Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Reducing Effects of Climate Change: Lowering atmospheric concentrations of greenhouse gases—such as carbon dioxide, methane, or nitrous oxide—by avoiding, reducing, or sequestering emissions of the forestry and land-use sector helps to mitigate the harmful effects of climate change and promote climate adaptation. As climate change threatens both human and natural systems, pursuing this strategy offers significant benefits to people and planet (1).

Natural Climate Solutions: Carbon can be sequestered in engineered, biological, and hybrid solutions. This strategy involves biological solutions, also known as natural climate solutions, to reduce greenhouse gases through conservation, restoration, and improved management practices in forestry and land-use projects. Although many different natural climate solutions have been identified, carbon markets generally focus on a few specific, investable methods within the forestry and land-use sector.

  • Voluntary Carbon Markets: The two most-traded offset categories in the voluntary carbon offset markets are projects focused on renewable energy and projects focused on forestry and land use. Offsets from forestry and land-use projects, however, are valued at almost triple those from renewable energy projects (3). The most typical forestry and land-use projects include reducing emissions from deforestation and forest degradation, reforestation, and natural forest management. The forestry and land-use sector has voluntarily offset an estimated 95.3 million metric tons of carbon emissions since 2015 through 170 unique projects, with close to USD 1 billion invested in forestry carbon transactions since the carbon market was established in the early 2000s (2,3).

Several markets offer standards certification. Markets offering certifications include Verra’s Verified Carbon Standard (VCS), Climate Action Reserve, Gold Standard, Plan Vivo, and the American Carbon Registry.

  • Compliance Carbon Markets: Global, national, and regional markets that focus on regulating carbon emissions are gaining traction. At the global level, the United Nations Framework Convention on Climate Change (UNFCCC) Kyoto Protocol established a cap-and-trade system for greenhouse gas emissions. The Kyoto Protocol’s Clean Development Mechanism includes in its emission reduction program forest carbon strategies, such as afforestation and reforestation (4). The Clean Development Mechanism remains the largest international offset market; it has promoted USD 130 billion of investments to reduce greenhouse gas emissions in developing countries (5).

Since the Kyoto Protocol lacks an enforcement mechanism, other national and regional programs have taken an increasingly prominent role in regulating carbon emissions. Most notably, carbon markets—each with their own regulations and requirements—are found in Australia, Brazil, California, Colombia, the European Union, India, Japan, Kazakhstan, Mexico, New Zealand, Norway, Ontario, Quebec, the northeastern United States (Regional Greenhouse Gas Initiative), South Africa, and South Korea.6 Compliance markets have facilitated close to USD 1.6 billion in forestry carbon transactions since the early 2000s (3).

  • REDD+ Programs: Forest carbon projects may also be developed through the United Nations–sponsored program, REDD+, defined as “reducing emissions from deforestation and forest degradation in developing countries, and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks.” Since the early 2000s, projects under REDD+ have disbursed around USD 280 million in forestry carbon transactions, and international donors have pledged a total of USD 2.9 billion to REDD+ projects globally. Project developers can “nest” REDD+ projects within respective national or jurisdictional REDD+ programs to receive funding (3).

What is the scale of the problem?

Fighting a Warming Climate: International climate assessments, such as those made by the Intergovernmental Panel on Climate Change (IPCC), have demonstrated that increasing emissions are warming the earth’s climate. Business-as-usual—a continued high-emissions scenario—could mean an increase of up to 4.8°C in global temperature by year 2100 relative to pre-industrial levels, creating enormous negative effects for the planet (1). To reduce the worst impacts of climate change, 195 countries signed the Paris Agreement to limit average global temperature rise to below 2°C. The IPCC’s latest report outlines the scale of the problem, underscoring the immense detrimental effects of even a rise of 2°C (7):

  • Extreme Heat: 37% of the world’s population would be exposed to severe heat at least once every five years.
  • Drought: 411 million people worldwide would be exposed to severe drought.
  • Lower Crop Yields: Worldwide, crop yields would be 7% lower, which is especially detrimental in sub-Saharan Africa, Southeast Asia, and Central and South America.
  • Decline of Marine Fisheries: Global annual catch would be reduced by 3 million metric tons.
  • Loss of Biodiversity: Many species would face a loss of habitable range, generally including an 8% loss for vertebrates, 16% for plants, and 18% for insects.
  • Sea Level Rise: 32 to 80 million people worldwide would be exposed to flooding from rising seas.

These projected scenarios highlight the importance of investing in scalable solutions for carbon reduction to mitigate the worst effects of a warming climate. Land use and agriculture currently account for one quarter of all worldwide greenhouse gas emissions and can provide one-third of emissions reductions (1,8). All pathways to achieving global climate goals include natural climate solutions.


Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

The Planet: The planet is the primary beneficiary of the avoidance, reduction, and sequestration of carbon. Removing anthropomorphic carbon restores the planet’s natural regulation of its atmosphere. An unhealthy planet affects all living organisms, including people, since we depend on its resources.

At a more detailed level, the IPCC predicts a warming climate will exacerbate existing inequalities in society, leaving low-income people, women, and those in developing countries most at risk (1).

