‘Climate Change’ – in combination these words elicit vivid images of a green earth turning brown, of melting glaciers and polar bears on thin ice strips. Few consider the relevance of the financial sector and even fewer think about insurance, unless it’s to complain about rising premiums. However, the financial sector is exploring many new ways to mitigate and adapt to our changing climate. For example, Aspiration, a financial firm based out of California, offers new banking services that allow consumers to align their financial activities with environmental values. These innovative services attract eco-conscious consumers and contribute to a larger framework of climate action.
The financial sector is also evolving through carbon markets, compliance and voluntary, as well as through carbon insurance companies. In the voluntary carbon market (VCM), company A earns carbon credits by planting trees or sequestering carbon, reducing its footprint. Company B, with a higher footprint, can buy these credits to offset its emissions. To help de-risk these carbon credit investments, new carbon insurance services like Oka in Park City, Utah, USA, and Kita in London, UK, provide financial safety nets for sustainable investments. As these new services emerge and grow, Service Design has a significant role to play.
Service Design is an established design discipline that enables an end-to-end view of all customer interactions and touchpoints, as well as the back-end processes and workflows that support customer experience. As such, Service Design enables the design of services that allow users to navigate a complex environment while supporting service providers to organise for the optimum user experience.
Given the intricate nature of financial products and the urgency of climate change, it is ideal for carbon insurance companies to integrate this holistic view and posture from the outset, aiming for connected offerings nimble enough to adapt to changing regulations. This approach can create coherent, robust and scalable services ready to tackle the climate crisis head-on, making Service Design a fundamental strategy for success. Integrating these methods and principles at ground zero is key; if treated as an afterthought, Service Design adoption will be slow and challenging.
For nature-based projects that avoid deforestation, the VCM has received negative press due to concerns over the permanence of the reductions claimed in emissions. Compounding this sentiment is a lack of transparency with the verification process, leading to project failures.
Service Design enables the design of services that allow users to navigate a complex environment while supporting service providers
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A lack of trust on the buyer’s end has triggered the rise of services like US-based Verra to compensate by rigorously verifying these offset projects. Kita offers engineering-based solutions such as enhancing rock weathering and using biochar, a more permanent method of carbon sequestration. It aims to bridge the gap between carbon management and insurance.
Embracing Service Design can enable these financial institutions to consider various users and stakeholders’ point of view
By integrating Service Design, these companies can help demystify carbon credits through consistent user education, awareness and interactions, as well as boost literacy around climate finance. Oka’s partnership with Clima, an Australia-based carbon solutions platform and global law firm, McDermott Will & Emery, is another step forward. These partnership ecosystems bridge gaps through a community of insured parties, project developers and sustainability experts to share insights.
Checks need to be in place for unintended consequences like greenwashing, where companies buy credits to appear eco-friendly without actually reducing emissions. Additionally, VCMs and carbon insurance companies may cause inequitable impacts on less developed regions or create dependency on offset projects over direct reduction of emissions. These challenges highlight the need for robust regulatory frameworks, stringent verification processes and focus on genuine emission reductions.
Financial institutions need to increase transparency by monitoring, reporting and auditing carbon reduction projects, thereby building trust among stakeholders. By posing critical questions, such as the duration of credit validity and methods for ensuring actual carbon removal, they can better prepare for future challenges. Embracing Service Design can enable these financial institutions to consider various users and stakeholders’ point of view at every step of this complex and multi-layered process, and can prove pivotal in their ability to combat climate change.
All Image source: Screenshots from authors MacBook Pro, on 16th May 2024
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