Xilva, a leader in due diligence for forest and nature-based solutions (NbS), has released a report, Navigating Risks & Realising Opportunities in Forest & Nature-Based Investments, which highlights critical gaps in how investors and project developers look at NbS complexities.
The report shows that focussing solely on carbon credits does not fully capture the true scope and potential returns of forest investments, underscoring the importance of a broader approach to risk assessment.
Xilva says that nearly 90 per cent of forest projects lack essential documentation, creating investment risks that can undermine project success. Xilva says that their 360-degree due diligence can identify these risks, while early intervention can mitigate up to 50 per cent of them, helping investors make informed, confident decisions.
Jamie Lawrence, co-founder and Head of Forest at Xilva, said, “Investors need to consider multiple risk factors beyond just carbon credits. For fund managers, carbon credit buyers, donors, corporate as well as impact investors, a comprehensive, structured assessment of a project’s performance is an essential step to minimise risks and maximise the assurance of making informed decisions. Our framework not only helps identify these risks but also transforms them into workable solutions.”
Xilva’s report is based on assessments of 288 projects across countries like Brazil, India, Kenya, and the United States. It categorises risks using its Xilva GRADE framework.
The framework identifies mitigatable risks, potential red flags, and critical no-go factors, including ethical concerns such as indigenous rights, which emerged in 16 per cent of cases. For instance, during a review of a 100,000-hectare project in a degraded tropical forest, Xilva found that unrecognised migrant communities were excluded from initial consultations, risking social conflict and carbon credit delivery. Social and financial stress tests by Xilva produced a strategy for the project’s backers to enhance social license and thereby ensure security and stability.
The report underscores five critical areas for improvement: carbon modelling, land rights, community engagement, financial planning, and governance. These were flagged in over 70 per cent of projects reviewed.
Sarah Scott, Founder and Executive Director of The Kilimanjaro Project (Kijani Pamoja), said, “This report outlines recurring challenges and also provides a roadmap for project developers. With effective due diligence, and a deeper understanding of project risks and mitigation strategies, more trust can be built between investors and project developers allowing a more robust pipeline of high quality NbS projects and investment opportunities to be developed and scaled globally.”
Read the report, Navigating Risks & Realising Opportunities in Forest & Nature-Based Investments