1、 Roshni Lodhia Dmitry Rukhlenko/Adobe Stock Jitti/Adobe StockNatural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsAbout ERMAt ERM,sustainability is our business.We are the worlds largest advisory firm focused solely on sustainability,off

2、ering unparalleled expertise across business and finance.ERM partners with clients to operationalize sustainability at pace and scale,through our unique combination of strategic transformation and technical delivery capabilities.Our diverse global team of experts works with the worlds leading organi

3、zations to help them set clear sustainability targets,measure progress and operationalize strategy through deep implementation and business transformation.With more than 50 years of experience,our ability to integrate sustainability solutions and our depth and breadth of technical knowledge are why

4、organizations choose to partner with us as their trusted advisor.Discover ERMs Carbon Markets complete solutions on https:/ the ERM Sustainability InstituteThe ERM Sustainability Institute is ERMs primary platform for thought leadership.The purpose of the Institute is to define,accelerate,and scale

5、sustainability performance by developing actionable insight for business.We provide an independent and authoritative voice to decode complexities.The Institute identifies innovative solutions to global sustainability challenges built on ERMs experience,expertise,and commitment to transformational ch

6、ange.Follow the ERM Sustainability Institute on LinkedIn Website: About the Natural Climate Solutions Alliance The Natural Climate Solutions Alliance(NCSA)is a multistakeholder coalition that brings together public and private sector stakeholders to identify opportunities and barriers to investments

7、 in carbon credits in new and existing markets to scale up financing for climate solutions.The Alliance also serves as a forum for knowledge sharing and technical capacity building to ensure climate solutions reach their full potential in abating climate change.The Alliance is a collaboration betwee

8、n the World Business Council for Sustainable Development(WBCSD)and the World Economic Forum.Follow the NCSA on LinkedIn Website:www.naturalclimatesolutionsalliance.org About the Forest Investor ClubLaunched by the U.S.Department of State and led by WBCSD,the Forest Investor Club is a network of publ

9、ic and private sector financial institutions,companies and investors committed to accelerating the deployment of capital into the protection,restoration and sustainable management of forests and nature.It catalyzes investments that reduce emissions and enhance carbon sequestration by supporting memb

10、ers through additional access to investment pipelines,facilitating complementary partnerships to de-risk and increase access to capital and developing solutions to overcome investment barriers.Website:www.wbcsd.org/Focus-Areas/Forest-Investor-ClubAbout the World Business Council for Sustainable Deve

11、lopment(WBCSD)The World Business Council for Sustainable Development(WBCSD)is a global community of over 225 of the worlds leading businesses driving systems transformation for a better world in which 9+billion people can live well,within planetary boundaries,by mid-century.Together,we transform the

12、 systems we work in to limit the impact of the climate crisis,restore nature and tackle inequality.We accelerate value chain transformation across key sectors and reshape the financial system to reward sustainable leadership and action through a lower cost of capital.Through the exchange of best pra

13、ctices,improving performance,accessing education,forming partnerships,and shaping the policy agenda,we drive progress in businesses and sharpen the accountability of their performance.Follow WBCSD on X and LinkedIn Website:www.wbcsd.orgDisclaimersThis report is for informational purposes only and do

14、es not constitute investment advice.The information provided herein is based on our analysis and is intended to offer general insights into investing in Natural Climate Solutions.However,it is not a substitute for professional financial advice tailored to your individual circumstances.Investing in N

15、atural Climate Solutions for the voluntary carbon market involves risks.The value of such investments may fluctuate due to a variety of factors,including market conditions,regulatory changes,and project performance.Potential investors should conduct their own due diligence and consider seeking advic

16、e from qualified financial professionals before making any investment decisions.This report is released in the name of the Natural Climate Solutions Alliance(NCSA).Drafts were reviewed by NCSA members,ensuring that the document broadly represents the majority view of NCSA members.It does not mean,ho

17、wever,that every member organisation agrees with every word.Copyright:ERM,2024Copyright:WBCSD,2024 Table of ContentsA message from ERM .iiA message from WBCSD .iiiA message from ICVCM .ivKey Terms and Acronyms .vExecutive Summary .1Introduction.6Content of the Guide .7Natural Climate Solutions:An Em

18、erging Asset Class .10Natural Climate Solutions and the Voluntary Carbon Market .10Investing in NCS Projects .14The Current State of the VCM for NCS .16Key Stages of the NCS Investment Process .181.The Business Case:Five Reasons to Invest in NCS .192.Planning for Investment:Structuring Investments a

19、nd Mapping Stakeholders .24Deciding on the Right Entry Point in the Project Timeline .24Selecting the Right Investment Type and Finance Structure .27Stakeholder Mapping and Engagement .343.Due Diligence:Evaluating the Integrity of NCS Projects .39Preliminary Screening:Assessing General Alignment .39

20、Due Diligence:Assessing Risks to Maximize Positive Impact .42Ensuring Positive Environmental and Social Impacts Beyond Carbon .474.Shared Success:Determining a Fair and Equitable Revenue Sharing Agreement .50Revenue Sharing and Its Importance to Investment Success .50What are the Benefits of Revenue

21、 Sharing Agreements to Investors?.51The Principles of Designing Fair and Effective Revenue Sharing Agreements .53Finance Structures in Revenue Sharing .565.Safeguarding Rights and Resources:Legal Considerations of NCS Investments .59Evaluating the Legal Landscape .59Structuring and Risk Mitigation .

22、626.Running the Numbers:The Importance of Data Collection and Disclosure .66Managing What is Measured .66The Importance of Data and Disclosure to Investors .68Conclusion&Call to Action .71Appendices .73Acknowledgements .88ii Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide

23、 for Companies and Financial InstitutionsBack to Table of ContentsA message from ERMAs we witness the devastating impacts of climate change with growing frequency,the imperative for action has never been more urgent.To address this challenge,it has become increasingly clear that a key element of any

24、 response must be harnessing the power of nature.Investing in nature represents a key mechanism through which organizations can combine financial and sustainability imperatives.By directing capital towards projects that not only mitigate climate change but also enhance biodiversity,promote socio-eco

25、nomic well-being,and recognize the knowledge and integral role of local communities,organizations can help catalyze a shift towards a more sustainable,resilient,and equitable world.However,how organizations invest in the right projects and ensure integration with their wider climate strategies is no

26、t straightforward.Thats why I am delighted to present this important guide to natural climate solutions(NCS).The insights presented within these pages illustrate not only the potential of NCS but also the critical role that private sector investment plays in unlocking this potential.NCS projects are

27、 complex and require highly technical due diligence.But if they are well-designed and managed,NCS can be a very valuable addition to a natural capital investment strategy.By exploring the nuances of the voluntary carbon market and explaining the investment considerations,this guide offers a roadmap

28、for investors to navigate this complex landscape.We extend our deepest gratitude to all those who have contributed to this effort,from the researchers and authors to the many stakeholders and investors committed to making a difference.It is through collaboration and innovation that we will realize t

29、he full potential of natural climate solutions and it is our sincere hope that this guide will serve as a catalyst for action,inspiring individuals and organizations alike to seize the opportunity to chart a course towards a more sustainable future for all.Tom Reichert,CEO,ERMiii Natural Climate Sol

30、utions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsA message from WBCSDThe impacts of climate change,nature loss,and mounting inequality are indisputable.Every day brings new stories of unusual or extreme weather,causing destruct

31、ion and displacement in all corners of the world.We continue to see temperature records broken.2023 was confirmed as the hottest year ever recorded and 2024 is on track to beat that record as I write this,India is suffering a record high heatwave as temperatures soar near 50 degrees Celsius.Scientis

32、ts now say that global temperatures could rise to at least 2.5 degrees Celsius this century,with the potential for catastrophic consequences for humanity and the planet.Its never been more imperative for the world to come together to seek solutions and limit warming to 1.5 degrees our tipping point

33、associated with irreversible damage.Against this backdrop,the world has turned to business to innovate and find the solutions we need to transform systems on a global scale.Among these,the land-based sector plays a central role.Currently,it is responsible for a third of global emissions and 70%of bi

34、odiversity loss,and in the coming years we will see even more pressure on nature as competition for land-based assets increases.The entire value chain must collaborate to achieve the transformation we need,including across capital markets.Natural Climate Solutions(NCS)as one emerging asset class wil

35、l play a crucial role if we are to limit warming to 1.5 degrees Celsius.As a pragmatic solution,NCS use natures capacity for carbon storage while providing other important social and ecosystem benefits.There simply is no climate solution without nature.But not enough investors are engaging with NCS

36、as an asset class,despite its expected growth over the coming decades.This is not surprising given the unique nature of NCS projects for the voluntary carbon markets(VCM)and the additional complexity for investors.Investors need to understand the unique business case for NCS investment and the impor

37、tance of high-integrity projects,along the entire value chain from project developer to investor.Projects must deliver real emission reductions or carbon dioxide removals and offer verifiable ecological benefits and meaningful improvements in the social and economic conditions in communities where t

38、hey take place.This report answers that call by bringing together,in one place,the practical guidance that investors need to engage with NCS.It provides clarity to help carbon funds,project developers,and investors to evaluate the integrity of NCS investments and navigate important considerations,in

39、cluding investment structure and proper due diligence.The guide also examines how to determine fair and equitable revenue sharing with stakeholders,which is necessary to ensure a just transition.The guidance contained in these pages is from the hard-earned experience and expertise of investors and o

40、ther professionals working in NCS and the VCM,and I hope that you will use it well to advance your investment strategies and mobilize more capital for high-integrity projects to scale up this vital solution for the planet.Peter Bakker,President and CEO,WBCSDiv Natural Climate Solutions for the Volun

41、tary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsA message from ICVCMThe window of time available to us to take decisive climate action is shrinking and the magnitude of the crisis calls for action to be accelerated now.As this guide explains,prot

