, but I would say they are becoming more de facto utilized in certain types of transactions.
• 43:57
  SPEAKER_00: And they apply in the voluntary market.
• 44:00
  SPEAKER_00: It's in the ETS and in the sort of in-between compliance type markets that can be utilized across the board.
• 44:07
  SPEAKER_05: And I would say as well, the, you know, as the market does develop, the VeraPilot's a great example.
• 44:13
  SPEAKER_05: They're not the only standard looking at this.
• 44:15
  SPEAKER_05: That's where the standardization will just become part of it as the insurance.
• 44:21
  SPEAKER_05: But even in that, it's it's complicated because you know you'll have other insurance companies that will call these things different reversals, sometimes called cancellation and all sorts of other basic pieces.
• 44:30
  SPEAKER_05: But in the in the nature market, so sort of away from just the pure carbon.
• 44:34
  SPEAKER_05: See, we look at um professional indemnity, civil liability type policies that need to understand the contractual complexities that go on with a lot of these projects.
• 44:44
  SPEAKER_05: Um we also look at environmental liability and how regulatory impact um because of crime, because obviously for biodiversity net gain, it is a regulation, it's a fixed market now, um, despite certain government changes immediately after it being released and become more.
• 45:03
  SPEAKER_03: Have people placed political risk insurance on BNG yet?
• 45:06
  SPEAKER_05: No.
• 45:07
  SPEAKER_05: The political environment in the UK, although we may think of it as being um a bit fiery at the moment, um, has not yet been perceived as that much of a risk for people to worry about it.
• 45:18
  SPEAKER_05: I am now getting asked about it.
• 45:20
  SPEAKER_05: You know, Reform UK comes in and starts to completely scrap the whole lot.
• 45:25
  SPEAKER_05: But the pro the thing with a regulated market, a mandatory market as part of law, if the law is scrapped, actually what then are the losses?
• 45:34
  SPEAKER_05: Because everything becomes void.
• 45:36
  SPEAKER_05: So it depends on how the mechanism obviously goes through.
• 45:39
  SPEAKER_05: But you know, there's it's a different kind of risk compared to when you're doing maybe trust transnational um and uh you know voluntary contracts.
• 45:48
  SPEAKER_05: Um and the last one there on nature markets is the sort of, as I sort of alluded to earlier, the all-sing dancing BNG type insurances, where um, if you have a complex buyer, like an infrastructure project, they will put a whole suite of things in front of you that you need to understand.
• 46:03
  SPEAKER_05: And that is in effect stacking multiple policies one on top of each other with a cover sheet.
• 46:08
  SPEAKER_05: Um, and that reflects the construction world very much because you have these very long-term regulatory requirements.
• 46:15
  SPEAKER_05: Um but the final ones being parametric, and I guess also um just nature cover itself, actually covering the asset, uh, not through a parametric but through an indemnity type property insurance.
• 46:29
  SPEAKER_05: Um, the reality there though is it changes constantly.
• 46:32
  SPEAKER_05: Uh you know, the policies I was talking about three months ago are not the same ones I'm talking about today.
• 46:36
  SPEAKER_03: So um the word buff words buffer pool were mentioned on the way past.
• 46:40
  SPEAKER_03: George, can you help explain to people how that currently works and what the role of a buffer pool is in cars?
• 46:45
  SPEAKER_02: I mean, probably not as well as in the tally account.
• 46:47
  SPEAKER_03: Well, I'm gonna let you set them up and then they can hopefully give us some offering.
• 46:51
  SPEAKER_02: Let's say a pool of 10 credits and 20 of those we cannot sell.
• 46:55
  SPEAKER_02: They are they are there to protect the remainder of the project.
• 46:57
  SPEAKER_02: So for us, obviously, that that leaves value on the table that we would look to monetize.
• 47:01
  SPEAKER_02: And I think you know, the the discussion that you know you mentioned earlier was was can insurance play a role in replacing that to allow developers to monetize more of the the project that's been developed?
• 47:12
  SPEAKER_03: Because that premise predated an insurance industry existing, right?
• 47:15
  SPEAKER_03: So I'm thinking the Woodland Carbon Code is is it the same 20% in the Peatland code as well?
• 47:19
  SPEAKER_03: Variable bit similar, yeah.
• 47:20
  SPEAKER_03: Okay.
• 47:21
  SPEAKER_03: So you end up with that buffer pull that you know, often when we're talking to international projects and developers, that's pointed to a signal that some of the UK codes aren't perhaps as commercially minored as international ones, because it it presupposed that self-insurance element in it.
• 47:38
  SPEAKER_03: So that existing prior to insurance, what options are available now to mitigate against that and what might be in the future, do we think?
• 47:47
  SPEAKER_00: Well, first to be fair to the UK, I think almost every carbon standard, except for some of the newer ones that actually very new ones, um, almost all of them have a buffer.
• 48:00
  SPEAKER_00: And a 20% flat rate is actually relatively kind of common.
• 48:04
  SPEAKER_00: So I would say the UK isn't different to the global market really on that basis, uh, to be fair to the UK.
• 48:12
  SPEAKER_00: Um but the overall challenge, as you voiced, of the buffer is that the developer has to put up a lot of value into the buffer on day one at a point in time when you really need the cash flow, where the cash flow could really help you basically get better financing options.
• 48:32
  SPEAKER_00: And so instead of having the flexibility to sell those credits, you have to put so much of it up front on day one.
• 48:37
  SPEAKER_00: So it becomes very financially onerous to a developer in the early years of their business.
• 48:41
  SPEAKER_00: Um in terms of the available options right now to replace or reduce that buffer contribution, I think right now, to be honest, there's still not that many.
• 48:51
  SPEAKER_00: So Vera is doing a pilot right now where project developers can buy insurance to replace their buffer contribution, but it is a pilot.
• 49:02
  SPEAKER_00: And so it's just starting, it'll be a pilot for three years.
• 49:06
  SPEAKER_00: Uh, other standards will inevitably copy Vera.
• 49:09
  SPEAKER_00: We're already speaking to some of them.
• 49:11
  SPEAKER_00: That is inevitable that they will copy Vera if that goes well.
• 49:14
  SPEAKER_00: But right now, I'd say the options aren't great.
• 49:16
  SPEAKER_00: It's still largely the default would be contribute to the buffer.
• 49:19
  SPEAKER_00: I think insurance penetration here will go up over the years.
• 49:24
  SPEAKER_00: I will say, just to make a sort of key to point, I think the insurance being taken out by the project developer to replace their buffer contribution is very financially beneficial to certain project developers.
• 49:36
  SPEAKER_00: And I say for you, it would be financially beneficial to you.
• 49:41
  SPEAKER_00: Um however, not all developers will be able to access that type of insurance policy based on their risk profile, their size, their location, or if they have any really sizable risks at any point in time, it might negate their ability to receive a policy in the future.
• 49:56
  SPEAKER_00: And so thus I would say insurance at the project developer level to replace buffer contributions doesn't wholly take away the need for a buffer.
• 50:06
  SPEAKER_00: I think, therefore, the other solutions Kita is working on are two.
• 50:12
  SPEAKER_00: One is we have a buffer insurance policy that wraps the existing buffer.
• 50:17
  SPEAKER_00: So one of the problems with the buffers right now is that it's sort of like a quasi-insurance company, but it's uncapitalized, it's unregulated, and it's run by people who are insurance people.
• 50:27
  SPEAKER_00: So, and that's hard to fix.
• 50:29
  SPEAKER_00: And that's not a dig on anyone, right?
• 50:31
  SPEAKER_00: It's started that way.
• 50:33
  SPEAKER_00: And it started that way because there were no other options.
• 50:35
  SPEAKER_00: But what you easily can do is just wrap that with an insurance policy right now.
• 50:39
  SPEAKER_00: So all of a sudden, now you've transferred the liability to insurer who is regulated, who is governed, who can give transparent loss reporting, and it gives certainty to the buyers.
• 50:49
  SPEAKER_00: They know if there's been a reversal, they know how it's been fixed.
• 50:52
  SPEAKER_00: It also reduces cost of the developers because if the central entity is insured, that insurance policy is cheaper because of the portfolio diversification effect.
• 51:02
  SPEAKER_00: And thus each individual developer can contribute less.
• 51:06
  SPEAKER_00: Um, so we think that is a positive insurance policy that can apply at any buffer.
