Selling a Restoration Project

30 April 2024 by Max Hobhouse


A lot can be said about what defines a high-quality carbon offset project, and key considerations include: Permanence, Additionality, Transparency, Integrity, Scalability and Co-Benefits. These factors impact how the project is brought to market, who is approached for investment, the price that is achieved, and the community impact.  

This blog focusses on how development decisions impact the sale of a project. So, how do you bring a project to market? How do you sell a project? And what can we do to ensure the right outcomes are achieved at scale? Let’s explore the figurative ‘minefield’ that a developer must navigate to find the right partners for the restoration project at hand. 


Bringing a Project to Market 

In this scenario we shall define a high-quality project as one in which: the community has been closely consulted; the intervention stimulates natural regeneration without disrupting local commerce; carbon benefits are excluded from the host country’s NDC; there is a trusted and experienced local implementation partner; and carbon and biodiversity uplift is measured using evidence-based approaches. 

Project developers hoping to take a high-quality restoration project to market must ask themselves the following questions.  How can I identify an appropriate area for restoration?  What size should the project area be? Do I need to physically visit the site prior to establishing a relationship with the implementation partner? How should I identify a trustworthy local partner? Which local communities need to be included in the project design and how will I engage with them to ensure the interventions protect and restore natural capital whilst also promoting increases in socioeconomic circumstances? How can I engage local landowners to reduce the area that is managed for food production to alleviate land for restoration activities whilst ensuring that their socioeconomic circumstances are improved?  What documentation must be prepared to allow verification of the project’s claims by third parties?  How will I ensure that local communities remain the central focus of the project, ensuring that they are major beneficiaries of their natural capital? What are the budgetary and contract requirements?  

The questions above highlight many of the challenges faced when bringing a project to market, and very often a developer must answer these questions before securing pre-financing. Investors label call ‘sweat equity,’ because it is the developer’s investment in the project. 


The Right Buyer 

In parallel to the design of the project, a developer must consider investor needs. The investment requirements imposed by corporates significantly impact project implementation. Issues such as capital efficiency (how much project budget goes on activities rather than management) within project budgets, tree growth curves (the rate at which a tree grows) and their relation to potential carbon uplift. Investors also need information about how the local partner’s capacity will be increased to match a scaling plan that is a financially viable. Many project developers therefore bring projects to market that are 80% complete. Here the project is considered suitably “de-risked”, and buyer’s requirements can be incorporated into the project. Projects which have already submitted designs may be unable to incorporate investor demands. Due to limited financing available in natural capital, it is often worthwhile retaining this flexibility. 

Understanding investor demands is key to a successful investment.  Typical investment timelines can take over 12 months from the initial contact to the transfer of funds, therefore aligning the interests of the developer and the investor is essential.  Approaching investors that are share in the developer’s core mission from the outset is key to ensuring the projects quality isn’t degraded. For example, investors who purely value carbon may push a developer to plant a fast-growing monoculture with no regard for biodiversity co-benefits or community needs from the forest as this maximises the carbon credits issued. In these instances, developers should clearly define their own internal minimum quality standards allowing them to quickly identify appropriate buyers from those who may be differently aligned. Remember, developers have already invested the previously discussed ‘sweat equity,’ and have worked and signed off with communities on the expected intervention, therefore prioritising investor requirements too late in the design process can erode trust with the local stakeholders right from the offset. 


Maximising Value 

There is a careful balance of power at play within nature-based projects that when understood, sheds light on the future of the industry. Successful restoration projects are those which embed the  the local stakeholders into the project, alongside, a skilled implementation partner to ensure that positive practices are maximised. Some developers may be incentivised to purchase the land for the project, thinking that this can de-risk a project by exerting control through ownership. However, having a foreign investor buying large areas of land can often drive up the price of land, driving people from their hometowns and further impoverishing those living in the area. Therefore, working with local communities, developing the existing relationships that local partners have with these communities and funding the capacity of these partners is the future of restoration projects. 

Each actor in the funding chain (investor, developer, third-party verifier, implementation partner, landowner) has a key role in maximizing the value of an intervention. A small-scale landowner cannot independently access high-paying buyers of carbon, purchase cost efficient trees/equipment, be verified by a third-party, and implement a natural forest restoration at a landscape scale. It is the combination of these partners which leads to an exponential increase in the value of the intervention. However, inefficiencies and conflicts of interest within the funding chain can impact the success of a project and the flow of funds to key parties. 


Looking to the Future 

A restoration project is valued by the additionality it provides. In simple terms, this means that any increase from the baseline (an ecological snapshot taken prior to the project commencing) can be claimed to be a consequence of the project. Allowing for regionally changing baselines (defined as how the area surrounding the project site varies over time in comparison to project site), this additionality can be sold to buyers. Carbon uplift is the additionality sold as current nature financing is dominated by carbon offsets which are likely to stay with the new SBTi inclusions. Traditionally, this additionality equation has led the restoration markets to be dominated by plantations of fast-growing trees. Yet, as biodiversity, community inclusion, permanence risk, and other markers of quality are increasingly valued in the market, these pureplay carbon projects have been seriously devalued, sending shockwaves through the carbon markets. This shift in the market has led to a rising demand for this holistic restoration approach outlined above.  

There is a circular nature to the restoration markets, where within each revolution, the market has an increasingly complex understanding of valuing nature. This devalues projects that are caught out for lack of quality or questionable additionality, valuation factors which had historically been overlooked. The next revolution of the markets then values a wider spread of quality markers. It is in this revolving/evolving (both words accurately depict the convulsions of nature markets) world in which a project developer sits. A developer must accommodate current investor demands yet ensure they do not degrade the quality of the project; this is the proverbial “Catch 22” of project development.  Looking to the future, a project developer must be the gatekeeper of quality and peacekeeper between the investor, implementation partner and communities. A project that favours one over the other may hinder the longevity of the project and may leave the project at risk of being cut of at the next revolution of the nature markets.   


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