42、ecting and restoring nature must be a key part of climate action:the IPCC states that“climate,ecosystems and society are interconnected.We need to ensure effective and equitable conservation of approximately 30-50%of the Earths land,freshwater and ocean for a healthy planet.”Natural climate solution

43、s offer a powerful means to address climate change by leveraging the inherent capacity of ecosystems to store carbon.Yet,despite their immense potential,they remain significantly underfunded.While public sector efforts are vital,it is clear that they alone are insufficient to deliver the trillions o

44、f dollars of investment required for the transition to net zero.A Stern and Songwe report found that$2.4 trillion needs to be mobilised by 2030 and the only way we can do this is through mobilising private sector capital-governments alone cannot leverage this finance.According to GFANZ,approximately

45、 70%of the capital needed could come from the private sector,with nearly half financed directly by corporates.1 The private sector,particularly through a high-integrity voluntary carbon market,plays a crucial role in bridging this funding gap.Investing in natural climate solutions within the volunta

46、ry carbon market presents a compelling business case.Natural climate solutions projects as long as they are high integrity-can contribute to carbon sequestration and deliver verifiable ecological and socio-economic benefits,such as enhancing biodiversity and supporting Indigenous Peoples in their es

47、sential role as stewards of the worlds natural eco-systems.At the Integrity Council for the Voluntary Carbon Market,our work to establish a global threshold for the voluntary carbon market is well underway.Through a thorough assessment process,carbon crediting programs and the methodologies they use

48、 to design and implement natural climate solutions projects must meet rigorous standards relating to permanence,additionality,and socio-economic impacts,among other criteria.Our ten Core Carbon Principles(CCPs)and the rulebook we use for assessment ensure these standards are met.The volume of carbon

49、 credits with the CCP-label will increase through this year and beyond.We encourage investors to seek out carbon credits with the CCP-label,to take confidence that the projects that generated them will channel significant private finance to climate solutions in the Global South that would otherwise

50、not be viable.Of course,investments in high-integrity carbon credits should be made as a powerful complement to rapidly reducing fossil fuel use.While our brightest minds work on ways to reduce those emissions we do not yet have a solution for,high-integrity carbon credits can deliver an“emergency b

51、rake”on global temperature rise in the near term.They are a powerful way for investors to go even further as part of the collective efforts to achieve our net-zero goals.Annette Nazareth,Chair of the Governing Board,Integrity Council for the Voluntary Carbon Marketv Natural Climate Solutions for the

52、 Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsKey Terms and AcronymsCarbon Credit:A tradable,intangible financial instrument issued by a carbon crediting program that represents a verified reduction,removal,or avoidance of carbon dioxide

53、or its equivalent in other greenhouse gases(one credit=one metric ton of CO2 or equivalent).2 Emissions Reductions:A type of carbon credit based on the avoidance of emissions that would have otherwise been released without a carbon project in place(e.g.,protecting forests to avoid emissions released

54、 through deforestation).CO2 Removal:A type of carbon credit based on the additional sequestration achieved through new or enhanced carbon sinks(e.g.increasing natural carbon stocks through reforestation and revegetation).Compliance Market:A regulated carbon market in which entities are required by l

55、aw to adhere to defined GHG emissions targets in response to an obligation established by a regulatory body.3 CO2e:Carbon dioxide(CO2)equivalent.A measurement for mass of GHGs that includes both carbon dioxide and other greenhouse gasses converted to a proportionally equivalent mass of carbon dioxid

56、e based on differing global warming potential.The standard unit of measurement for carbon credits.4FPIC:Free,Prior,and Informed Consent.The UN-backed right of Indigenous People to give or withhold consent to projects that may affect their lands,territories,and resources.The FPIC process must be cond

57、ucted freely and completed prior to any authorization or commencement of activities with full disclosure of the nature and consequences of proposed actions.and withdraw from projects impacting their territories.5 GHG:Greenhouse Gases.Atmospheric gases such as CO2 that absorb infrared radiation in th

58、e atmosphere,leading to climate change.May include,but are not limited to,carbon dioxide,methane,nitrous oxide,etc.6Indigenous Peoples and Local Communities(IPs&LCs):These are typically,ethnic groups who are descended from and identify with the original inhabitants of a given region,in contrast to g

59、roups that have settled,occupied or colonized the area more recently.7Investors:Entities providing upfront capital to fund NCS projects.For the purposes of this guide,the term investors refers to both financial and corporate investors unless stated otherwise.Corporate Investor:Real economy companies

60、 investing in NCS projects to ensure a reliable supply of carbon credits,typically for their own use in meeting climate goals.Financial Investor:Financial institutions such as asset owners and asset managers that are allocating capital towards NCS projects and typically earn a financial return on in

61、vestment through the sale of carbon credits generated by the project.NbS:Nature-based solutions.Defined by the UN as actions to protect,conserve,restore,sustainably use and manage natural or modified terrestrial,freshwater,coastal and marine ecosystems which address social,economic and environmental

62、 challenges effectively and adaptively,while simultaneously providing human well-being,ecosystem services,resilience,and biodiversity benefits.8NCS:Natural climate solutions.A subset of NbS that seek to mitigate climate change.9Net Zero:Achieved when anthropogenic emissions of greenhouse gases to th

63、e atmosphere are balanced by anthropogenic removals over a specified period.10 REDD+:Reducing Emissions from Deforestation and Forest Degradation,plus the sustainable management of forests,and the conservation and enhancement of forest carbon stocks.A UN-backed framework for NCS projects to reduce g

64、reenhouse gas emissions from deforestation and forest degradation in developing countries.11VCM:The decentralized market of private entities buying and selling carbon credits,representing removals or reductions of GHGs in the atmosphere,for the purposes of meeting voluntary(as opposed to regulatory)

65、climate obligations.vi Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of Contents Curioso Photography/Adobe StockBack to table of contentsExecutive Summary Nature plays a central role in the fight against climate chan

66、ge,as improved stewardship of nature can reduce greenhouse gas emissions and increase carbon sequestration as well as maintain and build resilience of ecosystem functions.In this context,a healthy and dynamic market for natural climate solutions(NCS),a subset of nature-based solutions(NbS)that impro

67、ve the management and protection of nature to mitigate climate change while also delivering biodiversity and social benefits,is essential.Despite this critical role,a significant nature financing gap exists,and increasing private investment flows into NCS will be vital to help realize their full pot

68、ential to address global climate,biodiversity,and land degradation challenges.In turn,high-integrity NCS projects can offer investors the opportunity to earn financial returns derived from the sale of carbon credits,or secure reliable sources of carbon credits for themselves.NCS projects offer retur

69、ns based on the carbon credits they generate and continued demand for these credits is essential for increasing the flow of private investment.A significant source of demand for carbon credits from NCS comes from the voluntary carbon market(VCM),driven by companies seeking the credits as part of the

70、ir voluntary net zero and other climate commitments.NCS can offer many advantages over other climate mitigation solutions,as they are immediately available,scalable,affordable,and create additional environmental,social,and economic impacts.While the VCM has grown significantly over the past few year

71、s,2023 represented a market adjustment,as renewed scrutiny highlighted the challenges of carbon accounting and other ways carbon projects may fail to meet standards of high-integrity.Nevertheless,new market infrastructure,technologies,standards,and methodologies designed to enable higher integrity a

72、nd greater transparency of both claims(from the demand side)and credits(from the supply side)stand to bolster confidence in NCS procurement.Unwavering and continuous focus by VCM players on high-integrity projects will continue to be needed to help reinforce confidence and demand for NCS-generated c

73、arbon credits that can in turn maintain and strengthen the business case for investment in NCS.Investors considering investing in carbon credit-generating NCS projects have an opportunity to accelerate this trend by setting and promoting rigorous guidelines for investment and strictly selecting high

74、-integrity projects.That way,they not only avoid risks but also send market signals that elevate the quality standards and reputation of NCS projects,the credits they generate,and the markets where many of the credits will be traded.This guide,co-produced by ERM,its Sustainability Institute and WBCS

75、Ds Natural Climate Solutions Alliance(NCSA)and Forest Investor Club(FIC),provides insights to investors on how to identify high-integrity NCS projects,understand best practices for due diligence,and design and implement effective investment mechanisms all with the goal of demystifying and de-risking

76、 NCS investments.It includes insights gathered from a working group of NCS investors and other stakeholders,a market participant survey,interviews,and extensive secondary research.1 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBa

77、ck to table of contentsKey Insights from the Report NCS projects can be complex;plan accordingly.High-integrity NCS projects not only deliver carbon credits but also offer additional ecological and socio-economic benefits.The highest-potential geographies for NCS are often in rural areas of the Glob

78、al South,where land tenure rights may be ill-defined,and local stakeholders and working environments may be unfamiliar to investors.As a result,every project has a unique mix of stakeholders,ecosystems,local regulations and laws,and financial structures.For carbon credit generation,each will also ne

79、ed its own system of agreements and verification methods.Topic-specific sections of this guide provide recommendations on how to help navigate the complexities of NCS investments.Match your investment plan with your risk profile and preferences.Investors should start with a robust investment plan al

80、igned with their goals,risk profile,and the nature of their strategy.Much depends on the trade-offs between risk,control,and financial upside investors are comfortable with.For example,getting in at an early project stage may raise potential returns and give investors more control over the financial

81、 structure and deliverables,which can be attractive if reputational risk is a primary concern,but would mean investors would take on more project execution and delivery risk.Conduct thorough and context-specific due diligence.Given each NCS projects unique profile,robust due diligence is a must to n

82、ot only understand a projects basic financials and capabilities of the team,but also to evaluate positive and negative impacts on climate,nature,and people.Investors need to scrutinize the risks and merits of individual NCS projects along four pillars:commercial,reputational,regulatory,and operation

