Net Zero Financing and Takaful

A number of authorities in the world, including in Indonesia, are working hard to formulate policies related to climate change, apart from the fact that all the signatories to the 2015 Paris Agreement have agreed on their respective contributions in reducing emissions, new initiatives are also being discussed with more ideal targets. i.e. Net Zero 2050.

To achieve the 0% net emission target, the emissions that still have to be released must be balanced with the ability to absorb them, all policies must converge towards this Net Zero — including in the financial sector.

Banks will avoid financing industries that still pollute the environment, as well as the insurance industry — they will immediately stop their coverage of industrial risks whose emissions cannot be suppressed.

So what about the vital industries whose existence is very much needed by the community, but at the same time its CO2 emissions are still high? An example is the electricity generation industry in Indonesia which will continue to use coal and diesel for decades to come.

There are models of solutions for this from the past. A few centuries ago when shipping was so dangerous and shipowners had trouble getting guarantors, they formed a club that guaranteed their own members, this club was called the Protection & Indemnity (P&I) Club.

Furthermore, at the beginning of the development of Islam — people are used to helping each other in facing risks together with what is called Aqilah, and in modern times we call it Takaful.

So with the Takaful concept, which I specifically call Takaful Net Zero, industry in particular and society in general can mitigate the risk of their emissions and all of them can contribute positively to achieving 0% net emissions by 2050. Areas that have arid lands and even deserts can be greened with This concept, because there is funding, there are those who have an interest in its greenery to be able to balance its CO2 emissions commensurately.

How is the Net Zero financing mechanism? Here’s the explanation:

1. First, there must be a willingness from the relevant authorities to use their authority to make pro-Net Zero policies.
2. Followed by banks and various other financial institutions to only finance industrial or commercial businesses that do not pollute the environment.
3. The insurance industry must stop providing protection against environmental pollutants. At the same time it can provide solutions or facilitate essential industries to bear their own risk with a concept similar to the P&I (Protection and Indemnity) Club.
4. Similar solutions can be carried out easily by the Takaful Industry as their business model is already fit-in very well with the need , where industries or businesses that have similar risks help each other and pay contributions commensurate with their respective risks.
5. For the payment of this contribution, the industry or business that has paid the contribution or premium, gets a guarantee from the owners of similar risks managed by a licensed Takaful.
6. Contribution funds raised are mainly used to finance tree planting in critical areas around the world, reserves for replanting costs in the event of a disaster that damages crops and Re-takaful costs to spread the risk more broadly from a geographical point of view so that the risk of this emission is more diffuse and more controllable.
7. Communities who no longer pollute the environment, or have no legal obligation to mitigate risks, but want to do good to be able to help save the environment, they can do so through tree waqf, donating reforestation funds and so on.
8. Funds collected from tree waqf and reforestation funds are mainly directed to plant trees on critical or very critical lands so that the CO2 absorption effect is maximized, because planting trees in former forests does not count towards reducing CO2 emissions.
9. All allocation of funds for planting, maintaining, impact of CO2 absorbed by planted trees etc. administered with a blockchain system or the like so that everything is recorded transparently and auditable by stakeholders. Takaful Net Zero participants, Green Waqf wakif, banking and related authorities will be able to obtain the most up-to-date data from the BIRU system (from Al-Birr which means virtue) for this carbon tracking.
10. Physical plant products such as fruit that is processed into oil, renewable energy, etc. become the rights of the people who own the land and the farmers who plant these trees. Thus the local community will have an interest in maintaining and supervising these plants because all the physical products are for them.
11. The industrial and commercial communities that finance the planting of these trees through Takaful Net Zero, only have an interest in the absorption of CO2 emissions from the trees they plant. This CO2 absorption is administered by Takaful Net Zero into Carbon Credit.
12. This Carbon Credit is redistributed by takakul to the participants in proportion to their respective contributions. This Carbon Credit can be used by the participants themselves to reduce net emissions from their industrial or commercial businesses, or if it is more than needed they can sell this Carbon Credit, and vice versa — if it is not enough to reduce their net emissions to 0% — they must increase their contribution. at number 4.

And so on, this system works until the Net Zero target can be realized as far as possible before 2050, and keep working after that to ensure the achievement is maintained.