As demand grows for carbon assets, there is a need to rethink how nature-based investments are conceived. These investments do not happen in a vacuum; they are embedded in social and ecological systems. A fundamental misunderstanding of this fact—driven by a global economic mindset that treats nature as extractable and communities as transactional—has repeatedly undermined the durability and legitimacy of forest projects.
Indigenous Peoples and local communities (IPLCs) are a mainstay of successful nature-based investments. A project’s longevity and profit depend on the quality of local community involvement. Hence, exhaustive due diligence necessitates careful scrutiny of IPLC inclusion in order to conduct a holistic and thorough assessment of risks. The central asset in nature-based solutions (NbS) is not just the carbon—it’s the system that stores it. If this system is not treated with respect, inclusion, and fairness, then the carbon asset itself becomes unstable.
The Mindset Behind the Market
NbS markets are emerging from a dominant worldview: capital flows and top-down governance are sufficient to manage socio-ecological complexity. Yet this model is proving inadequate because it operates in silos, isolating aspects like biodiversity, legal, community, financial, ESG, and so on– while the systems on the ground are intertwined.
As the renowned systems thinker Donella Meadows has said, “We can’t solve a problem from the same mindset that created it.” Without a shift in mindset from transactional to systemic, investments risk becoming short-lived, reputationally fragile, and ineffective.
We are facing not just a carbon crisis, but a cultural one. Economic thinking still views success as generating short-term value. But the ecosystems we depend on, and the communities that steward them, function according to long-term, relational logic. Forests cannot be sustained through purely extractive mindsets. Nor can carbon be stored durably if social systems are misaligned.
From Risk Assessment to System Awareness
In Xilva’s recent study [1], we find that nearly 30% of flagged risks relate to inadequate IPLC engagement. Behind each flag, there’s a deeper issue: the project is not aligned with the system it depends on.
Land rights and tenure disputes: lacking recognition of rights-holders and agreements to long-term land access, jeapordises IPLC buy-in and project permanence.
Ambiguous benefit-sharing: insufficient economic models disincentivise community groups due to intangible long-term financial returns or insubstantial compensation.
Missing FPIC or social studies: without evidence of FPIC or ongoing community engagement, projects are likely to face opposition, delay, or carbon reversals.
Security-first approach: projects which prioritise the use of law enforcement and security pose a risk of heightened mistrust and tensions with local communities.
No grievance mechanisms: issues fester which increases the perception that rights-holders are not communicated with and their concerns are unaddressed.
IPLC Inclusion as a Core Design Principle
IPLCs collectively claim customary rights to more than 50% of the world's land. This percentage overlaps with one-fifth to one-third of remaining global intact forest and one-third of key biodiversity areas [2].
The World Bank [3] states that areas where IPLCs hold secure land rights are affiliated with lower greenhouse gas emissions, experience less deforestation, and support better biodiversity and livelihoods. Given that a significant portion of forest cover is safeguarded by IPLCs, their involvement in the establishment of a shared purpose with projects is critical to project design and success.
A growing body of research underscores that projects which meaningfully incorporate IPLCs into their design fare better in terms of socio-ecological outcomes. One such study finds that community-managed tropical forests correspond to enhanced carbon storage, biodiversity, and forest livelihoods [4]. Another study concludes that externally controlled conservation projects– those that diminish local community inclusion– cause adverse social outcomes and ineffective conservation efforts [5].
Projects that are designed with IPLC engagement and well-being as their central foundation serve to minimise negative outcomes (e.g. carbon stock loss, biodiversity loss, and social tensions that stall or reverse project activity), instilling greater security, longevity and resilience for investors and project stakeholders.
Resilience Through Co-Design
Robust engagement with IPLCs involves multiple dimensions. One approach is through co-production during the entire project lifecycle. Additionally, governments formally recognise less than half of the lands claimed by indigenous groups, thus there is a need to extend beyond traditional legal status to ensure all crucial groups are appropriately identified and included. Furthermore, a bottom-up and inclusive approach is more likely to uncover root sources of ecosystem degradation and appropriate measures needed.
Engaging IPLCs will build systems that can adapt to shocks, sustain cooperation, and maintain ecological function. This isn’t about being ethical instead of being successful. It’s about being ethical in order to be successful.
Conclusion
If we want long-term carbon storage and ecosystem resilience, we must align investors’ goals and the reality of the systems they operate in. This starts with treating IPLC engagement as a fundamental facet of NbS projects or said another way, perhaps this starts with treating NbS as a fundamental outcome of well-managed IPLC projects. Otherwise, poor engagement leads to carbon loss and reputational collapse.
We cannot afford to continue designing projects from the same mindset that created the problem. Rather, we need a systemic shift rooted in partnership and common purpose. This is why due diligence must go deeper into dissecting the quality of IPLC inclusion, not just whether these groups are included or not. How a project treats the people on the ground is an indication of how they will approach the landscape as a whole, ultimately revealing the likelihood of long-term success.
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[1] (2024). Navigating Risks and Realising Opportunities in Forest & Nature-Based Investments. Xilva AG.
[2] Naomi Treanor et al (2024). Indicators of social and governance issues:Iindigenous and community forests. World Resources Institute.
[3] Asyl Undeland (2021). Indigenous land rights – a critical pillar of climate action. World Bank Blog.
[4] Sonam Lama Hyolmo (2023). Community tropical forest management linked to social & environmental benefits: study. Mongabay.
[5] Neil Dawson et al (2021). The role of Indigenous peoples and local communities in effective and equitable conservation. Ecology and Society.
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