83、al.Doing so not only helps investors anticipate financial risks and maximize returns,but can also boost the integrity of NCS as part of their impact portfolios,and trust in the VCM and NCS as an asset class as a whole.Recognizing and supporting the rights of Indigenous Peoples and local communities(

84、IPs&LCs)is a must.Many IPs&LCs have historically faced exploitative practices and poorly managed projects.Acknowledging IP&LC rights,both legal and customary,is crucial for breaking the cycle of exploitation.That is why NCS projects must ensure Free,Prior,and Informed Consent(FPIC)of IPs&LCs,institu

85、te proper grievance mechanisms,emphasize their right to give or withhold consent at any time,and seek to maintain not just their consent,but their partnership as key project stakeholders over the entirety of the projects duration.Neglecting this can lead to serious reputational risks,poor project pe

86、rformance,or even project failure given the key role that IPs&LCs can play.Sharing revenue with local communities is vital.Full and effective participation from IPs&LCs is instrumental to the success of NCS projects,from initial implementation through carbon credit generation and ongoing project mai

87、ntenance.They are key stakeholders in the project and should be compensated accordingly for their contributions to the project and access to statutory and customary rights.Revenue sharing agreement should be designed to compensate IPs&LCs.In addition to recognizing IPs&LCs as core project partners,f

88、air and equitable revenue sharing agreements help align stakeholder incentives while mitigating risks for the project,investors,and IPs&LCs themselves.2 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to table of contents High-

89、integrity NCS projects require high-quality monitoring.What sets high-integrity NCS projects apart is that they generate verifiable climate,biodiversity,and social impacts results that can last decades.Well-designed systems of measurement,reporting,and verification(MRV)are crucial to deliver on that

90、 promise.Buy-and sell-side carbon credit integrity frameworks have robust MRV requirements,meaning certified NCS projects will typically already have defined MRV requirements depending on the methodology they align with.Investors can leverage the data collected through the MRV process to review and

91、benchmark project performance and impact,and address and mitigate inefficiencies or challenges.The report examines each stage of the investment process in a dedicated chapter that includes the questions that investors should ask,common challenges,and examples of best practice.Below is a brief summar

92、y of recommendations for investors that are examined in much great detail in the report.Build a Business Case Identify a business case that resonates with your organizations portfolio and investment strategy.Consider potential financial,carbon,environmental,social,and reputational benefits.Integrate

93、 investment timeline considerations into your business case.Identify the investment type,finance structure,and map stakeholders Determine the type of NCS investment you are interested in and the right stage of maturity.Identify the investment type and finance structure that align best with your obje

94、ctives,expectations,and the needs of the project.Map priority stakeholders and decide if,when,and how you will engage them.Conduct Due Diligence Complete preliminary desktop screening to determine whether an NCS investment opportunity is strategically aligned with your objectives.Conduct deep techni

95、cal due diligence to assess commercial,reputational,regulatory,and operational risks.Fill data gaps through field visits and stakeholder interviews.Conduct a thorough review of environmental and social issues to ensure that IP&LCs s are on board,and the project has positive impacts beyond carbon.Det

96、ermine a Fair Revenue Sharing Agreement Determine the status of a potential investments revenue sharing agreement;if already implemented,determine what parties have been involved in its development.Incorporate all revenue streams generated by the NCS project;review the agreement for specifications o

97、n how the revenue will be distributed.Ensure the project proponent is regularly engaging with relevant stakeholders and has established independent grievance mechanisms.Work with developers and communities to update revenue sharing agreements as needed.3 Natural Climate Solutions for the Voluntary C

98、arbon Market:An Investor Guide for Companies and Financial InstitutionsBack to table of contentsIntegrate Legal Considerations Engage international and/or local advisors to ensure that legal and tax due diligence is conducted at an early stage.Discuss the risks identified during due diligence with y

99、our project counterparties as soon as possible.Ensure that risks are allocated appropriately in transaction documentation with the support of international and local advisors.Consider the use of additional legal risk management through the deal structure,insurance procurement,additional legal opinio

100、ns,and so on.Implement a system for measuring,reporting,and verifying data(MRV)Establish internal guidelines and best practices for data collection and reporting;determine if an investments MRV practices align with internal guidelines.Disclose data in line with carbon credit standards and requiremen

101、ts from verification bodies.Ensure the collected data and selected metrics directly correlate to claims made on positive climate,biodiversity,and social impact.Leverage data and disclosure findings to review performance and integrate them into project agreements and activities.Build a Business CaseK

102、ey Stages of the NCS Investment ProcessDetermine a Fair Revenue Sharing AgreementPlan for InvestmentImplement MRV systemsConduct Due DiligenceIntegrate Legal Considerations4 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial Institutions5 Natural

103、Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of Contents Dmitry Rukhlenko/Adobe Stock6 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of Con

104、tentsIntroductionNature conservation plays a central role in the fight against climate change,as it supports natures climate-regulation and climate change resilience functions.Natural climate solutions(NCS),a subset of nature-based solutions(NbS),protect and improve the management and restore nature

105、,generating climate mitigation outcomes while also delivering biodiversity and social benefits.In this context,a healthy and dynamic market for voluntary carbon credits generated by NCS plays a central role in contributing to closing the nature finance gap.This guide provides essential insights for

106、financial institutions and companies that are already investing in NCS or are exploring ways to do it.Despite the critical role that nature can play in addressing climate change,a significant financing gap exists.According to UNEP,annual investment levels into nature protection,management and restor

107、ation will need to nearly triple by 2030 if we are to realize their full potential in meeting international climate,biodiversity,and land degradation goals.Currently,the private sector accounts for only a fraction of financial flows to nature,with more than 80%of the funding for nature coming from p

108、ublic sources.12 Whereas growth opportunities for additional public investment may be limited,investment by corporates and financial institutions remain undertapped,and will have to accelerate rapidly if we are to meet these financing gaps for nature.In addition to delivering climate,biodiversity,an

109、d social benefits,high-integrity NCS projects can offer investors the opportunity to earn financial returns derived from the sale of carbon credits,or secure reliable sources of carbon credits for themselves.In order to make NCS attractive to investors,and in turn,increase the flow of financial capi

110、tal,securing continuous demand for carbon credits will be essential.A significant source of funding for NCS comes from the voluntary carbon market(VCM).Companies are using voluntary carbon credits to complement their decarbonization effort and meet their sustainability and climate commitments.NCS vo

111、luntary credits can offer many advantages over other voluntary carbon credits,as they are immediately available,scalable,affordable,and create additional environmental,social,and economic impacts,especially in comparison to engineered solutions based on emerging technologies.NCS are affordable,scala

112、ble,and available today,and therefore present opportunities for companies to make contributions to addressing climate change.While the VCM has grown significantly over the past few years,it experienced significant fluctuations in 2023 and 2024.Between 2020 and 2021,the market value quadrupled to USD

113、$2 billion,but in 2023,it contracted to USD$723 million,while trading volume fell by 57 percent.13 A major driver behind the slowdown has been renewed attention to quality,integrity,and social impact concerns.NCS projects offer investors and companies the opportunity to earn returns on investment an

114、d secure reliable sources of carbon credits.This guide provides essential insights for financial institutions and companies that are already investing in NCS or are exploring ways to do it.7 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial Insti

115、tutionsBack to Table of ContentsBut recent changes designed to support greater integrity in both the demand and supply side are already bolstering confidence in NCS procurement and therefore investment.While estimates of VCM long-term performance vary,growth in the VCM is expected to resume as carbo

116、n management continues to be more common in corporate strategy and regulating bodies enact more policies and regulations on carbon emissions.Continued and unwavering focus by VCM players,including investors,on high-integrity projects is needed to help reinforce confidence and demand for NCS-generate

117、d carbon credits that can in turn maintain and strengthen the business case to invest in NCS projects.Nature-based Solutions(NbS):Actions to protect,conserve,restore,and sustainably use and manage natural or modified terrestrial,freshwater,coastal,and marine ecosystems,which address social,economic,

118、and environmental challenges effectively and adaptively while simultaneously providing human well-being,ecosystem service,and resilience and biodiversity benefits.14Natural Climate Solutions(NCS):A subset of nature-based solutions designed to specifically address climate change.Content of the GuideT

119、he ERM Sustainability Institute,WBCSDs Natural Climate Solutions Alliance(NCSA),and the Forest Investor Club(FIC)produced this guide to help investors confidently and methodically identify promising NCS projects,carefully scrutinize them,and design and implement effective investment mechanisms all f

120、or the ultimate purpose of increasing the flow of financial capital into these promising high impact solutions.The guide is written for financial institutions,such as mainstream and impact investors and investment funds,as well as companies,who are increasingly looking for ways to directly invest in

121、 projects to secure a supply of high-quality carbon credits.It provides essential guidance on investing in NCS through project finance,NCS-focused funds,project developer equity/debt,and other types of investment.It does not cover carbon credit procurement through spot market purchases or the integr

122、ation of credits into an organizations net zero initiatives.The guide explores the following steps to ensure investors solely invest in high-quality,high-integrity NCS projects:1.Building a Business Case:Building a strong business case that resonates with the organizations portfolio and investment s

123、trategy is paramount to the success of any investment.2.Designing an Investment Strategy and Engaging Stakeholders:To lay a solid foundation,investors need to build a comprehensive investment strategy,implement appropriate funding structures,and design a stakeholder engagement strategy.3.Conducting

124、Due Diligence:Thorough due diligence is foundational to successful NCS investments and should cover four areas of risk:commercial,reputational,regulatory,and operational.8 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Tabl

125、e of ContentsNatural Climate Solutions and the Voluntary Carbon Market:A Guide for C-suite Executives 4.Developing Equitable Revenue Sharing Agreements:Revenue sharing agreements are an essential way to involve communities in a more meaningful and fair way while compensating them for their rights,re