• 51:12
  SPEAKER_00: And the benefit of that is as better solutions come in, not to take over this podcast on a permanence topic, but we're also working with American Forest Foundation on something called the Permanence Trust, which is more like an endowment scheme for basically ongoing permanent liability that can take over the buffer.
• 51:32
  SPEAKER_00: The insurance can play an intermediate role for the sort of short-term liability window, existing uh sort of buffer structures in the market until that real financial structure of the future comes in.
• 51:44
  SPEAKER_00: And so I think that is a way that we can help people transition away from the reliance on the buffer.
• 51:49
  SPEAKER_05: And it's important to know that an insurance policy will cover a lot of things, but it won't ever cover everything.
• 51:55
  SPEAKER_05: And so there is always going to be a balancing act that needs to be undertaken here.
• 51:59
  SPEAKER_05: Um and the reality of what we're all sitting here talking about is methods of reducing climate change and methods of uh you know enhancing nature.
• 52:10
  SPEAKER_05: And so actually the buffer tool, the buffer pools are great for those that can't get that fully comprehensive, as Natalia said.
• 52:17
  SPEAKER_05: Um, from our perspective as well, we are seeing in the nature markets and and in BNG and places like that, actually, a lot of the developers who have been working on these markets have come from the carbon space or doing both.
• 52:30
  SPEAKER_05: Um actually we're seeing just sort of escrow accounts becoming a bit more of a requirement, things like that.
• 52:36
  SPEAKER_05: We're quite keen to get in very early on and make sure that doesn't need to happen because it's too, it's it's over the top, especially when you have a regulated market like BNG, where actually there are, you know, there's step-in rights and natural England have to come and get involved, or the responsible body of the planning authority have to get involved.
• 52:53
  SPEAKER_05: There's it's not a necessity to start getting farms to hold escrow accounts for 30 years.
• 52:59
  SPEAKER_05: That's where insurance can play a really vital role.
• 53:02
  SPEAKER_05: Um, and we we get a lot of our inquiries off the back of and local planning authorities saying they need an escrow account or whatever it might be.
• 53:10
  SPEAKER_05: The insurance can step in instead of that.
• 53:13
  SPEAKER_05: It's not a necessity.
• 53:14
  SPEAKER_03: Did we hear similar at any point in the BMG project development?
• 53:18
  SPEAKER_02: I don't think so, no, actually.
• 53:19
  SPEAKER_02: No, no, but it might be the profile that that we had that we have, perhaps.
• 53:22
  SPEAKER_02: But no, I can understand why escrow's would be a big problem.
• 53:25
  SPEAKER_02: You're already you're already kind of um you know financially challenging project sometimes, let alone having to lock away some cash.
• 53:32
  SPEAKER_05: It's very variable that who doesn't doesn't.
• 53:33
  SPEAKER_05: And it's it's often the planning authority or the responsible body that's requiring it.
• 53:37
  SPEAKER_05: Um, because obviously there it I guess if you own the land, it's very different because your long-term liability effectively sits with you because you own that.
• 53:46
  SPEAKER_05: Um if you don't necessarily own the land, or maybe there's a there's risk of um bankruptcy and things like that, then that's when that risk steps in a little more.
• 53:55
  SPEAKER_05: Um that's generally where we yeah where we see it.
• 53:58
  SPEAKER_05: But it's very variable at the moment, depending on who those authorities are that are requiring it.
• 54:03
  SPEAKER_03: Yeah.
• 54:04
  SPEAKER_03: Um you mentioned in terms of the policies that might protect against almost the need for them to provide light for like replacements of credits.
• 54:12
  SPEAKER_03: Is there a is there a globally available data set that allows us to understand the amount of credits that might ever be called upon from a replacement perspective?
• 54:22
  SPEAKER_00: Um yes and no.
• 54:27
  SPEAKER_00: I would say so.
• 54:28
  SPEAKER_00: We would be able to we have that data.
• 54:31
  SPEAKER_00: So we have done the analysis and you can look at it widely of what is the likelihood of X risk happening?
• 54:38
  SPEAKER_00: What is the likelihood of across the market, X percentage of non-delivery, X percentage of reversal, et cetera?
• 54:44
  SPEAKER_00: So what is the sort of likelihood, the worst case, best case scenario?
• 54:48
  SPEAKER_00: And then from there you can extrapolate in the worst case scenario, where is the replacement coming from?
• 54:53
  SPEAKER_00: So yes, that but I don't know if that necessarily exists as a publicly accessible.
• 54:58
  SPEAKER_00: You can always sort of buy it from somebody.
• 55:00
  SPEAKER_03: One of the interesting things we were approached about was almost someone wanting to have our entire portfolio as their backup plan.
• 55:09
  SPEAKER_04: Oh.
• 55:10
  SPEAKER_03: As a view that you know, a hypothetical insurer could say, well, we think at some point in time we are going to have to provide mature high-quality credits to replace what's there.
• 55:20
  SPEAKER_03: The only way of protecting our cost base of that is to have the credits ourselves lopped away now.
• 55:25
  SPEAKER_03: So it's interesting.
• 55:26
  SPEAKER_03: Are we sat on an insurance market that has a supply of 10 million tons but actually has a potential call of 50 million or the other way?
• 55:34
  SPEAKER_03: I just think that's a really interesting.
• 55:35
  SPEAKER_00: So we have thought about that.
• 55:38
  SPEAKER_00: Um I think our perspective now is that I don't think it makes sense necessarily for insurance companies to, in essence, create their own buffers which can impede further liquidity in the market.
• 55:55
  SPEAKER_00: I think what is better in today's market is to think of it more as a financial structuring mechanism.
• 56:03
  SPEAKER_00: So we know what we have insured.
• 56:06
  SPEAKER_00: Uh, we know when people have asked for replacement credit claim payments versus cash.
• 56:11
  SPEAKER_00: So we know sort of what we are on risk for.
• 56:14
  SPEAKER_00: Um we also can monitor the projects we've insured almost live whenever we wish to.
• 56:20
  SPEAKER_00: And we have a relatively long period from the time you know we identify or are told about any loss to the time that we have to pay a claim.
• 56:27
  SPEAKER_00: Like there's it's not tomorrow we pay the claim.
• 56:29
  SPEAKER_00: There's a what we call waiting period.
• 56:32
  SPEAKER_00: And so thus we have agreed relationships with certain developers, but likewise, there are many others who have spot credits available.
• 56:40
  SPEAKER_00: Um, so we are able to track the sort of forward price curves of expectation of how much it would cost us to access those replacement credits as needed.
• 56:48
  SPEAKER_00: And thus we can make relatively live assessments of whether we need to hold our own buffer or whether we think it would be financially viable for us when we've identified there's a loss and calculated the value of that loss to be able to go out, in essence, spot purchase from the developers that we would like to.
• 57:06
  SPEAKER_00: And I think right now we feel like that is the better route.
• 57:09
  SPEAKER_00: It gives us more flexibility because the the quality of projects can evolve.
• 57:13
  SPEAKER_00: I don't necessarily want to buy a portfolio.
• 57:14
  SPEAKER_00: This is no, you guys are excellent, but I don't necessarily want to buy a portfolio now, and then maybe there's some shift in the market, that means my portfolio is less valuable.
• 57:23
  SPEAKER_00: I'd rather have the flexibility to engage with people, and then I think that brings benefits to developers because you get spot sales.
• 57:29
  SPEAKER_05: Um I think as well, there's a it's there's the almost the like there's an opportunity for a market there.
• 57:34
  SPEAKER_05: You know, if you look at the construction industry in Australia, for example, you have entire contracting firms owned by insurance companies that go and re remediate damaged buildings that in sort of, you know, rather than having to pay a claim value to a building owner that then goes on.
• 57:50
  SPEAKER_05: I think there's opportunity there.
• 57:52
  SPEAKER_05: And it's a it's an it'll be really interesting to see how it does develop.
• 57:55
  SPEAKER_03: The fascinating variable that bounces throughout our respective worlds at almost a different cadence is time.
• 58:02
  SPEAKER_03: Yeah.
• 58:02
  SPEAKER_03: So I I think the insurance industry, looking at it from afar, has a fascinating relationship with time because people are really bad at predicting the future, and you literally have to predict the future in terms of doing that.
• 58:17
  SPEAKER_03: Can you talk to how much of an impact time has on your ability to predict and underwrite and also the impact that has on cost?
• 58:26
  SPEAKER_05: I think it's uh it's a very, I mean, uh time produces data.
• 58:30
  SPEAKER_05: And I think with the carbon markets, particularly at the moment, that's the most developed natural capital market, arguably.