Low-Income People: The IPCC expects climate change to reduce economic growth, potentially deepening the effects of poverty in both developed and emerging markets. Low-income people also have fewer options for climate adaptation, leading to potential displacement from their communities (1).

Women: Climate change will have significant impacts on human health, widening gender-based health disparities. These effects will be especially pronounced in low- and middle-income countries where women already receive less health care (9).

Developing Countries: Many developing countries are in geographic areas at high risk for the impacts of climate change, such as drought-related water and food shortages or increased flood damage to infrastructure and settlements. Effects of a warming climate, including reduced food production, increased spread of vector-borne diseases, and additional heat-related human deaths, can overwhelm already limited public infrastructure (1).

What are the geographic attributes of those who are affected?

Current Trends: Voluntary carbon markets, compliance carbon markets, and REDD+ programs offer different geographic opportunities for investors pursuing this strategy.

  • Voluntary Carbon Markets: Projects focused specifically on forestry and land use are the primary type of offset in Latin America and the Caribbean and in Oceania. Specifically, projects in Peru, Brazil, Indonesia, and the United States sold the most carbon offsets. Most buyers are based in the United States, the Netherlands, the United Kingdom, France, and Germany (3).
  • Compliance Carbon Markets: The European Union’s Emissions Trading System is the oldest and largest emissions trading system in the world (6). For forestry and land-use offsets specifically, Australia’s Emissions Reduction Fund has contracted the most offsets in this category at around 68.8 million metric tons of carbon dioxide equivalent expected between 2016 and 2026 (3). California’s cap-and-trade program is also becoming an increasingly important market in the category, with eligible forestry offsets totaling more than 31 million metric tons of carbon dioxide equivalent (3).
  • REDD+ Programs: Countries with high rates of deforestation and forest degradation are the primary targets of the REDD+ program. For example, the World Bank’s Forest Carbon Partnership Facility has assisted 47 developing countries (18 in Africa, 18 in Latin America and the Caribbean, and 11 in Asia) in their efforts to reduce emissions from deforestation and forest degradation (10).

Global Opportunities: Opportunities to sequester carbon are spread throughout the world, with different solutions best suited to and most affordable in different regions. For example, reforestation, which offers the largest potential for sequestering carbon, could be cost-effective on 678 million hectares worldwide, with sizable opportunities in degraded areas, such as Brazil’s Atlantic Rainforest or the Mekong river basin in Southeast Asia (8). Meanwhile, reducing carbon by avoiding forest conversion—one of the more affordable natural climate solutions—is most relevant in areas with significant, intact forest that is at continued risk of deforestation, such as the Amazon and Congo basins or the Indonesian peatlands (11).


Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

Investing in natural climate solutions to reduce carbon emissions helps reduce the effects of global warming. Carbon credit certification standards address a project’s additionality, meaning they aim to measure whether it reduces carbon that would not otherwise be reduced without the investment (12). Investors must also ensure that projects limit leakage to other, nearby areas, for which the investor may be held responsible (12).

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

Human and natural systems alike will benefit from less carbon in the atmosphere. Sequestering carbon can play a leading role in solving the challenge of global climate change through its potential to provide 37% of the cost-effective carbon mitigation needed through 2030 (8). Of this 37%, one-third can be sequestered at a cost of USD 10 per ton of carbon dioxide, thus offering substantial opportunities for large-scale investment (8).

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

The amount of change depends on the amount of carbon sequestered, any additional co-benefits, and the assurance of the project’s permanence.

Examples of impact from projects aligned with this strategy include the following:

In the Pará state of Brazil, the CIKEL Brazilian Amazon REDD APD Project cancelled planned deforestation, instead moving forward with limited forest-management activities, such as low-impact logging. This REDD project, certified by Verra’s Verified Carbon Standard and validated by the Rainforest Alliance, has helped to avoid more than nine million metric tons of carbon dioxide emissions (13).

In Queensland, Australia, the Moombidary Forest Regeneration Project helped restore permanent native forests. Australia’s Emissions Reduction Fund issued the project 500,000 Australian Carbon Credit Units, equivalent to a reduction of 500,000 metric tons of carbon dioxide emissions (14).


Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

External Risk: Investors should consider external risk factors generally involved in forestry and land use, including both environmental challenges, such as tree mortality, insect outbreaks, fire, or extreme weather events like floods or droughts, and human-induced challenges, such as violence, corruption, illegal harvesting, and pollution. The changing climate may increase the likelihood of environmental and human-induced challenges for land-use projects (1). It is best practice to insure against potential damage caused by fire, tree diseases, insect outbreaks, and extreme weather events.

To help mitigate price fluctuations, carbon markets can implement a “safety-valve” mechanism to limit the range of realized carbon prices, thereby protecting investors and consumers (25).

Drop-off Risk: Carbon sequestration is particularly at risk of reversal, which occurs when carbon is released back into the atmosphere through later events, such as from the felling of a tree (15). Reversal may be intentional or unintentional and caused by human or natural events. Investors can limit human-caused reversal by ensuring the permanence of the carbon sequestration project, for example through long-term land ownership or incentives for local communities to protect the land. Many carbon certification standards require projects to clearly address drop-off risk, known more specifically in this context as permanence (12).