126、sources,and contributions.5.Incorporating Legal Considerations:Drafting equitable and transparent legal agreements between parties such as investors,developers,communities,and governments is paramount to protecting all stakeholders,including local communities,and the investment.6.Data Measurement,Re

127、porting,and Verification(MRV):MRV is an essential source of information for investors to assess the performance of a potential investment.The guide was developed between September 2023 and June 2024,using the following sources as input:Working Group:A working group of 8 NCS experts steered the devel

128、opment of this guide.This group played a pivotal role in determining priority content,drafting sections,and reviewing and revising preliminary drafts.Interviews:In-depth interviews with representatives from 25 organizations with experience in NCS investment for the VCM were held.Quotes and insights

129、from the interviews are included throughout the report.Market Participant Survey:A 19-question survey to gather input from investors,companies,and other NCS experts was conducted.A total of 26 individuals responded,and the information they provided informed the content of this report.Secondary Resea

130、rch:The report incorporates insights from secondary sources published by companies,investors,NGOs,academics,and other groups.These sources are cited throughout the report with corresponding endnotes in the Appendix.Technical Review:The report was reviewed by members of the NCSA Technical Advisory Co

131、mmittee to inform report content,align key messages,and provide best practice recommendations for readers.This report provides essential guidance for financial investors and companies that are investing in NCS through project finance,NCS-focused funds,project developer equity/debt,and other investme

132、nt methods.It does not cover carbon credit procurement through spot market purchases or the integration of credits into an organizations net zero initiatives.For more information about the use and procurement of natural climate solutions carbon credits,read Natural Climate Solutions and the Voluntar

133、y Carbon Market:A Guide for C-suite Executives,A Buyers Guide to Natural Climate Solutions Carbon Credits,and Natural Climate Solution Carbon Credits:The role of project developers and communities.A Buyers Guide to Natural Climate Solutions Carbon CreditsIn collaboration with:Filip Agoo for Wildlife

134、 Works Kasigau REDD+Project Natural Climate Solution Carbon Credits:the role of project developers and communities Native,A Public Benefit Corporation IndigoAg Carbon Tanzania Roshni Lodhia9 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial Insti

135、tutionsBack to Table of Contents Roshni Lodhia10 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsNatural Climate Solutions:An Emerging Asset Class Natural climate solutions offer an effective mechanism for c

136、orporate and financial investors to source high-integrity carbon credits.NCS can earn returns on investment by generating carbon credits and other revenue sources while simultaneously supporting climate and nature goals.However,two elements are crucial to NCS expanding as an asset class:more trust i

137、n the rigor of carbon markets and more aggressive investment in high-integrity NCS projects by both companies and financial institutions.Natural Climate Solutions and the Voluntary Carbon MarketNCS build on natures capacity to remove and store atmospheric carbon through the protection,restoration,or

138、 sustainable management of nature.NCS projects must also go above and beyond the delivery of carbon credits by generating biodiversity and ecosystem gain,providing substantive social and economic benefits for Indigenous Peoples and Local Communities(IPs&LCs),and facilitating climate risk protection

139、by improving the resiliency and adaptive capacity of landscapes.The amount of CO2e avoided,reduced,or removed through NCS activities is translated into carbon credits which are traded on one of three primary carbon markets:Voluntary Carbon Market(VCM):Independently functioning global market where en

140、tities and individuals voluntarily purchase carbon credits to manage their carbon footprint,contribute to climate change mitigation,support sustainable development,etc.The content in this guide is primarily directed towards NCS for the VCM.Compliance Carbon Markets:Regulated markets established by l

141、ocal or regional regulatory bodies usually in the form of carbon taxes or emissions trading systems.While some compliance markets allow the use of carbon credits,their use criteria are often more rigid or may require domestically sourced credits.This makes investment requirements for NCS projects fo

142、r compliance carbon markets more specific and may limit opportunities for private investment.See Appendix 1 for more information on compliance markets.Paris Agreement Article 6:Though not a carbon market itself,Article 6 includes sections that promote an international market-based mechanism that all

143、ows countries to trade carbon credits with each other.These credits are used to meet the emissions reduction targets outlined by their Nationally Determined Contributions,or NDCs.Companies may purchase credits on the VCM to compensate for their emissions on the pathway to net zero.Guidance on how co

144、mpanies should use these credits varies according to different guidance organizations,as outlined in Table 1 below and in“The State of the Voluntary Carbon Market”at the end of this section.11 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial Ins

145、titutionsBack to Table of ContentsTable 1.Comparison of Guidance Literature on the Use Cases for Carbon Credits on the Pathway to Net Zero(IETA VCM Guidelines)Use CaseIETA GuidelinesSBTiVCMIEU Joint StatementISO 14068(carbon neutrality)2024 Oxford Net Zero Guiding PrinciplesCounterbalance some or al

146、l unabated Scope 1,2 and 3 emissions after meeting interim targets aligned to science-based reduction pathwaysYESYES(BVCM Guidance)YES(Min:10%Max:100%)YESYESYESNeutralize residual Scope 1,2 and 3 emissions throughremovals in companys netzero yearYESYES(Corporate Net-Zero Standard)YESNOT COVEREDYESYE

147、SCompensate for unabated Scope 1 and 2 emissions to help achieve interim targets and stay on track between interim target yearsYESNONONONOT COVEREDNOT COVEREDCompensate for unabated Scope 3 emissions,including hard-to-abate sectors,to help achieve interim targets and stay on track between interim ta

148、rget yearsYESNOYES,SCOPE 3(Scope 3 Flexibility Claim1)NONOT COVEREDNOT COVEREDSource:This figure is adapted from IETA VCM Guidelines(2024).“Table A:A COMPARISON OF GUIDANCE LITERATURE ON THE USE CASES FOR CARBON CREDITS TO COMPENSATEFOR COMPANIES EMISSIONS ON THE PATHWAY TO NET ZERO”.International E

149、missions Trading Organization.1 This permits a company to make limited use of high-quality carbon credits to close the gap between its estimated scope 3 GHG emission reduction target level,and its current scope 3 emissions in a given year,as long as it has already taken other steps to reduce current

150、 emissions.Companies may purchase carbon credits on the VCM issued by a variety of carbon crediting programs,each of which has its own set of standards and methodologies for greenhouse gas(GHG)emissions reduction and removal quantification.Carbon crediting programs are assessed by carbon credit inte

151、grity frameworks such as the Integrity Council for the Voluntary Carbon Market(ICVCM).15 See table A3 in the appendix for a comprehensive list of buy-and sell-side carbon credit integrity frameworks.NCS projects have attractive benefits over other climate solutions that generate credits for the VCM.

152、Currently,nature is the most affordable,scalable,and available method for carbon sequestration while many technology-based carbon removal practices(e.g.,direct air capture(DAC)remain nascent technologies typically in the research and development phase.In addition to climate benefits,investments in n

153、ature help build ecological resilience and support nature stewardship,along with boosting community and social resilience as they protect and restore the ecosystem services on which human systems rely.In part due to these additional benefits,NCS projects are projected to continue playing a major rol

154、e in the VCM as outlined in Figure 1 below.12 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsFigure 1.Projected Growth of Natural Climate Solutions as a Component of the Voluntary Carbon MarketSource:This f

155、igure is adapted from Making Carbon Markets Work for Faster Climate Action(2021).“GROWTH FORECAST OF VOLUNTARY CARBON MARKETS TO 2030”.The Nature Conservancy.Caption:According to some estimates from 2021 and 2022,the size of the VCM could reach 1 billion metric tons by 2030.While 2023 experienced a

156、bit of a market contraction,the adoption of greater integrity measures may help the market rebound and long-term growth prospects to not be diminished.Investments in NCS can generate multiple sources of revenue and returns are not limited to only carbon credits.For example,reforestation projects may

157、 produce sustainable timber,or agroforestry projects may produce crops to generate revenue.However,investors must avoid additionality concerns by ensuring that the project would not have been able to be funded based on revenues from timber or agriculture products alone,and ensuring that these commod

158、ities are sold separately from carbon credits,as the environmental attribute(emissions avoidance/reduction/removal)must be detached from the products to avoid double counting.Further,NCS investments can include more than one intervention method.For example,a reforestation project can incorporate bot

159、h sustainable management of commercial areas and restoration of degraded areas.The concept of combining revenue streams and diversifying strategies in NCS investments is a growing approach to help manage risk and maximize returns from projects.13 Natural Climate Solutions for the Voluntary Carbon Ma

160、rket:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsFigure 2.Types of NCS Credits and ProjectsIntervention MethodsCarbon OutcomesExamples of Non-carbon Revenue StreamsProtection:Protecting ecosystems from impending or future degradation,reducing further CO2 emissi

161、on and additional loss of biodiversity.Sustainable Management:Regenerative agriculture and sustainable management practices to improve natural and modified ecosystems while contributing to the recovery of biodiversity.Restoration:Restoring ecosystems that have been degraded or previously converted t

162、o remove carbon from the atmosphere and introduce additional biodiversity benefits.Reduction/Avoidance:Activities that reduce emissions by preventing their release into the atmosphere,such as protecting standing forests or stopping the conversion of grasslands to croplands.Example:Reducing Emissions

163、 from Deforestation and Forest Degradation,plus conservation and sustainable forest management,and enhancement of forest stocks(REDD+),where forests are protected by incentivizing conservation and enhancement of forest ecosystems.Removal:Activities that pull carbon out of the atmosphere and store it

164、 over long timeframes.Example:Afforestation,Restoration,and Revegetation(ARR),where forest ecosystems are restored to maximize the ecosystems capacity for carbon sequestration.Agricultural Commodities:Agroforestry systems,which integrate trees with crop and livestock production,can enhance farm outp