• 58:36
  SPEAKER_05: And that has obviously then produced the most data.
• 58:39
  SPEAKER_05: And we're still in a position where things are relatively speculative.
• 58:43
  SPEAKER_05: Um, and you know, when you look at insurance companies and how they look at time and what informs their decisions, I'm not necessarily talking about the specialists like Keita here, but I'm talking about the sort of the beer moths in the background, the sort of clandestine ones that sit in Bermuda and elsewhere.
• 59:01
  SPEAKER_05: Um but they use claims data, which is inherently backward-facing.
• 59:05
  SPEAKER_05: There is, there is, that is the biggest indicator of their pricing models.
• 59:09
  SPEAKER_05: Um, and so that's historic, you know, in terms of time.
• 59:13
  SPEAKER_05: And so, and as we as things advance, you know, you might be overlaying it with certain speculative data and things like that, and that's what the front-end underwriting position is.
• 59:22
  SPEAKER_05: But the the background of it is very much influenced by historic data.
• 59:26
  SPEAKER_05: And so I think for us, that agility that we currently have, the need for specialists, the need for to be able to sit down and actually talk through risks and clarify things and all the rest of it, that it's not going to standardize until either the massive monsters in the background start using the same data sets that are being used at the front for that speculation side.
• 59:48
  SPEAKER_05: Or it's there's enough data there that actually the market then becomes a bit more standardized and we get to a bit better, a better understanding of it.
• 59:57
  SPEAKER_05: And, you know, with the with the pure nature stuff that we do right now, it really is based on how much of a conversation can you have with that underwriter and explain through the myriad different pieces of ecology that you have in front of you?
• 1:00:09
  SPEAKER_05: It's very varied.
• 1:00:12
  SPEAKER_03: Have we have we had any conversations on the BNG side of insurance yet?
• 1:00:16
  SPEAKER_02: Um one or two, and I think it's an important part of the market that will hopefully develop.
• 1:00:20
  SPEAKER_02: You know, it's um there's all sorts of things that you feel like, well, funny enough, I was talking the other day about um conservation covenants for carbon projects because BNG's got it.
• 1:00:29
  SPEAKER_02: So is that going to drive a requirement on behalf of buyers to say, well, hang on a minute, BNG relies upon conservation governance.
• 1:00:34
  SPEAKER_02: Why do carbon is not a problem?
• 1:00:38
  SPEAKER_02: Exactly.
• 1:00:39
  SPEAKER_02: So I think inevitably a part of the market that works really well should um you know come into another part of the market.
• 1:00:45
  SPEAKER_02: So I I I imagine I imagine that will come.
• 1:00:47
  SPEAKER_02: Yeah, and we've had a couple of kind of preliminary conversations, haven't placed a policy yet.
• 1:00:51
  unknown: Yeah.
• 1:00:52
  SPEAKER_05: And it it gives no, it's an interesting one with with something like BNG, where it is a regulated market um and you know, backed by regulation.
• 1:00:59
  SPEAKER_05: It gives frameworks, it gives us it gives a structure that the insurance can attach to.
• 1:01:04
  SPEAKER_05: But that also means that there's a lot less of the speculative risk, I think, because you can see exactly where the angles are of where you could have a loss, and you can produce exactly how the risk transfer mechanisms and things can work.
• 1:01:19
  SPEAKER_05: And that allows people to make informed decisions about where they want to self-insure versus where insurance is a necessity.
• 1:01:25
  SPEAKER_05: As the regulation does not require insurance, it's going to be very case-by-case basis, and your sales will be, but like I said before, very different to um the farmer down the road.
• 1:01:34
  SPEAKER_05: So it'll be interesting to see how that does develop.
• 1:01:37
  SPEAKER_05: Where we see it again, it's more similar to a construction project.
• 1:01:41
  SPEAKER_05: And I'm sorry, I'm going to be very boring, keep going on about that, but it's the tenders that the uh that the you know, the housing developer, the infrastructure project are putting out for those units.
• 1:01:51
  SPEAKER_05: That's where the requirement comes in for the insurance.
• 1:01:54
  SPEAKER_03: Interesting.
• 1:01:55
  SPEAKER_03: Um late 2025 was the Clyde and Cohen Nature Broken deal that you're involved with.
• 1:02:03
  SPEAKER_03: Can you um help bring that to life for people?
• 1:02:05
  SPEAKER_03: It certainly caused a huge amount of publicity and attention in the sector.
• 1:02:09
  SPEAKER_00: Yeah, it did get a lot of publicity.
• 1:02:11
  SPEAKER_03: Um we've got Luke coming on the podcast in two weeks.
• 1:02:14
  SPEAKER_03: Yeah.
• 1:02:14
  SPEAKER_03: Something like that.
• 1:02:15
  SPEAKER_00: Okay, so I'm sure Luke will talk a lot more about it.
• 1:02:17
  SPEAKER_00: Um, yeah, so that I mean, the special aspect of that particular deal was the accounting treatment of the carbon credits.
• 1:02:25
  SPEAKER_00: I think that's what everybody talked about.
• 1:02:27
  SPEAKER_00: Otherwise, it was in essence a portfolio of projects that Clyde Co.
• 1:02:34
  SPEAKER_00: was purchasing for its own um its own net zero purposes.
• 1:02:39
  SPEAKER_00: I think quite proactively and strategically looking out quite far.
• 1:02:43
  SPEAKER_00: And I will say actually, as a disclaimer, Clyde ⁇ Co is my former employer, very good law firm called them.
• 1:02:49
  SPEAKER_00: Um but yes, it was a relatively, I suppose, simple in terms of portfolio structure, insurance to protect the performance of the portfolio.
• 1:02:58
  SPEAKER_00: The special thing was the accounting treatment of the carbon credits, where utilization of basically innovative accounting uh utilization was able to treat the carbon credits as assets instead of liabilities on the balance sheet.
• 1:03:13
  SPEAKER_00: And the insurance was an enabler of that via the insurance sort of creating that asset-based structure.
• 1:03:18
  SPEAKER_00: And so that creates some, again, some accounting benefits to Clyde and Co.
• 1:03:23
  SPEAKER_00: And I think that is something that other I do not think it's easy because you need to have willing accountants to to work with you in terms of understanding how this could apply to any one individual company's you know accounting uh strategy.
• 1:03:38
  SPEAKER_00: Um, but it is a possible thing for others to do as well on the bar side.
• 1:03:43
  SPEAKER_05: Yeah, and I think it that also does demonstrate the sort of the power of the intermediary too, because you know, Luke and Andy, we work very closely with them, um, and the their ability to sort of translate what's happening with the projects, what's happening with the middle ground, with the with the insurance, with what the Clyde and Co's needs, to then allow the accountants to be to to apply themselves in that way.
• 1:04:05
  SPEAKER_05: Um, it is really important.
• 1:04:07
  SPEAKER_05: Where perhaps direct one-to-one, that would have been much harder to achieve.
• 1:04:15
  SPEAKER_03: Um so I'm gonna move over to BNG.
• 1:04:17
  SPEAKER_03: So, George, we've just done our first sale of BNG.
• 1:04:19
  SPEAKER_03: We have, yes.
• 1:04:21
  SPEAKER_00: Congratulations.
• 1:04:21
  SPEAKER_00: Thank you.
• 1:04:22
  SPEAKER_02: Yeah, no, it's very exciting.
• 1:04:23
  SPEAKER_02: So, yeah, we'll be announced it kind of publicly soon.
• 1:04:26
  SPEAKER_02: But yeah, great, great for us through a framework that we were appointed on probably a year or so ago.
• 1:04:31
  SPEAKER_02: But you know, first um we first got the uh the project on the on the register and then within a couple of weeks first sale, which is really exciting.
• 1:04:38
  SPEAKER_02: And yeah, we've we've really kind of launched our our kind of 3,000 BNG units across these three amazing sites um the last couple of weeks.
• 1:04:45
  SPEAKER_03: So and they relate to river restoration units.
• 1:04:48
  SPEAKER_03: So I want to take us on to the world of water and flooding.
• 1:04:50
  SPEAKER_03: Yep.
• 1:04:51
  SPEAKER_03: So you your remit in in terms of sort of thought leadership nationally extended to flooding as well?
• 1:04:58
  SPEAKER_05: Yeah.
• 1:04:58
  SPEAKER_03: So can you talk about that a little bit?
• 1:05:00
  SPEAKER_05: Yeah, very much so.
