View all The ERM Sustainability Institute, Natural Climate Solutions Alliance (NCSA), Forest Investor Club (FIC) and World Business Council for Sustainable Development (WBCSD) have launched the most comprehensive guide to date to help corporate investors and financial institutions understand how and why to invest in high-integrity Natural Climate Solutions (NCS).
The new guide sets out the business case for investing in NCS, as well as the ways in which investors can evaluate, integrate, and execute an NCS project in a world where due diligence and comprehensive planning become an operating necessity. It is designed to help investors capitalize on the investment opportunity of NCS and to expand the role nature-based solutions can play in reducing and removing greenhouse gas emissions and increasing carbon sequestration while delivering biodiversity and social benefits.
Private sector investment in these solutions has been limited to date. In 2023, only 18% of the USD$200 billion invested in nature-based solutions came from private finance, despite the proliferation of corporate climate and biodiversity goals. The new guide explores how high-integrity NCS projects and increased trust in the Voluntary Carbon Market (VCM) can help to establish NCS as a valuable asset class that offers corporate investors and financial institutions reliable sources of carbon credits and returns on investment, while supporting sustainability goals.
The business case for NCS investment
As well as the carbon, environmental, social and reputational benefits, the guide presents the business case for corporate investors and financial institutions to invest in NCS projects for the VCM.
Corporate investors are most likely to invest to then use the NCS carbon credits to help meet their climate commitments, while financial investors earn a financial return on investment through the sale of carbon credits generated by the project. Since many carbon purchase agreements are structured prior to the issuance of credits, investors can gain more control over the project’s structure and activities. By directly sourcing carbon credits, financial and corporate investors can also reduce procurement costs and avoid engaging in the VCM, eliminating additional transaction costs associated with purchasing from a third party.
Corporate investors are also able to hedge against an expected rise in carbon prices by investing in these solutions, while all investors may capitalize on carbon market growth, with carbon increasingly trading as a commodity. As long as the project meets high-integrity criteria, NCS investors may earn additional non-carbon revenues from other commercial opportunities from project activities. For example, in a real assets strategy, timber, crops, and land may all deliver additional revenue streams beyond the sale of carbon credits.
The NCS investment journey
The guide explores the full NCS investment journey, starting with creating a robust investment plan aligned with a company or financial institution’s goals and risk profile. It sets out how to identify high-integrity NCS projects based on commercial, reputational, regulatory, and operational criteria. These include respecting the rights of Indigenous Peoples and local communities as well as sharing revenue with these communities. The guide also advises how to select the most effective investment mechanisms and the legal considerations to be aware of when investing in an NCS project. Finally, it examines the measurement, reporting and verification systems used to govern the integrity of the investment and impact claims and deliver on the goals of the NCS.
Alex Cox, Head of Climate Markets at ERM said: “Natural Climate Solutions can provide organizations with access to high-integrity carbon credits that support both their financial and sustainability goals.
“NCS projects require careful design, highly technical due diligence and robust measurement systems for both the carbon credits and the impacts on local communities and nature, and this guide was designed to help navigate this complex landscape. By providing companies and financial investors with a practical roadmap to incorporating NCS activities into their portfolios or onto their balance sheets, our aim is to help unlock the private capital flows required for NCS to fulfil their potential in helping to shape a more sustainable future.”
Giulia Carbone, Director, Nature for Climate, at WBCSD said: “This guide not only explains how corporate investors and financial institutions should invest in NCS carbon credits projects, but also why they should, as the business case for investing in Natural Climate Solutions is strong. By following this guide, and selecting high-integrity projects, investors stand to gain security of supply, financial returns, as well as carbon, environmental, social and reputational benefits. This is the catalyst for corporate and financial investors to channel much-needed funding to nature and people. Without nature, it won’t be possible to keep a global temperature rise to a maximum of 1.5°C.”
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Notes to editors
A group of experts in NCS and the VCM, representing a range of investor perspectives and strategies, supported the development of this guide. The group’s expertise is supplemented by insights gathered from expert interviews, findings from a survey of market participants and secondary research.
The guide is intended both for financial institutions, such as mainstream and impact investors and investment funds, and for corporate investors, who are increasingly looking for ways to directly invest in projects to secure a supply of high-quality carbon credits. The report provides essential guidance on investing in NCS through project finance, NCS-focused funds, project developer equity/debt, and other investment types. It does not cover carbon credit procurement through spot market purchases or the integration of credits into an organization’s climate initiatives.
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 development of this guide. This group played a pivotal role in determining priority content, drafting sections, and reviewing and revising preliminary drafts.
- Interviews: Representatives from 25 organizations with experience in NCS investment for the VCM were interviewed. Anonymized quotes and insights from the interviews are included throughout the report.
- Market Participant Survey: A 19-question survey was used to gather input from investors, companies, and other NCS experts. A total of 26 individuals responded, and the information they provided informed the content of this report.
- Secondary Research: The report incorporates insights from secondary sources published by companies, investors, NGOs, academics, and other groups.
About the ERM Sustainability Institute
The Sustainability Institute is ERM’s primary platform for thought leadership. The purpose of the Institute is to define, accelerate, and scale 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 ERM’s experience, expertise, and commitment to transformational change.
LinkedIn: linkedin.com/company/sustainabilityinstituteerm
Website: sustainability.com
About ERM
Sustainability is our business.
As the world’s largest specialist sustainability consultancy, ERM partners with clients to operationalize sustainability at pace and scale, deploying a unique combination of strategic transformation and technical delivery capabilities. This approach helps clients to accelerate the integration of sustainability at every level of their business.
With more than 50 years of experience, ERM’s diverse team of 8000+ experts in 40 countries and territories helps clients create innovative solutions to their sustainability challenges, unlocking commercial opportunities that meet the needs of today while preserving opportunity for future generations.
Learn more here.
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 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 between 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 Club
Launched by the U.S. Department of State and led by WBCSD, the Forest Investor Club is a network of public 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 members 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-Club
About the World Business Council for Sustainable Development (WBCSD)
The World Business Council for Sustainable Development (WBCSD) is a global community of 230 of the world’s leading businesses, representing a combined revenue of more than USD $8.5 trillion and 19 million employees. Together, we transform the 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 practices, improving performance, accessing education, forming partnerships, and shaping the policy agenda, we drive progress in businesses and sharpen the accountability of their performance.
Media contacts
Meryl Hanlon, PR and Brand Communications, ERM, meryl.hanlon@erm.com
Louise Patzdorf, Senior Manager, Strategic Communication, WBCSD, patzdorf@wbcsd.org