165、ut and resilience,leading to a diverse range of agricultural outputs.These products can often be marketed at a premium given the sustainable production practices.Ecotourism:NCS projects,particularly those involving the protection and restoration of scenic landscapes,can generate income through ecoto

166、urism via entry fees,guided tours,and recreational activities.Payment for Ecosystem Services(PES):Some projects may receive payments for certain non-carbon ecosystem services such as water filtration and retention.Some regions may have mechanisms to compensate project proponents for maintaining or r

167、estoring land in ways that enhance ecosystem health.Sustainable Harvesting:Revenues from the sale of timber,non-timber forest products,and sustainable fisheries may be sold depending on project parameters such as rights and ownership.These products can often be marketed at a premium given the sustai

168、nable production practices.Source:ERM/WBCSD14 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsInvesting in NCS ProjectsInvestors allocating capital towards NCS projects generally fall into the two broad cate

169、gories outlined below.For the purposes of this guide,the term investors refers to both categories unless stated otherwise.Financial Investors:Financial institutions that invest upfront capital in NCS projects with expectations of financial returns through the sale of carbon credits.Returns may also

170、come in part from other revenue streams,such as the sales of sustainable timber or regenerative agricultural products.Corporate Investors:Real economy companies requiring high volumes of carbon credits may also invest upfront capital in NCS projects,but rather than earning financial returns,receive

171、their“returns”in the form of offtake of carbon credits for their own uses.Companies may also benefit from selling any credits that they dont retire themselves on the VCM.Similarly,corporate investors can benefit from potential non-carbon revenues supplementing carbon credit generation.While investor

172、s can finance NCS projects in several ways,this guide is primarily focused on providing direction for investors engaging in the following ways:Project Finance:Investors may invest directly in a specific NCS project.This strategy provides investors with considerable control over the project but may c

173、ome with more and/or different types of risk due to direct involvement.Investment Funds:Funds or asset pools that allocate capital towards several NCS projects.This method is a more indirect pathway to NCS investment,as the fund manager has significant control over the decision-making process.Real A

174、ssets:Investors directly acquire and/or lease land to develop,manage,or lease to NCS projects.Investors may then bring in project partners to assist in the development and implementation of the project,but will assume a higher level of risk as the direct landowner.Project Developer Investment:Direct

175、 investment made in the organizations developing NCS projects offers financial investors a different type of return profile and asset class from NCS,but but may be less appropriate for corporate investors since the source of carbon credits is less directly connected to their investment.“There is a d

176、anger in thinking that the carbon value is the only thing that will help communities;its also important that the value is in the communities maintaining healthy lands and culture and being able to stay on their land for a long time to come.”Margarita Mora,Senior Managing Director,Partnerships,Nia Te

177、ro15 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsWhat are the Core Considerations for Determining High-Integrity Carbon Projects?Investors should only consider high-integrity NCS projects designed to ens

178、ure that certain core carbon considerations are addressed rigorously and transparently over the life of the project,including through nesting into jurisdictional frameworks.High-integrity NCS projects must also provide benefits beyond the delivery of carbon credits by maintaining or improving biodiv

179、ersity and ecosystem integrity,generating substantive social-economic benefits for local stakeholders,and improving the resiliency and adaptive capacity of landscapes and people.Core carbon considerations relating to climate mitigation activities include:Permanence:The degree of confidence that a pr

180、oject will keep carbon out of the atmosphere for a given period of time.Additionality:Carbon projects and credits are considered additional if the reduction/removal of carbon would not have occurred without the incentives provided by the carbon market.Leakage:Increases in GHG emissions that occur ou

181、tside of the projects boundaries as a result of project-related activities.Baseline:A reference point that serves as a benchmark for emissions avoidance or reduction.The baseline is measured by determining the expected changes in carbon that would have happened in the absence of the projects interve

182、ntion.Measurement,Reporting,and Verification(MRV):The process by which the climate,biodiversity,and social impacts are calculated,the methods to disclose these figures,and the third-party verification of reported information to ensure accuracy and consistency.Safeguards:Policies,measures,and standar

183、ds implemented to ensure that project activities promote positive social and environmental outcomes while minimizing adverse impacts.Fokasu Art/Adobe Stock16 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsT

184、he Current State of the VCM for NCSAuthor:Stephen Donofrio,Founding Principal,GreenPoint InnovationsThe VCM has grown significantly over the past few years,as evidenced across all key market valuation metrics:volume traded,credit prices,new project registrations,as well as both credit issuances and

185、retirements.This recent growth has been influenced by the recognition of its role as an important tool for near-term residual and unavoidable emissions reductions,in addition to philanthropic investments beyond the value chain.But as it has gained relevance and visibility the VCM has been increasing

186、ly at the center of several climate action debates over the past few years and began contracting in 2023.The VCM hit a high of more than USD$2 billion in value in 2021,up four times the market size in 2020,driven by an increase in traded volumes and higher than average prices of NCS projects.While t

187、his was the largest valuation ever recorded,the VCM has since contracted to USD$723 million at the end of 2023.This was principally due to a 56%drop off in trading volume for the year(254 MtCO2e in 2022 to 110.8 MtCO2e in 2023)paired with an 11%decrease in average credit prices(USD$7.37 to USD$6.53)

188、.16 Renewable Energy and Forestry&Land Use,the two largest categories of credits,each contributed to a 70 percent drop in volume in 2022.However,as the previous years gains were driven by increasing volumes and higher prices of NCS credits,2023s market value losses are mainly due to a near 50%drop i

189、n sales volumes(57.4 to 28.2 MtCO2e)and 23%decline in prices($10.19 to$7.87)from REDD+.17 Albeit at lower volumes compared to REDD+,other NCS types saw gains in 2023 including higher prices for ARR(Afforestation,Reforestation,and Revegetation)and IFM(Improved Forest Management),while Agriculture saw

190、 higher prices but lower volumes.Annual data on new project registrations and credit issuances/retirements are complementary indicators of market conditions to pricing and transaction volume discussed above.According to three leading market intelligence sources,retirements in the VCM grew by 6%or re

191、mained stable in comparison with 2022 due to a surge at year-end in December.18,19,20 On the other hand,issuances dropped to the lowest levels in three years,from 408 MtCO2e in 2021 to 277 MtCO2e in 2023.21 At the same time,however,issuances were led by NCS at 122 MtCO2e while other types like renew

192、able energy carbon credits declined.22 In parallel,the VCM has been challenged on a range of integrity and transparency issues that are largely distinguished between supply and demand side challenges.Several stakeholders are working to address these challenges and drive continuous improvement in the

193、 VCM in a way that will increase its attractiveness to mainstream finance and private sectors.There are four general categories for these efforts:1.Updates to existing guidance and infrastructure are addressing issues like methodologies allowing for over-issuances and previously inadequate consultin

194、g and inclusion of IPLCs.Updates include improvements to voluntary target setting and disclosure standards such as Verras updated REDD+methodology(VM0048).23 Additionally,demand may be impacted by changing infrastructure guiding the use of carbon credits.For example,the Science-based Targets Initiat

195、ive(SBTi)has signaled that it may update its Net Zero Standard to establish a clear role of Environmental Attribute Certificates for achieving a net zero goal.24 2.New quality guidance frameworks,criteria,and principles are likely to impact both supply and demand of carbon credits.The ICVCM has comp

196、leted its assessment of carbon crediting programs and is now assessing project categories at the methodology level,helping ensure 17 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of Contentsthat carbon credits repres

197、ent genuine emissions reductions and improving the quality and integrity of carbon credit supply.25 Related to both supply-and demand-side improvements,the U.S.Department of the Treasury released a Joint Policy Statement and Principles on Voluntary Carbon Markets,affirming that high-integrity VCMs c

198、an and should play a meaningful role in reaching net-zero emissions by 2050.26 New demand-side guidance for the use of carbon credits for corporate climate action is changing how companies approach carbon credits,such as the Voluntary Carbon Market Integrity Initiatives(VCMI)Scope 3 Flexibility Clai

199、m beta for use of high-quality carbon credits and the International Emissions Trading Associations(IETA)Guidelines for the High Integrity Use of Carbon Credits.27,28 3.International carbon credit markets,pending national and subnational regulations and new laws on corporate disclosure are likely to

200、influence both supply and demand of carbon credits.Regulations like Californias AB-1305 will require comprehensive disclosure on carbon credits sold or used from both supply-and demand-side actors,while the proposed SB-1036 would address greenwashing in the VCM by making carbon credits subject to fa

201、lse advertising laws.29,30 The European Union has reached a provisional agreement to establish an EU-level certification framework for carbon removals intended to accelerate deployment of high-quality carbon removal and emission reduction in the region.31 And on a wider scale,broad sustainability-an

202、d ESG-related disclosure regulations are proliferating,many of which include carbon credit disclosure requirements.The EUs Corporate Sustainability Reporting Directive(CSRD)requires companies to disclose direct emissions separately from carbon credits purchased for offsetting with the aim of prevent

203、ing misrepresentation of actual emissions and progress on emissions reduction.32 Wide sustainability-related regulations like the CSRD were developed to improve quality and comparability of corporate disclosures across all ESG pillars,and are likely to impact how companies disclose their use of carb

204、on credits.4.Innovative solutions from service providers are offering a wide range of products and services to address remaining concerns.Innovations such as improvements to digital monitoring,reporting,and verification(dMRV)will help improve data disclosures,ultimately affecting the quality of outp

205、uts from data and intelligence providers and carbon credit ratings agencies.Similarly,innovative financial vehicles such as insurance on carbon credits or carbon-linked bonds are providing investors with more comprehensive protection from risk and encouraging expanded and more diverse funding into N

206、CS projects.The course is set for 2024 to be more of a“make”than“break”year for the VCM.Despite the decline in 2023,growth in the VCM is expected to resume as carbon management continues to be more common in corporate strategy and regulating bodies enact more policies and regulations on carbon emiss