• 1:05:01
  SPEAKER_05: So I've been um working with the Flood Action Coalition uh a fair bit on uh the from the insurance angle as well.
• 1:05:08
  SPEAKER_05: But uh while much wider than that, we've been talking to a lot of different entities, landscape recovery projects, uh the GFI, um, climate-wise, a lot of people are looking at it.
• 1:05:17
  SPEAKER_05: It is the big climate risk in the UK.
• 1:05:20
  SPEAKER_05: Um and I think how flood risk is being looked at as a natural progression of nature-based solutions, um, there is a significant opportunity for pricing a service.
• 1:05:33
  SPEAKER_05: And I think that's fundamentally what most nature-based credits are is you're you're pricing a service that the nature is uh providing in and above the asset value itself, the pure asset value.
• 1:05:45
  SPEAKER_05: And so when we're looking at flood risk and how flood risk is um potentially mitigated through nature based solutions and through things like river rewiggling, which is my favorite technical term, um how do you then value that?
• 1:05:57
  SPEAKER_05: Currently, the best ways of doing that are through co bench.
• 1:06:00
  SPEAKER_05: Benefit through B and G units or through carbon credits.
• 1:06:04
  SPEAKER_05: We're, and I am doing various different work streams on this, looking at how you actually utilize risk data to provide a value in flood reduction.
• 1:06:13
  SPEAKER_05: And that's you know a crucial part of the coalition's work, but also a crucial part of what a lot of others are looking at.
• 1:06:19
  SPEAKER_05: And then who do you target to purchase these?
• 1:06:22
  SPEAKER_05: Whether it's a unit or whether it's simply a service payment or whatever it might be, how do you then target that?
• 1:06:26
  SPEAKER_05: Who is at risk?
• 1:06:27
  SPEAKER_05: And again, that does roll back to insurance data, insurance companies who have these vast pools of information, some of it publicly available through the ABI, the uh Association of Russian Insurers, most of it kept in under lock and key in some very sophisticated data models.
• 1:06:44
  SPEAKER_05: Um, but I think you know it's it's interesting to see how, and maybe that brings it on to a later conversation, but how things like carbon BNG units and a water resiliency unit may stack because your units are providing a habitat uplift, and that's what biodiversity net game is all about.
• 1:07:02
  SPEAKER_05: But they're also having a great impact downstream by you know re-you know restoring that web.
• 1:07:07
  SPEAKER_05: Um so it'd be really interesting to see how that all does develop too.
• 1:07:10
  SPEAKER_03: What one of the um I was at some amazing events in San Francisco Climate Week last week, and and it very much was everything natural capital, but with an AI lens of focus.
• 1:07:22
  SPEAKER_03: I was all about it.
• 1:07:23
  SPEAKER_03: Very happy.
• 1:07:24
  SPEAKER_03: Um prior to going across there, there was a narrative around sectors that were going to be the most disrupted by AI and tech.
• 1:07:33
  SPEAKER_03: And George's world was one of those that's referenced the most.
• 1:07:36
  SPEAKER_03: The legal.
• 1:07:37
  SPEAKER_03: Yes.
• 1:07:38
  SPEAKER_03: Now, there was a law professor that spoke at one of these events in San Francisco, and he smiled and said, We've never had more of a need for lawyers than costs.
• 1:07:47
  SPEAKER_03: If you think about the growth of an industry, everyone with AI now thinks they're a lawyer and can write a contract.
• 1:07:54
  SPEAKER_03: So it's like the volume of work for actual professional qualified lawyers are only is only going to significantly increase.
• 1:08:01
  SPEAKER_03: So I think in everything we'll just articulated there, we are going to need the legal frameworks, the systems, and the processes to make.
• 1:08:08
  SPEAKER_03: I mean, I don't think anyone's rebounds first might have contracted a paid service for water-related functions with their Oyster project.
• 1:08:16
  SPEAKER_03: But outside of that, it's just going to be more work for you guys.
• 1:08:19
  SPEAKER_03: So I think it's going to be a growth industry.
• 1:08:21
  SPEAKER_02: Or some litigation, which leads to lost data.
• 1:08:24
  SPEAKER_03: Yeah, yeah, exactly.
• 1:08:25
  SPEAKER_05: Well, I mean, in in the in the contrast is what is the backbone of the insurance policies as well.
• 1:08:32
  SPEAKER_05: And so, you know, I've Ben Sharple's over at Mitch Moores, who is a uh leading their sort of natural council for really brilliant.
• 1:08:39
  SPEAKER_05: We had lunch the other day.
• 1:08:40
  SPEAKER_05: We've had him on the podcast.
• 1:08:41
  SPEAKER_05: Have you?
• 1:08:41
  SPEAKER_05: Yeah, he's brilliant.
• 1:08:42
  SPEAKER_05: I haven't missed that one.
• 1:08:43
  SPEAKER_05: Um he's he's really good.
• 1:08:44
  SPEAKER_05: We had a really great lunch.
• 1:08:45
  SPEAKER_05: It's been like two and his partner.
• 1:08:48
  SPEAKER_05: Uh yeah, that would have been good on my bike over.
• 1:08:50
  SPEAKER_05: Um, but no, he um, you know, we would we've been chatting about this as well.
• 1:08:55
  SPEAKER_05: It's an inevitability of a scaling market.
• 1:08:57
  SPEAKER_05: You have to have firm contractual frameworks uh in order to be able to grow.
• 1:09:02
  SPEAKER_05: Again, it goes back to that confidence point.
• 1:09:05
  SPEAKER_05: And I think the the crucial part of it, though, is that those frameworks are easily accessible.
• 1:09:12
  SPEAKER_05: They can't be restrictive.
• 1:09:13
  SPEAKER_05: And I think that's where the legal profession and all our professions as intermediaries and um not yourselves, obviously, but you know, the the rest of us who sit alongside in the periphery over the core part of nature regeneration is making it accessible.
• 1:09:27
  SPEAKER_05: Um, and I do think AI utilized correctly is a is a is a good opportunity for that.
• 1:09:33
  SPEAKER_05: Um and that's where sort of legal firms and legal frameworks can be looking into it.
• 1:09:37
  SPEAKER_05: Um and this is something I always tell my colleagues is it is not a replacement for original thought, though.
• 1:09:42
  SPEAKER_05: We have to be able to have the people who are able to check it, like you say.
• 1:09:47
  SPEAKER_05: We have to have the knowledge in the room of uh you know who the ecologist is that is identifies and understands what a BNG unit's key benefit is versus a water unit or whatever it might be.
• 1:09:59
  SPEAKER_05: Um so I think you know these things will inevitably scale and grow.
• 1:10:03
  SPEAKER_05: That's the helpful part.
• 1:10:04
  SPEAKER_03: I'm gonna ask you both about how AI is beginning to impact your workflows and business, but I'm gonna tell a quick story first on the back of that.
• 1:10:11
  SPEAKER_03: So um I was wonderfully invited to this um lock-in session with Salesforce and their launch pad function, which is like their venture arm of startups.
• 1:10:23
  SPEAKER_03: So super cool.
• 1:10:24
  SPEAKER_03: And the keynote speakers were from Anthropic.
• 1:10:26
  SPEAKER_03: It was like the head of US for Anthropic.
• 1:10:29
  SPEAKER_03: Amazing.
• 1:10:30
  SPEAKER_03: One of the companies they brought in, they'd originally spun out and they were a sort of 20, 30 person organization that had a billion in revenue, and they were optimizing software solutions for people.
• 1:10:42
  SPEAKER_03: They lost half their team to Salesforce and LinkedIn, who headhunted them and took them away.
• 1:10:47
  SPEAKER_03: So they're there with Penny was more than half, right?
• 1:10:50
  SPEAKER_03: It was like most of their team.
• 1:10:52
  SPEAKER_03: So they lost most of their team.
• 1:10:53
  SPEAKER_03: This was two years ago.
• 1:10:54
  SPEAKER_03: So they went, we cannot afford to replace these people in the current market, because anyone who can engineer anything is just worth a million dollars.
• 1:11:00
  SPEAKER_03: We can't afford them.
• 1:11:01
  SPEAKER_03: So they replaced all of them with automated agents.
• 1:11:05
  SPEAKER_03: They now have less than half the resource they had.
• 1:11:07
  SPEAKER_03: They have more revenue and much higher profitability.
• 1:11:11
  SPEAKER_03: And they were brought in half a bit.
• 1:11:13
  SPEAKER_03: They were brought in by Salesforce to do the keynote on how you should adapt the bit.
