Conducting Diligence in Carbon Sequestration of Forest & Nature-based Projects
Carbon sequestration potential is a crucial consideration in nature-based project investments because it directly addresses the urgent global challenge of climate change. It offers environmental, economic, and social benefits, and aligns with regulatory and market trends.
Climate Change Mitigation: Carbon sequestration is a powerful tool in the fight against climate change. It involves capturing and storing carbon dioxide (CO2) from the atmosphere, effectively reducing greenhouse gas concentrations and mitigating global warming. Nature-based projects with high carbon sequestration potential play a direct role in combating climate change.
Regulatory Compliance: Many countries and regions have established regulations and carbon reduction targets to address climate change. Investments in projects with significant carbon sequestration potential can help companies and governments meet these regulatory requirements and avoid penalties for non-compliance.
Carbon Markets and Financial Returns: Carbon sequestration projects can generate carbon credits, also known as carbon offsets. These credits can be sold in carbon markets to entities seeking to offset their own emissions. This provides a potential revenue stream for project investors, creating financial incentives for sustainable practices.
Long-Term Value: Investments in nature-based projects with significant carbon sequestration potential can offer long-term value by locking away carbon in trees, soils, and vegetation for decades or even centuries. This enduring impact aligns with the goal of achieving lasting climate resilience.
Corporate Sustainability: Many companies are committed to reducing their carbon footprints as part of their corporate sustainability strategies. Investing in nature-based projects with strong carbon sequestration potential allows these companies to align their sustainability goals with their investment portfolios.
Resilience to Climate Change: Projects that sequester carbon also contribute to ecosystem resilience, helping natural systems withstand the impacts of climate change, such as extreme weather events and shifting climate patterns.
Investor Attraction: Investors increasingly consider carbon sequestration and ESG (Environmental, Social, and Governance) criteria in their decision-making processes. Projects that effectively sequester carbon are more likely to attract responsible and impact investors.
Global Commitments: International agreements, such as the Paris Agreement, emphasize the importance of carbon sequestration as a climate mitigation strategy. Investing in projects that enhance carbon sequestration aligns with these global commitments.
One of the data points we assess when checking for carbon sequestration of the project is:
We assess whether the baseline estimates in the carbon model are realistic, if the additionality claim is justified, and conduct a sense check of the average sequestration rates against the potentiality of the biome, existing growth model for the species in the region or and other projects that we have assessed that have a similar context.
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Due diligence in nature-based project investments is crucial but complex. Focusing on the positive impacts in nature-based project investments is not only ethically responsible but also strategically advantageous. These projects contribute to environmental conservation, societal well-being, regulatory compliance, and financial viability, making them a win-win for both investors and the planet.
To assess the investability and impact of a forest project, Xilva’s analysis integrates 6 key areas of appraisal: Impact, Financial Viability, Safeguards, Project Design, Leadership & Team and Growth Potential.
These 6 areas are not individual, standalone elements of interest but, under Xilva’s systemic approach, they are critical, connected elements that, if not properly addressed and balanced, will reduce the project's ability to realise each individual impact.