207、ions.This expected growth is helping to raise the profile of NCS as an asset class and emphasize the role that NCS will play in carbon reduction on a global scale.18 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of C

208、ontents Rabbi/Adobe StockKey Stages of the NCS Investment Process19 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of Contents1.The Business Case:Five Reasons to Invest in NCSNCS as an asset class remains relatively u

209、ntapped.This is especially the case for most large-scale,traditional investors.In addition to their mitigation potential and financial returns,NCS projects yield many other environmental,social,and reputational benefits.In addition to financial returns,NCS projects yield many other carbon,environmen

210、tal,social,and reputational benefits.However,every NCS project has a unique risk and benefit profile that investors must account for before making the final decision.Recommendations for Investors:Identify a business case that resonates with your organizations portfolio and investment strategy.Consid

211、er potential financial,carbon,environmental,social,and reputational benefits.Integrate investment timeline considerations into your business case.The business case for NCS investment often varies between different types of investors.Corporate investors are more likely to invest in NCS through projec

212、t finance to gain access to carbon credits and meet their climate goals,earning much or all their returns from claiming the credits generated for themselves.Meanwhile,financial investors primarily invest to earn financial returns generated by the project through the sale of credits to offtakers.The

213、business case for financial investors may vary depending on their investment strategy,risk,and return expectations,specific mandate,and asset class(e.g.,real assets,project debt or equity,developer/enterprise debt or equity,commodities trading,etc.).Both corporate and financial investors may benefit

214、 from any additional revenue streams that can be generated through a projects activities such as sustainable timber or crop production.But regardless of investor type or focus,motivation for investment in NCS is often built on the expectation that carbon markets will continue to grow in both value a

215、nd impact.There are many reasons for companies and financial institutions to consider investing in NCS,but the following five drivers offer the strongest business case:1.Sourcing carbon credits at scale for an investors own useDirectly sourcing high-integrity carbon credits is one of the primary mot

216、ivators for investors to engage in NCS.Corporate investors are most likely to source credits to meet their climate and net zero goals,while financial investors may align their investment portfolios with a low carbon future through investment in activities and holdings that reduce or remove emissions

217、.By entering agreements with project developers(often through offtake agreements,project finance,or developer investment),investors can secure a direct source of high-integrity carbon credits.Since many of these offtake agreements are structured prior to the issuance of credits,investors will have m

218、ore 20 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of Contentscontrol over the projects structure and activities.By directly sourcing carbon credits,investors can also reduce procurement costs and avoid engaging in

219、 the VCM,eliminating additional transaction costs associated with purchasing from a third party.In the event an investor does not retire all the credits they have secured,they can sell those remaining on the VCM,earning an additional return on investment.“Our business case for investing in NCS proje

220、cts is threefold:it gives us a hedge for future increases in carbon prices;the creation of high-quality credits will help meet the increasing future demand caused;and the returns earned by selling the credits have the potential to be quite attractive.”Nature Based Solutions Lead,European Energy Comp

221、any2.Capitalizing on carbon market growthIn the five-year span between 2017 and 2022,the voluntary carbon market grew more than tenfold,quadrupling in value between 2020 and 2022 alone.33 Though market growth slowed in 2023,consulted experts expect growth to rebound over the long run.Much of this gr

222、owth will be driven by increasing corporate climate ambitions and pressure to meet net zero targets.Expanding compliance markets may also drive growth with the expectation that more jurisdictions will implement compliance regimes.Carbon data provider Sylvera expects convergence between compliance an

223、d voluntary markets,which could help drive the investment and innovation needed for increased competition,better quality standards,and greater innovation in carbon markets.34 Both financial and corporate investors will look to capitalize on future market growth,increasing demand for credits,and carb

224、on increasingly trading as a commodity.3.Hedging against future increases in carbon pricesHedging against an expected rise in carbon prices is another strong reason to invest in NCS.As seen in Table 2 below,the average price per ton of CO2 in 2023 was USD$6.53,down 11 percent from 2022 but 60 percen

225、t higher than 2021 prices.35 Furthermore,the cost of carbon is expected to continue to rise through mid-century.Adjusted for inflation,one forecast estimates the average market price per metric ton of CO2e to reach USD$27 by 2030 and USD$175 by 2050.36 Hedging is a particularly strong business drive

226、r for corporate investors given their use of carbon credits in climate strategies,as investing early enables companies to gain access to credits at a lower price than future forecasts.Investing directly in high-integrity NCS projects and ensuring they are high-integrity will provide further advantag

227、es as these projects sell at a premium in the VCM.For instance,at the end of 2023,credits sourced from nature-based projects sold at a 40 percent premium over the total average credit price,and a 91 percent premium over credits from technology-based project types.37 Similarly,credits rated as high-i

228、ntegrity(A or B)on MSCIs Carbon Markets sold for nearly twice as much as medium and low integrity credits(C and D/E,respectively).38 With buyers increasingly looking for high-integrity projects,these price differentials based on quality are likely to remain or strengthen over time.21 Natural Climate

229、 Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsTable 2.Annual Total Transaction Volume,Value,and Price of Carbon Credits by GroupingType202120222023Volume(MtCO2e)Value(USD)Price(USD)Total Volume(MtCO2e)Value(USD)Price(USD

230、)Price Change(2021-22)Total Volume(MtCO2e)Value(USD)Price(USD)Price Change(2022-23)Price Change(2021-23)All Projects517$2.1Bn$4.04 254$1.9Bn$7.37 82%111$724M$6.53-11%62%Nature-based243$1.4Bn$5.80 167$1.2Bn$10.17 75%41$382M$9.33-8%61%Engineered270$640M$2.37 137$675M$4.92 101%70$342M$4.89 3%-1%Source:

231、This table is adapted from Ecosystem Marketplace(2023).“Table 1.Annual Total Voluntary Carbon Markets Transaction Volume,Value,and Price per tCO2e for All Projects.2021-2023(YTD)”and Ecosystem Marketplace(2024)“VCM Transaction Volumes,Values,and Prices,Nature-based vs.Engineered,2022-2023”.Ecosystem

232、 Marketplace Insights Report:State of the Voluntary Carbon Markets 2023/2024.Caption:Carbon credits sourced from nature-based projects such as NCS trade at a premium compared to both average credit price and technology-based solutions.This premium,partially due to the social and environmental benefi

233、ts associated with nature-based projects,is expected to remain as the average price of carbon rises.4.Leveraging carbon,social,and environmental benefits to improve reputationDemand for carbon credits is often motivated by buyers perceived brand and reputational benefits.Companies can use carbon cre

234、dits to meet robust climate policies in addition to satisfying a sense of responsibility and role companies can play in broader social and environmental impact,particularly amid increasing stakeholder pressure.NCS can help satisfy all of these considerations for corporate investors given their clima

235、te,social,and biodiversity benefits.Similarly,impact investors may prioritize investments that generate a measurable positive impact on communities and the environment while generating financial returns,making high-integrity NCS projects attractive investments.NCS projects and programs often align w

236、ith several of the UNs 17 Sustainable Development Goals,providing investors with a widely recognized and respected framework to define the impact of their investments.“We are looking to layer various impact streams on every acre we manage,where appropriate,and will always consider value added servic

237、es such as mitigation banking and renewables leasing.Every forest is different depending on whether it is a plantation,a restoration project,or a conserved ecosystem,and were always looking to layer the activities in each of them to widen impact and revenue streams.”Eric Cooperstrom,Managing Directo

238、r,Impact Investing and Natural Climate Solutions,Manulife Investment Management22 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of Contents5.Drawing benefits from real assets and additional revenue streamsIn addition

239、 to selling carbon credits,NCS investors may earn additional non-carbon revenues from other commercial opportunities from project activities.In a real assets strategy,timber,crops,and land may all deliver additional revenue streams beyond the sale of carbon credits.Real assets are also used as an in

240、flation hedge and in some cases seen as a safer investment given their greater level of control and security compared to contractual agreements with communities,landowners,developers,and other stakeholders.Investor access to non-carbon revenue streams will be dependent on the project type,agreement

241、with stakeholders,land rights,etc.Additionality should also be considered if revenue is generated from sources other than carbon credits,as additional revenue streams can only be realized if the products and services are separate from the environmental attribute driving carbon credit generation(i.e.