• 1:11:17
  SPEAKER_03: The circularity of that is just amazing.
• 1:11:20
  SPEAKER_03: So I've just written next week's piece on the back of this.
• 1:11:23
  SPEAKER_03: The key learning they gave us, which was awesome.
• 1:11:25
  SPEAKER_03: There's really actionable points.
• 1:11:27
  SPEAKER_03: It was the only thing you automate with an agent is the thing you're amazing at.
• 1:11:33
  SPEAKER_03: Don't ask it to do original thought because you don't know how to train it to do that.
• 1:11:37
  SPEAKER_03: What you know how to train it to do is the thing you do brilliantly at a sort of administrative level and also the hyper specialism.
• 1:11:45
  SPEAKER_03: So they were like, the idea of AGI is brilliant, but we're nowhere near there.
• 1:11:50
  SPEAKER_03: They were building agents that did one thing beautifully.
• 1:11:54
  SPEAKER_03: So, for example, their best agent was it scrolled through all their email and it flagged anyone they hadn't returned a call to, any like cold lead that they'd drop the ball on.
• 1:12:04
  SPEAKER_03: Because a person wouldn't want to admit they'd done it, whereas the agent wouldn't care it'd just say, Yep, I got that wrong.
• 1:12:10
  SPEAKER_03: But the agent only did those one things.
• 1:12:12
  SPEAKER_03: And I think what that made me realize is yes, we're going to need these hyper-specific agents, but what we do need from people is the multifunctional people, the people that have worked in insurance and the environment sector and understand construction, the people that have worked in marketing and business development and finance and the people who've got that range of things.
• 1:12:30
  SPEAKER_03: So um, yeah, I loved every minute out there.
• 1:12:33
  SPEAKER_03: Um, how how has AI impacted Kita so far?
• 1:12:37
  SPEAKER_03: How embedded is it in terms of what you do and you personally?
• 1:12:41
  SPEAKER_00: So for Kita, I would say it is deeply embedded.
• 1:12:47
  SPEAKER_00: Um I've been I'm not a very technological person.
• 1:12:51
  SPEAKER_00: Come back to how it's impacted me personally, but for Kita, I've been quite amazed actually how immediately we've always used technology, but we, like everyone else, has ramped up the utilization of AI in a range of ways.
• 1:13:08
  SPEAKER_00: And honestly, it's just blown me away how quickly and comprehensively it can be utilized across everything we do via our small data science team.
• 1:13:23
  SPEAKER_00: So almost in a positive and a negative.
• 1:13:26
  SPEAKER_00: It's like this is amazing, and then I as a person can see downsides of it.
• 1:13:31
  SPEAKER_00: But we we use it now for a range of things.
• 1:13:35
  SPEAKER_00: So we like like you said, you're not trying to take away human judgment or original thought, you're trying to create efficiencies.
• 1:13:43
  SPEAKER_00: So in essence, we're trying to save people time.
• 1:13:46
  SPEAKER_00: Um you know, in essence, give the underwriting team each a day back in the week, right?
• 1:13:50
  SPEAKER_00: And with that day back in the week, go out and do significant business development to build up the pipeline, that kind of thing.
• 1:13:56
  SPEAKER_00: So it's the ability to analyze documents, uh, to put them into a sort of submission quote form for us that we can check, we can source back to where it came from.
• 1:14:07
  SPEAKER_00: There's a lot in the ability to again better analyze the sort of vast range of data that we have.
• 1:14:14
  SPEAKER_00: So, in essence, I think of it in my non-technical mind as we have all these inputs of data that comes into us, you know, PDFs and Excel and Word documents and emails, calls, whatever.
• 1:14:25
  SPEAKER_00: We then have our little AI system, very technical terms, come in and put it into the filter categories that we need it to be.
• 1:14:32
  SPEAKER_00: So this is about KYC, this is about natural catastrophe risk, this is about political risk, whatever.
• 1:14:37
  SPEAKER_00: From there, we've then built the reports that output into the reports that we need.
• 1:14:42
  SPEAKER_00: So this is the underwriting pricing report, this is the underwriting submission report, this is the risk advisory report, etc.
• 1:14:51
  SPEAKER_00: Um and it just is there to save us significant amounts of time, but it's not there to replace the creativity or judgment of people.
• 1:15:01
  SPEAKER_00: I will say on a personal basis, I do not use AI.
• 1:15:06
  SPEAKER_00: Um both because probably I'm a bit of a personal Luddite of sorts, I suppose I just don't use much technology.
• 1:15:14
  SPEAKER_00: Um, and I generally have concerns on, for example, social media or my phone, it feels like it sometimes eats away at my ability to think.
• 1:15:21
  SPEAKER_00: So I slightly consciously put it to the side.
• 1:15:24
  SPEAKER_00: Um I think I think just on a societal basis, I think we see it within Kita.
• 1:15:31
  SPEAKER_00: It is so good that it's not that we need it to replace existing people, but we don't need to hire.
• 1:15:38
  SPEAKER_00: And I think when extrapolated out across many, many companies similar to ours that either don't need to hire as many people or can significantly reduce their existing teams.
• 1:15:49
  SPEAKER_00: I think on a societal basis we face a reckoning of white collar job loss.
• 1:15:54
  SPEAKER_00: And I think I somewhat lack trust in our political uh elite and or real financial elite who are controlling the algorithms behind the prevailing AI tools.
• 1:16:10
  SPEAKER_00: And so while I think it is excellent for Kita on a personal level, I have some concerns as to the speed at which it is being um so vastly utilized.
• 1:16:20
  SPEAKER_05: I hey those.
• 1:16:20
  SPEAKER_05: You want to go next?
• 1:16:21
  SPEAKER_05: Yeah, absolutely.
• 1:16:22
  SPEAKER_05: Uh well, I mean, personally, I um barely use it apart from to I don't know, ask whether this outfit goes or uh whether can it make my dog look like Father Christmas?
• 1:16:33
  SPEAKER_05: Um but I think it does quite well actually.
• 1:16:38
  SPEAKER_05: Um but I think you know I I've got a yeah we I said the business hub uh nine months ago, and the reality was I was reliant on it during that process.
• 1:16:49
  SPEAKER_05: Um I didn't know how to use it, I had no idea what it how it works.
• 1:16:53
  SPEAKER_05: I am also a total ladder, I've got no idea about any technology.
• 1:16:57
  SPEAKER_05: The insurance that I was doing beforehand, the fastest way to get a policy placed was to print it out, walk to the Lloyds of London building and get it stamped with ink, get someone to scratch it and to walk back again.
• 1:17:09
  SPEAKER_05: Much faster than even emailing it, which is staggering.
• 1:17:12
  SPEAKER_05: And but that is that's the world I came from in the insurance industry.
• 1:17:16
  SPEAKER_05: And that is still the case, I would also point out.
• 1:17:19
  SPEAKER_05: Um I'm now obviously in a very different role at being CEO of a startup, where nothing is the same any day at all.
• 1:17:29
  SPEAKER_05: And so I can see the use case of it and I can see why, as you say, the efficiencies that it creates.
• 1:17:37
  SPEAKER_05: I am brutal with my colleagues about overusing it, though, because I do think, especially in a very, very new market, if you're not exercising the gray cells yourself, you are not going to pick up the knowledge that you're gonna need, where in 10 years' time, maybe you could be looking to do what I've done, sort of thing, or you could be having similar, you know, expansive ideas and plans to get involved.
• 1:18:00
  SPEAKER_05: And I think when I was hiring the last two roles, what I saw was there was this bloat of 24 to 28-year-olds who just could not get a job.
• 1:18:13
  SPEAKER_05: Seven, eight, nine months, a year, two years unemployed, straight out of university, or left their first role, whatever it was.
• 1:18:21
  SPEAKER_05: And I think we're gonna, it's almost like the one child policy in China.
• 1:18:24
  SPEAKER_05: There's gonna be a move through industries of just loss of knowledge base, because you have to do that churn at the beginning to get to the top point.
• 1:18:34
  SPEAKER_05: Um or industry just shifts.
• 1:18:36
  SPEAKER_05: Uh and so I think for me, I'm very backward and old fashioned, so I'm restricted with how I use it, but I see the efficiencies.
• 1:18:44
  SPEAKER_05: I see the efficiencies behind policy creation and things like that, and uh interpretation and comparison.
• 1:18:50
  SPEAKER_05: But it's uh softy softly for us, definitely.
• 1:18:54
  SPEAKER_02: George?