What are likely consequences of these impact risk factors?

All of these risks may lead to a financial loss for the investor. Loss of certification for the project or future projects may present the most salient immediate risk. Poor management of an investment can also tarnish an investor’s reputation and credibility.

Offsets from a certified project often mitigate some of these risks by shielding investors from unintentional reversals (such as plant disease) through buffer pools, which hold a portion of the project’s credits in reserve to cover unexpected disturbances. However, the investor and project developer could be held responsible for intentional reversals (16).

Illustrative Investment

INVESTMENT 1: In the Tambopata region of Peru, an innovative model funded by the Althelia Climate Fund and implemented by a Peruvian NGO protected more than 590,000 hectares of forest to avoid four million metric tons of carbon emissions. Paired with an agroforestry system, the project has restored an additional 4,000 hectares of degraded land and supports livelihoods for 1,150 people. Another benefit includes a habitat for more than 30 high-conservation-value species. The financing made available by the Althelia Climate Fund is repaid by revenues from the sale of carbon credits and by a share of revenues from agroforestry activities, mainly certified cocoa (17).

INVESTMENT 2: In 2009, the Livelihoods Carbon Fund invested in a 10,000-hectare reforestation program in Senegal to sequester 600,000 metric tons of carbon over 20 years. Under the leadership of the Senegalese NGO Océanium, 100,000 local villagers helped to plant 80 million mangrove trees in the estuaries of the Casamance and Siné Saloum rivers in what is the largest mangrove-restoration program in the world today. Ten years later, the program has impacted more than 550,000 people, with local villagers reporting an estimated 4,200 tons per year increase in fish stocks and a 10% increase in crop yield due to reduced salinity in rice fields. These positive impacts create a strong community incentive to the restore and conserve this natural ecosystem (18).

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

Thresholds of Logging Intensity to Maintain Tropical Forest Biodiversity

Burivalova, Zuzana, Çağan Hakkı Şekercioğlu, and Lian Pin Koh. “Thresholds of Logging Intensity to Maintain Tropical Forest Biodiversity.” Current Biology 24, no. 16 (August 18, 2014): 1893–98. https://doi.org/10.1016/j.cub.2014.06.065.

Agroforestry for Ecosystem Services and Environmental Benefits: An Overview

Jose, Shibu. “Agroforestry for Ecosystem Services and Environmental Benefits: An Overview.” Agroforestry Systems 76, no. 1 (May 1, 2009): 1–10. https://doi.org/10.1007/s10457-009-9229-7.

Rationale and Methods for Conserving Biodiversity in Plantation Forests

Hartley, Mitschka J. “Rationale and Methods for Conserving Biodiversity in Plantation Forests.” Forest Ecology and Management, Forest Ecology in the next Millennium : Putting the long view into Practice, 155, no. 1 (January 1, 2002): 81–95. https://doi.org/10.1016/S0378-1127(01)00549-7.

Cheap Carbon and Biodiversity Co-benefits from Forest Regeneration in a Hotspot of Endemism

Gilroy, James J., Paul Woodcock, Felicity A. Edwards, Charlotte Wheeler, Brigitte L. G. Baptiste, Claudia A. Medina Uribe, Torbjørn Haugaasen, and David P. Edwards. “Cheap Carbon and Biodiversity Co-Benefits from Forest Regeneration in a Hotspot of Endemism.” Nature Climate Change 4, no. 6 (June 2014): 503–7.

REDD+ and Biodiversity Conservation: A Review of the Biodiversity Goals, Monitoring Methods, and Impacts of 80 REDD+ Projects

Panfil, Steven N., and Celia A. Harvey. “REDD+ and Biodiversity Conservation: A Review of the Biodiversity Goals, Monitoring Methods, and Impacts of 80 REDD+ Projects.” Conservation Letters 9, no. 2 (2016): 143–50.

Potential Biodiversity Benefits from International Programs to Reduce Carbon Emissions from Deforestation

Siikamäki, Juha, and Stephen C. Newbold. “Potential Biodiversity Benefits from International Programs to Reduce Carbon Emissions from Deforestation.” AMBIO 41, no. 1 (February 1, 2012): 78–89.

Conservation and Restoration of Mangroves: Global Status, Perspectives, and Prognosis

Romañach, Stephanie S., Donald L. DeAngelis, Hock Lye Koh, Yuhong Li, Su Yean Teh, Raja Sulaiman Raja Barizan, and Lu Zhai. “Conservation and Restoration of Mangroves: Global Status, Perspectives, and Prognosis.” Ocean & Coastal Management 154 (March 15, 2018): 72–82.

Forest Figures: Ecosystem Services Valuation and Policy Evaluation in Developing Countries

Ferraro, Paul J., Kathleen Lawlor, Katrina L. Mullan, and Subhrendu K. Pattanayak. “Forest Figures: Ecosystem Services Valuation and Policy Evaluation in Developing Countries.” Review of Environmental Economics and Policy 6, no. 1 (January 1, 2012): 20–44.

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.