242、,emissions avoidance/reduction/removal).Miguel/Adobe Stock23 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of Contents Filip Agoo/Everland24 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide

243、 for Companies and Financial InstitutionsBack to Table of Contents2.Planning for Investment:Structuring Investments and Mapping StakeholdersEffective investment planning is a critical factor in achieving successful investment outcomes.Picking fitting target opportunities,identifying and engaging sta

244、keholders,and identifying the right investment mechanism are important actions at this stage.The trade-off between risk,control,and financial upside is another aspect for investors to consider when planning for investments in NCS.Ultimately,a comprehensive investment plan can drive investment value

245、while maximizing the positive impact of the project.Recommendations for Investors:Determine the type of NCS investment you are interested in and the right stage of maturity.Identify the investment type and finance structure that align best with your objectives,expectations,and the needs of the proje

246、ct.Map priority stakeholders and decide if,when,and how you will engage them.Deciding on the Right Entry Point in the Project TimelineThe timeline of NCS project duration can last decades,sometimes spanning up to 100 years to ensure the permanence of activities past the carbon crediting stage.An eff

247、ective investment plan should thus consider the“who”,“when”,and“how”across the entire timeline.An investors involvement is likely to be concentrated in the first few years but may continue throughout the projects implementation depending on their role.Figure 3 below provides an overview of the proje

248、ct development cycle and sets the stage for where investors may enter an investment.Investors may enter NCS projects at different stages of the development cycle,but they should weigh related risks and opportunities.There are often severe funding gaps for opportunities at pre-development stages give

249、n the numerous risks they face.Without working capital,NCS opportunities may need to rely on philanthropic or government funding or technical assistance to move through initial feasibility and certification stages.Novel approaches utilizing blended finance and catalytic capital,for example,may help

250、to close early financing gaps.39 Investment risk will decline as the investment stages progress.Entering opportunities at a later stage will result in less risk assumed by the investor but lower potential returns and less ability to shape the target opportunity.A comprehensive due diligence process,

251、as described in the next chapter,can help investors better understand investment risk and find the ideal point to enter an investment.25 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsFigure 3.Project Devel

252、opment StagesProject TimelineDescriptionKey DocumentationScopingFeasibilityProject Design&DevelopmentProject ImplementationImplementation throughout the project lifetime1 to 3 yearsMinimum of 6 to 12 monthsDevelop initial project guidelines and define desired outcomes.Scoping study to define potenti

253、al project(often referred to as Concept Note or Project Information Note);Feasibility report to confirm viability of potential project.Project Design Document(PDD),including revenue sharing agreements and operational contracts.Listing/Validation/Registration report.Regular monitoring and verificatio

254、n reports prior to issuances;Updated agreements as project and stakeholder needs shift.Validate assumptions and establish the viability of the project.Ongoing implementation of the project;Monitor activities to disclose and verify carbon outcomes;Oversee issuance of credits and delivery to offtakers

255、 or sale on wholesale or retail market.Complete project validation,registration,etc.Source:ERM/WBCSD Vladan Raznatovic/Unsplash26 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsTable 3.Relationship Between

256、Risk and Return at Different Stages of the NCS Project TimelineScopingFeasibilityProject Design&DevelopmentProject ImplementationRisk/Value Profile Project Value RiskHighLowInflection point as project is designed and developed,uncertainties are resolved.Investors have less control.Initial risk high

257、due to uncertainties and low project value.Early-stage investors have more control over project direction.Project value increases as commercial finance becomes involved,project is securely issuing credits and risk is low.Risk/Value ProfilePre-Implementation:Risks are centered around the lack of data

258、 and available information and the risk of a project failing to deliver on additionality or emissions projections.Investors will also incur risks along the timeline past the pre-implementation stage as the project matures.Implementation:Risks of entering the project in the implementation stage are m

259、ainly related to project failure or its negative impacts,along with market and/or regulatory drivers that influence demand and price.OpportunitiesPre-Implementation:Earlier investment allows investors to have more influence over the projects development,secure access to more credits,and oversight of

260、 stakeholder engagement.Earlier investors enjoy a higher level of control.Implementation:Lower risk is the primary opportunity presented by later stage investment.The project is more mature,may already have buyers identified,and has a much lower risk of project failure.Source:This table is adapted f

261、rom The Coalition for Private Investment in Conservation(2023).“Figure 2:The capital continuum for nature-based solutions”.CPIC:Building a Capital Continuum for Nature-positive Investments.Caption:A projects value increases over time as risk declines and the project securely issues credits.Early inv

262、estors are likely to have a higher level of control over the project but assume increased risk.Later investment can lower risk,but at a concession of an investors level of control.27 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsB

263、ack to Table of ContentsSelecting the Right Investment Type and Finance StructureAppropriate investment types are likely to vary depending on the opportunity,the investors needs and strategy,and the time at which the investment is made.Table 4 provides an overview of the most common investment types

264、,including investment funds,developer investment,project finance,and real asset acquisition.Table 4.Overview of Investment Types in NCSTypeDescriptionBenefitsRisksInvestment FundsFinancial or corporate investors act as limited partners(LP)to provide capital to a fund manager acting as a general part

265、ner(GP).The GP will then finance several NCS projects through methods including those outlined in this table.LP investment yields are often delivered in dividends or carbon credits.See the Respira case study on page 42 for an example of an investment fund.Diversification of risk across projects Spec

266、ialist fund manager conducts due diligence and oversight on projects Position as LP reduces direct risk exposure Limited oversight of individual projects Fund manager fees Market variability and carbon price fluctuation Policy and regulationDeveloper InvestmentAn investor provides capital directly t

267、o a project developer who typically manages a portfolio of NCS projects.Investors will often receive a percentage of equity in the project developer or more tangible“returns”in the form of dividends or carbon credits.Increased control of project operations Increased benefit from upside potential Dir

268、ect equity ownership in entity(not applicable if providing debt)Increased risk exposure with direct investment Developer overhead costs Developer competency Variable revenues Market variability and carbon price fluctuation Policy and regulation Liquidity(assuming a private equity investment/develope

269、r is not a publicly traded company)28 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsProject FinanceAn investor will fund a specific NCS project in return for dividends or a share of carbon credits generate

270、d.Investors will often partner with project developers and may have a significant level of influence over the projects operations.See the Integrity Global Partners case study on page 33 for an example of project finance.Ability to structure agreement to suit needs(i.e.,fixed vs.variable price)Transf

271、er of carbon credits as asset Ringfencing exposes investor to project rather than full activities taken on by developer Non-recourse or limited recourse to general assets Developer competency Limited investment diversification heightens delivery risk in case of project failure Market variability and

272、 carbon price fluctuation Policy and regulationReal Asset AcquisitionAn investor will directly acquire and/or lease land to develop,manage,or lease land to NCS projects.Investment value is often derived from the intrinsic value of the asset such as land or forests that may provide several non-carbon

273、 revenue streams in addition to carbon credit generation.Income generation from various sources Hedge against inflation Portfolio diversification Capital preservation Downside protection on carbon market as tangible real assets will have value regardless of carbon price Increased risk exposure with

274、direct investment Capital intensity requiring significant upfront investment Market variability and carbon price fluctuation Policy and regulationSource:ERM/WBCSDEach type of investment is likely to use different financial structures.Table 5 provides an overview of the various financing structures o

275、ften used for investment in developers,project finance,or real assets acquisition.In the case of investment in NCS-related funds,the investor provides capital to a fund manager who will finance several NCS projects using one or more of the finance structures listed in Table 5.Investment value is oft

276、en delivered in the form of equity or financial dividends but may also be in the form of carbon credits depending on the fund structure.Investing in an NCS-related fund helps lower an investors risk at the expense of their level of control over the projects included in the portfolio.Rather than focu

277、sing due diligence on individual projects,fund investors focus on the selection of the manager and ensuring they are aligned with the investors needs,have the necessary expertise,and can execute on the proposed NCS strategy.Fund managers and individual investors are likely to utilize one of the fina

278、nce structures listed in Table 5.More traditional commercial debt and equity structures may be attractive for investors seeking direct financial returns instead of credit procurement.Commercial finance allows for a more direct translation of investment to return given the investments delivery of com

279、pany ownership,debt,or direct dividends.Commercial finance may be commonly used by large institutional investors such as pension funds,banks,or sovereign wealth funds.On the other hand,carbon finance agreements appeal to entities interested in procuring large volumes of credits.Because the investmen

280、t will yield carbon credits,there is less of a direct financial return.However,29 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of Contentssome investors may realize their return through the sale of carbon credits on

281、 the VCM.Carbon finance structures are more common with financial investors seeking to acquire carbon credits to sell on the VCM or corporate investors acquiring credits for their own use.Though carbon finance structures are more prevalent in todays market,commercial finance is becoming increasingly

282、 common as risk-adjusted returns become more attractive.40 Commercial Finance:Investments seeking“return”in the form of equity or cash(i.e.,debt,equity,royalties).Carbon Finance:Investments seeking“return”in the form of carbon credits(i.e.,offtake agreements,streaming,etc.),which can then be used by

283、 the investors themselves or sold on the VCM.Carbon Tanzania30 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsTable 5.Finance Structure Types.Adapted from CrossBoundary,USAID,Abatable,and AFFFinance Structu

284、reInvestment Return/YieldTypesMethodInvestor RisksInvestor BenefitsCOMMERCIAL FINANCEDebtPrincipal and interest payments from project cash flows Market rate Carbon Collateralize Concessional/subordinatedInvestors provide capital with an agreed payment plan.Loans or bonds may be structured at market

285、rate or can use carbon credits as collateral,have extended/softer terms(concessional),or unsecured(subordinated).Forego potential upside benefit of carbon price increase Unsecured loans will be junior to other priorities upon project failure Consistent and structured flow of principal and interest p

286、ayments Secured rate of return with interest rateEquity Dividends/Equity Value Partial ownership Full ownership An investor makes an equity investment in the project developer or fund.Dividends can be paid from credit sales or paid in credits themselves.Investor assumes a similar level of risk as th

287、e developer Developer revenues may be variable Upside potential from carbon price increases or carbon credit volume outperformance Direct ownership in entity as an equity holder for increased control and transparencyRoyaltiesShare of Revenues Royalty paymentsFunding is provided in exchange for a sha

288、re of the revenues generated by the project(primarily via the sale of carbon credits).Revenues are subject to variability due to market fluctuation Upside potential to benefit from market growth and successCARBON FINANCEOfftake AgreementCarbon credits Fixed or variable volume Fixed or variable price

289、 Emissions Reduction Purchase Agreement(ERPA)Prepayment ERPAAn investor commits to purchasing carbon credits generated by the project(ERPA).Prepayment ERPA:Capital is provided prior to verification and delivery of credits.Risk of fewer credits if project does not deliver Market prices may fluctuate,

290、fixed agreement price could mean variable realized returns Flexibility in structuring agreement Direct procurement of credits Fixed agreement has upside potential to benefit from rising cost of carbon Credits usually offered at discount for prepayment Project Finance through Special Purpose Vehicle(

291、SPV)Equity/Dividends/Carbon Credits Non/limited recourse agreement Offtake agreementConsolidation of a projects assets and liabilities into a purpose-built vehicle.Similar to an ERPA,but with an equity structure where the investor owns a percent of the projects SPV.Risk of fewer credits if project d