• 1:18:55
  SPEAKER_02: Um, I think uh from a legal perspective and the work that I do, it's you you can use it in every aspect of the of my day job to a lesser or greater extent.
• 1:19:04
  SPEAKER_02: So, you know, basic things like makes my ballpen's quicker, makes my action tracker quicker, through to um getting a contract markup in from somebody.
• 1:19:13
  SPEAKER_02: And you can obviously un you can obviously see what they've changed through just a normal kind of track change process.
• 1:19:19
  SPEAKER_02: But like helping me maybe understand why they've changed it, if I haven't got a commentary to go with it, is really helpful because I might say, put me in their shoes.
• 1:19:26
  SPEAKER_02: This is their business.
• 1:19:27
  SPEAKER_02: Why are they making those changes?
• 1:19:29
  SPEAKER_02: You know, help me understand it from their perspective, and then I can make, as you said, use your own experience then to say, well, actually, you know, that doesn't work for us, but here's a potential compromise.
• 1:19:38
  SPEAKER_02: And then on the on that, you can then use it to start to understand, right, okay, here's the range of compromises.
• 1:19:43
  SPEAKER_02: And I think the other thing that I I love using it for is, you know, we're still we're still in a developing market.
• 1:19:49
  SPEAKER_02: And so to give you an example, we're working on a carbon sharing agreement for our with our amazing partners down at WoodAdvent um in Xmoor, which is required on the wooden carbon code, but there is no precedent document for that.
• 1:20:00
  SPEAKER_02: So it enables us to say, okay, what does the wooden carbon code require of a carbon sharing arrangement?
• 1:20:05
  SPEAKER_02: Okay, great.
• 1:20:05
  SPEAKER_02: Please produce me a first draft.
• 1:20:07
  SPEAKER_02: Let's let's let's play around with those requirements and then start to understand, okay, right, I don't approach liability like that, but that's really helpful.
• 1:20:13
  SPEAKER_02: Okay, well, actually, I didn't think about how we could position that from a finance perspective.
• 1:20:17
  SPEAKER_02: Let me work on that and then share it with our FD, who can then, you know, develop it using her own skills.
• 1:20:21
  SPEAKER_02: So that that aspect of it is is brilliant.
• 1:20:23
  SPEAKER_02: You know, when sometimes you're working for a bank sheet of paper in this industry, you can say, right, find the nearest possible example.
• 1:20:30
  SPEAKER_02: And it gives us something to work on, and it you know, it that saves us a massive amount of time.
• 1:20:35
  SPEAKER_03: So George also oversees in in his part of the business, the capital side, the people team, the performance team, and the investment team.
• 1:20:43
  SPEAKER_03: Can you talk a little bit about how they use it?
• 1:20:45
  SPEAKER_02: I mean, I mean, so many use they're they're very sophisticated users compared to compared to me for sure.
• 1:20:50
  SPEAKER_02: But you know, we've just designed a um or the performance team, make your pardon, have designed a tool which will help us um screen lots of applicants we get for job roles.
• 1:21:00
  SPEAKER_02: And it's it's a brilliant way of like assessing an application from a competent perspective.
• 1:21:03
  SPEAKER_02: It's not making decisions for us, but that's massively speeds up the ability for us to analyze the merits of a particular application and say, well, actually that fits in with this particular value that we're looking for in this role.
• 1:21:15
  SPEAKER_03: And we're close to a thousand candidates a role.
• 1:21:18
  SPEAKER_03: Yeah.
• 1:21:19
  SPEAKER_03: So uh we had 900 and something applicants for my PA role that we just filled.
• 1:21:24
  SPEAKER_05: It was I mean, even the role that I had on in February, I had it up for three days on LinkedIn and had 70 applicants.
• 1:21:31
  SPEAKER_05: And there's only there were only two of us at the business at the time.
• 1:21:34
  SPEAKER_03: It's yeah, it is staggering.
• 1:21:36
  SPEAKER_03: And you can buy an off-the-shelf software thing that does this that licenses at thousands of pounds a month.
• 1:21:41
  SPEAKER_03: So Carat in our people team was like, no, no, no.
• 1:21:43
  SPEAKER_03: And she's built the her and Matt, sorry, have built the platform to do this, but it does it for us in our style, in our way, that weights it the right way, so that it isn't just a crude tool and we can adjust it and flex it and things like that.
• 1:21:56
  SPEAKER_02: Whereas otherwise you'd spend a lot of money, I guess, with a software engineer trying to make it bespoke.
• 1:22:00
  SPEAKER_02: Yeah.
• 1:22:01
  SPEAKER_02: Um, you know, so that's a that's a brilliant example, I guess, of how we can really use it to make our recruitment process better, more efficient, more targeted.
• 1:22:09
  SPEAKER_05: Yeah, and for for us as well, being a startup, um we're not venture capital backed.
• 1:22:15
  SPEAKER_05: There's no, it's just it's you know, myself and a man in red trousers who's very kindly decided to give a little bit of cash to us as well.
• 1:22:22
  SPEAKER_05: But you know, that's AI his help.
• 1:22:25
  SPEAKER_05: Very much not.
• 1:22:25
  SPEAKER_05: I don't think he'd even know what it stood for.
• 1:22:27
  SPEAKER_05: Um he is brilliant, Richard.
• 1:22:29
  SPEAKER_05: If you're listening, thank you very much.
• 1:22:30
  SPEAKER_05: Um but uh but it is um, you know, we've we have to run so lean.
• 1:22:38
  SPEAKER_05: No, right?
• 1:22:39
  SPEAKER_05: It is exactly that.
• 1:22:40
  SPEAKER_03: But the interesting thing is, would would you describe yourself as like in terms of your AI journey, were you pro from day one in terms of how you looked at it?
• 1:22:49
  SPEAKER_02: Um I suppose there's always a bit of an element of kind of like, well, where is my data going?
• 1:22:54
  SPEAKER_02: I'm a little you know obviously cautious.
• 1:22:55
  SPEAKER_02: We don't want to put a sensitive information into the um into a system that you have no idea how it works in reality.
• 1:23:02
  SPEAKER_02: But I think you know, as the market gets more sophisticated, you see, you know, firms across the world starting to adopt different types of AI tools and utilizing them.
• 1:23:10
  SPEAKER_02: What I want to see next, obviously from a client perspective, is how we how are we benefiting that whether it comes to cost or efficiency or speed delivery, whatever it might be.
• 1:23:17
  SPEAKER_02: So but yeah, no, yeah.
• 1:23:19
  SPEAKER_02: Essentially, yeah, it our journey is different speeds, I suppose.
• 1:23:23
  SPEAKER_02: And I'm probably more of the not technophobe, but certainly like takes me a while to kind of understand the use of it.
• 1:23:28
  SPEAKER_02: But you know, as I said, the more you play with it, the more benefits you can see.
• 1:23:32
  SPEAKER_03: So I'm the exact reverse.
• 1:23:34
  SPEAKER_03: I am the ultimate techno optimist.
• 1:23:36
  SPEAKER_03: So I've been playing with ChatGTP since version two, I think.
• 1:23:40
  SPEAKER_03: There's Andrew, our head of people, and Dave, our head of operations, who are very much in that model as well.
• 1:23:44
  SPEAKER_03: Uh and now I think what's really exciting, we've got really strong advocates and almost like um outriders in every part of the business.
• 1:23:52
  SPEAKER_03: So we've got some estate managers that are leaning into this.
• 1:23:55
  SPEAKER_03: We just recruited a finance assistant who's got a PhD in physics, and she's incredible um on AI in terms of automation.
• 1:24:04
  SPEAKER_00: I have no doubt it is amazing.
• 1:24:06
  SPEAKER_00: I mean, so we have a small team, we have 14 people.
• 1:24:10
  SPEAKER_00: So I'm probably the exception on a personal basis that I don't use it.
• 1:24:14
  SPEAKER_00: And we do have a dedicated, you know, one of my co-founders, our CTO and our data science team.
• 1:24:20
  SPEAKER_00: But I'm astounded by how good it is across all facets, and it's getting so much better all of the time.
• 1:24:28
  SPEAKER_00: It is incredible.
• 1:24:28
  SPEAKER_00: I can certainly see the benefits on individual bases and on individual company bases.
• 1:24:35
  SPEAKER_00: I do think there's that societal point.
• 1:24:37
  SPEAKER_00: There's also the climate change related point.
• 1:24:39
  SPEAKER_00: I think the conversation on water is certainly an interesting one.