292、oes not deliver Market prices may fluctuate,fixed agreement price could mean variable realized returns Flexibility in structuring agreement Advantageous tax structuring considerations Bankruptcy remoteness protection Upside potential to benefit from rising cost of carbon Large projects funded off-ba

293、lance sheet Increased control over project and direct credit procurementStreamingCarbon Credits Commodity streamingFunding is provided in exchange for a percentage of the commodities(e.g.,carbon credits)or royalties from revenues generated by the project over a specified period.Risk of fewer credits

294、 if project does not deliver Market prices may fluctuate,fixed agreement price could mean variable realized returns Flexibility in structuring agreement Direct procurement of credits Upside potential to benefit from rising cost of carbonSources:See endnotes for more information 41,42,4331 Natural Cl

295、imate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsOne of the most common components of carbon finance investments is an offtake agreement,which is a contract between a project developer and a buyer whereby the buyer agrees ex ante(before credit

296、s are generated)to purchase a specified quantity of carbon credits from a particular project over a specified period of time according to a specified pricing schedule.The offtake agreement ensures the project has a guaranteed buyer for its credits,providing financial security for an investor to earn

297、 a return.Without offtake agreements in place,investors may earn higher returns through the sale of credits in the open market ex post(after credits are generated)since offtake agreement prices are often designed to represent discounts on future pricing projections,but this is a riskier strategy giv

298、en VCM pricing fluctuations and uncertainty.Quantity(volume),price,or both may be fixed or variable in an offtake agreement.With fixed volumes,the developer bears more delivery risk,while floating agreements mean the buyer takes on the risk of securing a sufficient number of credits.Prices can also

299、be fixed in advance to secure the projects costs and minimize variable returns when realized.Fixed prices tend to include upside sharing back to the project,enabling other stakeholders to benefit from a growing market and increased prices.Upside sharing back to the project is good practice and has s

300、ignificant reputational benefits.Alternatively,variable prices enable a project to capture the upside potential of rising carbon credit prices but have more associated market risk and could fail to cover project costs if carbon prices dip.Floor and ceiling prices can be used to cap downside and upsi

301、de realized returns,respectively,where buyers pay a maximum or minimum of the reference price to limit their risk(at the expense of capping potential gains).44 In some cases,a hybrid or combination of fixed and variable approaches may prove advantageous for the investor and the other stakeholders as

302、sociated with the project.While fixed and variable models have respective benefits and trade-offs for the investor,the impact on the community should also be considered.Fixed prices are likely to provide a steadier source of revenues to a local community and other stakeholders involved in the revenu

303、e sharing agreement;however,they may not benefit from market growth unless an upside sharing component is included.Variable prices more easily incorporate this upside sharing into the agreement but are also associated with downside risk.Floor prices can be implemented to limit downside risk,in turn

304、helping ensure communities are protected from potential declines in the VCM.32 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsCASE STUDY:Integrity Global PartnersAuthors:Cheri Sugal,Integrity Global Partner

305、s and Lev Gantly,Philip Lee LLP Integrity Global Partners(“Integrity”)mission is to unlock private capital for greenfield projects and scale existing NbS initiatives.It works to address core funding obstacles for early-stage financing that have undermined the ability of project developers and implem

306、entation partners to accelerate the scaling of high integrity carbon projects.Nature-based carbon projects face unique hurdles compared to other investment opportunities in emerging markets.Early-stage financing for NbS projects typically takes two forms:“streaming”agreements,delivering a percentage

307、 of future credits or royalties over a specified period,or“pre-purchase”agreements,specifying a fixed volume and price.Both structures present challenges,especially when used very early in the project development cycle because higher risks necessitate higher expected returns for investors.Streaming

308、deals can yield excessive returns for the investor if not capped at a reasonable return,disadvantaging project performance and benefits to key stakeholders.Meanwhile,pre-purchase agreements that guarantee future delivery volumes can introduce challenges related to delivery shortfalls or failures.In

309、response to these challenges,Integrity advocates for a multi-tiered approach:1.Early-Stage Project Financing:Integrity enables early-stage risk capital by identifying and mitigating risks during the project design and pre-development stages-offering legal and technical due diligence,commercial struc

310、turing,and boots-on-the-ground support to co-design projects and grow local capacity.These early-stage investments into projects are linked to long-term implementation capital through options,first rights on carbon credits at prices to be set only after a thorough due diligence process,or debt that

311、can be converted to equity in Special Purpose Vehicles(SPVs).This critical financing maintains the integrity of longer-term project financing by facilitating the placement of capital on more equitable terms than conventional methods.2.The SPV Model and Sources of Implementation Finance:Once a projec

312、ts risks and benefits are thoroughly understood,Integrity forms project specific Special Purpose Vehicles(SPVs),ringfencing cashflows and assets for investors while ensuring a governance structure that safeguards appropriate benefit participation mechanisms.Native,A Public Benefit Corporation 33 Nat

313、ural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsIntegritys approach seeks to enhance SPV returns by designing projects with multiple revenue streams(agroforestry,tree crops,etc.)to attract commercial finance,al

314、ongside traditional carbon financing.Commercial finance,in the form of debt or equity,is more viable when investors have a comprehensive understanding of their long-term exposure.From an investors perspective,taking an equity position in a project SPV is attractive not only because they would normal

315、ly take a proportionate share in credit issuance volumes,but they can also feel much closer to the project.A further benefit of an investor having an equity position in the project SPV is the ability for that investor to sell the SPV to a third party to generate a ROI.Additionally,SPV structuring fr

316、om the outset of a project paves the way for procuring debt finance at a later stage in the projects development from commercial banks or other,specialist financiers.This is particularly the case where the SPV is registered in a bankruptcy remote jurisdiction,meaning that a financier can take securi

317、ty over the shares in the SPV,which can be enforced in the event of default in the finance documentation,including insolvency of the project developer.The ability to take security over shares in an SPV that holds all of the projects assets is of critical importance,particularly because other forms o

318、f security in NbS project finance are uncertain and difficult to enforce.Catalytic finance,comprising grants and/or concessional capital,also plays a crucial role in mitigating project risks and attracting commercial investors to opportunities that might otherwise fall short of their requisite risk/

319、return criteria.Appropriately blending concessional and catalytic finance to address higher early-stage risk tranches is critical.Additionally,blended finance supports the broader environmental and community development goals of the projects.Read more at https:/ Public Benefit Corporation 34 Natural

320、 Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsStakeholder Mapping and EngagementIn addition to determining the right investment method and finance structure,assessing priority stakeholders and rightsholders and d

321、efining a strategy for their engagement is a key step in the initial stages of the investment process.Though each project will have a unique mix of stakeholders,the primary groups remain relatively consistent across projects the primary groups remain relatively consistent across projects,as demonstr

322、ated by Table 6 and Figure 4 below.Investors may not engage with all these stakeholders in each project,but it is important for them to understand what parties are most likely to be involved and at which stage of the project lifecycle.It is important to distinguish between Rightsholders and Stakehol

323、ders in an NCS project.Each represents different groups with varying degrees of influence in a project:Rightsholders:Individuals or groups with entitlements over the land,carbon,or other resources associated with the carbon project.While their rights may often be recognized by law,they are often onl

324、y recognized by custom or tradition.NCS projects and programs should respect these rights,and Rightsholders should be compensated accordingly.Stakeholders:A broader range of individuals or groups that have a vested interest in the NCS project but may not necessarily have a legal or customary right o

325、ver the project or resources.Projects that do not incorporate full and effective community participation often have higher associated risks.Rightsholders and community members should be active participants in the conception,design,and implementation of the project.Investors should consider the follo

326、wing when evaluating a potential investment:Do all parties have equal access to legal representation,translators,or other resources necessary to have informed conversations about the project?Is the information provided to all parties accessible?Lawful?Promoting self-determination?Do all parties unde

327、rstand the likely positive and negative economic,social,cultural,and environmental impacts of the project?Has significant effort been made to facilitate equitable participation of all community members?Review Ceres Evaluating the Use of Carbon Credits for more questions to consider while evaluating

328、if community participation is full and effective.35 Natural Climate Solutions for the Voluntary Carbon Market:An Investor Guide for Companies and Financial InstitutionsBack to Table of ContentsTable 6.NCS Project Stakeholder Profiles Stakeholder ProfilesDescriptionExamplesMotivationProject Developer

329、Organizations designing and implementing projects in collaboration with partners on the ground,carbon rights holders and local communities.May be one of several project proponents organizing,proposing,or advocating a particular project.Organizations developing NCS projects such as The Nature Conserv

330、ancy,Carbon Tanzania,New Forests,Wildlife Conservation Society,and Wildlife Works.Primary business function of rating and implementing carbon projects.Indigenous Peoples and Local Communities(IPs&LCs)Indigenous populations or residents within or in the surrounding area of NCS projects.Depending on t

331、heir involvement,IPs&LCs may also be considered the implementation partner.Communities in area,land stewards,Indigenous rightsholders,etc.IPs&LCs may have claims to land and carbon rights and will be impacted by project operations(e.g.,employment).Indigenous Peoples are often considered rightsholder

332、s,even if these rights are considered customary rather than statutory.Early FundersOrganizations that provide grants and concessional capital at early stages.Donors,philanthropic organizations,climate funds,etc.Mitigating risks and attracting commercial investors in order to increase finance flows t

333、owards natural capital.Brokers/IntermediariesOrganizations that help facilitate fundraising and/or credit sales.See the CAR Carbon Market Directory or IETA Broker&Trader Member list for examples.Receiving a brokerage fee or royalties from the proceeds generated by the sale of carbon credits.Local Implementation PartnersOrganizations responsible for on-the-ground operations of the project or progra