• 1:24:42
  SPEAKER_00: There's certainly a water scarcity point.
• 1:24:44
  SPEAKER_00: Yeah.
• 1:24:45
  SPEAKER_00: But I think when I think about it maybe more pure personally, or as personal as applied to like my children, and what you'd want them to be learning now in school, such that they can have successful careers and fulfilling lives.
• 1:25:01
  SPEAKER_00: I think it's quite quickly shifted away from you know STEM education really towards what I want them to be good at is the ability to personally communicate and influence.
• 1:25:14
  SPEAKER_00: Because I think that so the ability to lead, communicate, you know, execute on a human-to-human basis, I feel like will be a differentiator that will be in value much more so than it has been in the past.
• 1:25:30
  SPEAKER_00: And maybe with great conceit, because I do have some aspects of conceit.
• 1:25:34
  SPEAKER_00: I think that's probably what I'm best at.
• 1:25:36
  SPEAKER_00: And I'm almost and you're I know you're good at this too.
• 1:25:39
  SPEAKER_00: So we obviously come at this from different perspectives.
• 1:25:41
  SPEAKER_04: I'm not saying you're not just I know you you really use I just know you use AI a lot.
• 1:25:47
  SPEAKER_00: But I think I'm also conscious of um not like reducing that skill set in myself by outsourcing it to something else.
• 1:25:56
  SPEAKER_00: So I want to keep, I feel like that is a skill set that will continue to be in demand.
• 1:26:01
  SPEAKER_00: And I want to make it as strong as it possibly can be.
• 1:26:04
  SPEAKER_00: And I would like to keep it to myself.
• 1:26:06
  SPEAKER_03: I actually think for the knowing you and the way you work and interact with people, I actually think you almost take in that contrarian position on AI.
• 1:26:15
  SPEAKER_03: Not in a like a critical way, just a you know, on a personal level.
• 1:26:18
  SPEAKER_00: Just a personal totally.
• 1:26:20
  SPEAKER_03: I think that works better for you because that'll be different.
• 1:26:25
  SPEAKER_03: And people like different and authentic and honest and real in terms of connection.
• 1:26:29
  SPEAKER_03: And if that is your perspective, which it is, I think that actually plays to being more memorable as a person and taking a different view.
• 1:26:36
  SPEAKER_03: Whereas there's going to be 50 of well, not quite 50 of me, but different shapes.
• 1:26:40
  SPEAKER_03: There'll be 50 people rocking and going, isn't AI brilliant?
• 1:26:43
  SPEAKER_03: Um, so I authenticity, connection.
• 1:26:45
  SPEAKER_03: I totally agree on the kids' side of it.
• 1:26:48
  SPEAKER_03: So we're just looking at secondary schools for my daughter.
• 1:26:50
  SPEAKER_03: And the two schools that we've narrowed it down to, one is literally affiliated with Google, and they're like, we are going OTT with everything tech.
• 1:26:58
  SPEAKER_03: The other is very much, no, no, we've got an art studio and a theatre.
• 1:27:02
  SPEAKER_03: And I think Emma's probably leaning towards the creative.
• 1:27:04
  SPEAKER_03: Whereas my little boy who's a couple of years younger, he will be on the tech one.
• 1:27:08
  SPEAKER_03: He is just maths-oriented.
• 1:27:10
  SPEAKER_03: My final line on AI.
• 1:27:12
  SPEAKER_03: I f I'm an AI optimist and a tech optimist.
• 1:27:15
  SPEAKER_03: I fundamentally believe every technological advantage except smoking and maybe social media has had a net positive gain on the planet, and I think we'll create more jobs as a result of AI than not.
• 1:27:29
  SPEAKER_03: I can't guarantee it's more lawyers, George.
• 1:27:31
  SPEAKER_03: I hope it is.
• 1:27:32
  SPEAKER_03: Um, but I just look at Penny's world.
• 1:27:34
  SPEAKER_03: So people have pivoted from television to all different types of distributed media.
• 1:27:39
  SPEAKER_03: And there are so few, like every time we advertise, there's so many people from TV, right?
• 1:27:43
  SPEAKER_03: But you were saying to me there's more jobs in podcasts and unique productions than there were in TV.
• 1:27:48
  SPEAKER_03: They're different roles, but there are more of them.
• 1:27:52
  SPEAKER_03: It's a it's a tool.
• 1:27:53
  SPEAKER_05: You know, the invention of the invention of the railway was absolutely revolutionary, and trains they then were pumped.
• 1:28:00
  SPEAKER_05: out a whole load of carbon dioxide and gases at the same time.
• 1:28:03
  SPEAKER_05: It completely changed the way the world worked.
• 1:28:05
  SPEAKER_05: Yep.
• 1:28:06
  SPEAKER_05: This is a similar scenario.
• 1:28:07
  SPEAKER_05: We're in the factories and the mills.
• 1:28:09
  SPEAKER_05: We're just at that, we're at that right at that front of it where, you know, I absolutely will be using it for the business with the understanding that I don't personally like it.
• 1:28:18
  SPEAKER_05: And I think it's that as it as it changes the landscape, like the railways did, we just have to be flexible in how society develops with it.
• 1:28:29
  SPEAKER_00: My point on this.
• 1:28:30
  SPEAKER_00: And I don't mean to come across I'm not I think it has a lot of benefits like I've discussed as utilized for Kita.
• 1:28:36
  SPEAKER_00: But I think the distinction between AI and the railway example, well it's a fair one, is the speed it's so fast.
• 1:28:43
  SPEAKER_00: But I think you see that when it's within a business it's so fast and it's so good that the speed of change, I think, even if hopefully there will be more jobs, there is a gap.
• 1:28:57
  SPEAKER_00: There's just an inability for society to change our societal structures or expect at the same speed.
• 1:29:05
  SPEAKER_00: That's the difference.
• 1:29:05
  SPEAKER_03: Six months ago we had a I can't if it was a management team meeting or an all team meeting where we're like, look, let's just pick the tool we're going to use and we're going to stay and I just went, nope.
• 1:29:14
  SPEAKER_03: Like everyone's like, oh we can't just be flip-flopping online.
• 1:29:16
  SPEAKER_03: We are going to be flip-flopping.
• 1:29:17
  SPEAKER_00: That's the benefit of small business.
• 1:29:18
  SPEAKER_00: You can flip-flop all you want.
• 1:29:20
  SPEAKER_03: But even tool to tool we're going to be all over the place and we're going to be agile and we're going to be able to that was one of the the quotes from Salesforce.
• 1:29:25
  SPEAKER_03: They said the um sad reality is the biggest organization in the world when a new model lands spends six months trying to tell themselves it doesn't affect them.
• 1:29:33
  SPEAKER_00: The more agile companies are waiting three months for the next one to arrive because they can accelerate I think the other benefit that we see being a small insurer is the large companies have to do a procurement process to identify and select well and the IT team just says no.
• 1:29:48
  SPEAKER_00: Yes.
• 1:29:48
  SPEAKER_00: Versus we just use tools, if it's not quite working, we change and we don't need to ask and it's just so much more agile the way that we are able to work and I think that's a huge advantage of smaller companies, which means the bigger companies need us in this particular moment in time.
• 1:30:05
  unknown: Yeah.
• 1:30:05
  SPEAKER_03: So I have a unique opportunity of asking people who specialize in predicting the future what what the future's going to look like.
• 1:30:12
  SPEAKER_03: So I'm going to come tweak to you in turn.
• 1:30:14
  SPEAKER_03: I would love to know your views of how natural capital markets and take that as broadly as you wish are going to develop in the next five years.
• 1:30:21
  SPEAKER_05: Next five years well I think we're going to see this more of the same for five years.
• 1:30:26
  SPEAKER_05: I I honestly you know I do some work with the European Commission through the Naturance project and I'm doing some work with the UN and various other groups and I think when regulatory change takes so long and the regulation is not at an advanced enough level yet.
• 1:30:40
  SPEAKER_05: So I think what we will see is development of the existing piece.
• 1:30:42
  SPEAKER_05: And I don't think that's a bad thing.
• 1:30:44
  SPEAKER_05: If you've got something that's you know if you've got a wheel with a spoke that's loose fix the spoke before you rein re reinvent the wheel I think we will see the current existing natural capital markets grow exponentially and grow very, very quickly.
• 1:30:58
  SPEAKER_05: And I think by 2030 2031 we're going to see carbon really I think as a as a as a standard when nature and you know nature-based credits coming through BNG has been phenomenal.
• 1:31:11
  SPEAKER_05: And when you talk to the entities like the European Commission and things like that, they they talk about it as if it's made of gold dust even though we sit here and you just hear sort of grumblings.
• 1:31:22
  SPEAKER_05: I think there'll be that sort of a development of a similar type of piece being rolled out across most developed countries with voluntary versions cropping up as well.
• 1:31:30
  SPEAKER_05: So I think but frankly I don't I don't think we're going to see anything seismic in five years because the regulatory landscape is just so slow.
• 1:31:40
  SPEAKER_03: Do you think we see more paid ecosystem services on the water side and the flood side?
• 1:31:45
  SPEAKER_03: I think that's what we'll see.
• 1:31:47
  SPEAKER_05: We'll see more types of natural capital coming through I think water is the next inevitability.
• 1:31:53
  SPEAKER_05: You know we've got nutrient neutrality is already a thing here in the UK and that'll similar around the world if it's Clean Water Act over in the States I think we'll see similar things cropping up.
• 1:32:05
  SPEAKER_05: So I think the stackability question is probably one of the ones we really should start answering now because again it generates revenue.
• 1:32:14
  SPEAKER_05: And when we're talking about moving capital into these nature solutions, revenue is the fundamental part at the end of the day if you don't if you can't evidence that it's very difficult.
• 1:32:23
  SPEAKER_03: If you can evidence that not only have you got carbon credits, but BNG and some water resilience and a paid service by the local Amazon warehouse, whatever it might be, then that you'd suddenly have a significant revenue model and that unlocks capital in another in a way that's not the two developing paid ones I heard mentioned recently were also private reservoirs for development because there just isn't the drinking water supply and the water management.
• 1:32:46
  SPEAKER_03: And the other was paid pollination which you you see in the US now in terms of whole lorry loads of bees being brought in for almond pollination.
• 1:32:54
  SPEAKER_03: We're currently getting that service without a fee.
• 1:32:57
  SPEAKER_05: Well we are now getting um having to do that in the UK as well as I I've got a friend of mine's husband is a bee farmer literally is a beekeeper in in Wales has a hundred or so hives, loads them onto back of a semi truck and drives them into Devon and sort of releases them on the farms there because there is not enough pollinators.
• 1:33:15
  SPEAKER_05: But I think you know reservoirs is dangerous if you ask me just not to not to sort of repudiate anything but because that is then disrupting natural water cycles potentially.
• 1:33:29
  SPEAKER_03: Hydropower example exactly Natalia what what do you think in terms of predicting the future what we're going to see I think I agree actually broadly with with that perspective.
• 1:33:42
  SPEAKER_00: Not to be negative but actually I think that conversation flagged possibly the challenge in this which is um the if we are unable to change our perspective or politicians perspective on how we shift on the climate and biodiversity crises then you increasingly need these solutions.
• 1:34:16
  SPEAKER_00: The pollination is a very good example of that.
• 1:34:20
  SPEAKER_03: So but it is failure demand isn't it it's a solution to something that's broken because we've allowed it to break by next it's not resiliency.
• 1:34:28
  SPEAKER_00: It's not opposite and I suppose I don't think this is the next five years.
• 1:34:33
  SPEAKER_00: I think the next five years start to become a determinant of the obviously next 10, 15, 20 etc years.
• 1:34:40
  SPEAKER_00: But if we're unable to create some of that to reduce some of that sort of failure opportunity to take away some of the failure start putting in place mechanism to fix the failure you do get to a point in which the fix is just a drop of water in the ocean.
• 1:35:02
  SPEAKER_00: So again I don't wish for this to be a depressing point.
• 1:35:05
  SPEAKER_00: This is obviously I think all of us work on the impact driven making action.
• 1:35:09
  SPEAKER_00: I see so many more people working on that.
• 1:35:11
  SPEAKER_00: But I would agree that I think the next five years you don't see some kind of wholesale shift but I think the goal is that you start to see some really concrete action to reduce the failure upon failure upon failure.
• 1:35:26
  SPEAKER_00: I think we have to see that I don't know if we will but I think that is the key aim because then you create a building blocks upon which these markets and worlds can continue to thrive but I think the five next five years are very very crucial and I would like to have more trust in our politicians than I do.
• 1:35:47
  SPEAKER_03: I will I will share one more anecdote and I'll come to you for the closing in terms of the next five years, George.
• 1:35:55
  SPEAKER_03: Climate week last week San Francisco the narrative of the the sort of US incumbents that had seen the last three or four years was climate and nature just isn't as cool as it was for that group of investors two or three years ago.
• 1:36:10
  SPEAKER_03: And they were sad about that.
• 1:36:11
  SPEAKER_03: They were showing that it's such a shame they were like 2021 22 people were throwing money from a VC perspective at startups in the climate and the nature space because it's where we needed to be the Biden government was accessible, was open, wanted to do that.
• 1:36:24
  SPEAKER_03: And I came away with what one of my bullet point notes was I wish it was still a bit cooler in terms of what was there.
• 1:36:31
  SPEAKER_03: And then I met with um Sid at just climate.
• 1:36:34
  SPEAKER_03: I don't know if you know him he's astonishing.
• 1:36:36
  SPEAKER_03: So I have his book shout out to Sid and he's super super pro like Oxford biologist and then double degree at Harvard and Stanford and wrote for the financial it's just amazing.
• 1:36:48
  SPEAKER_00: Yeah but you're like I just feel embarrassed now I'm just going to yeah he is he is wonderful.
• 1:36:52
  SPEAKER_03: So hey Sid and he's coming on soon as well we've got him booked in too um anyway so he was out there as well we're at different different events and he said um no no no the narrative was all the same we just started calling it national security.
• 1:37:07
  SPEAKER_00: Well actually I think that that is the I wouldn't actually necessarily think the people we work with call it national security but I actually fully agree with that.
• 1:37:16
  SPEAKER_00: I think they start to just call it costs.
• 1:37:18
  SPEAKER_00: It's just their costs are ramping up or their risks are ramping up.
• 1:37:22
  SPEAKER_03: So I think Yeah his point was it was hiding under it was the exact same conversation in a different language a different guise.
• 1:37:28
  SPEAKER_03: And he smiles like I don't care what they call it as long as they're doing it in the right way.
• 1:37:33
  SPEAKER_00: That's the goal it's when well it's not the goal.
• 1:37:35
  SPEAKER_00: Again it goes back to reducing the failure point.
• 1:37:38
  SPEAKER_00: I do think more and more companies are starting to realize well actually I am dependent on water like if I don't have access to water I can't do this and this and this.
• 1:37:48
  SPEAKER_00: Or I am dependent on pollination if I don't have pollen the clear dependencies upon nature quite obvious we all know this.
• 1:37:56
  SPEAKER_00: But the identification and the ability to pin future financial losses to those enforces some form of action.
• 1:38:04
  SPEAKER_00: It just isn't called climate change or natural capital.
• 1:38:07
  SPEAKER_00: I completely agree with you.
• 1:38:08
  SPEAKER_00: It's again just the hope it's not necessarily the prediction it's the hope that again we can more and more companies more and more people more and more politicians can identify the underlying risk and financial cost implications in order to put in place positive mechanisms to fix them in the coming five years.
• 1:38:30
  SPEAKER_00: That is the hope I will not be I don't know if I caught a prediction.
• 1:38:36
  SPEAKER_03: We can stick with hope.
• 1:38:37
  SPEAKER_02: George final word from you I I like the theme of hope because next five years means we're in 2031 which is you know obviously 2030 is this key moment and we need to have a a functioning market by that point.
• 1:38:48
  SPEAKER_02: So you know for us it's going to be like have we achieved our goal of mobilising you know private finance into into nature and that is our hope and we're working really hard to do that.
• 1:38:59
  SPEAKER_02: So I'm kind of optimistic and you see the building blocks coming together you know you see the collaboration in the sector which is great.
• 1:39:05
  SPEAKER_02: You see ratings agencies you see insurance becoming more and more established and that is you know they are the signs.
• 1:39:11
  SPEAKER_02: It's just continuing just to to double down on those and make them function.
• 1:39:15
  SPEAKER_02: You know for legally it's going to be standardized contracts making things more efficient cheaper to execute deals and you know hopefully that's going to drive momentum in the market.
• 1:39:25
  SPEAKER_03: Thank you all I hugely appreciate the education I wanted to share some of the learnings you'd kindly shared with all of us with people who are watching and listening you've done exactly that so thank you for coming in I've loved every minute thank you very much