How to de-risk your Nature-Based carbon project and secure your ROI?

Raphael Der Agopian
Jul 17
6 min read

The Lismore Bushland Restoration project in New South Wales, in Australia, is a great project. It set out to revive degraded urban and peri-urban bushland. But over the years, it faced major setbacks, from aggressive weed invasion to destructive bushfires, that left native ecosystems on the brink.

The setback could have ended the project. Instead, it rose from the ashes. Through coordinated weed control, revegetation, fire management, and deep community involvement, the bushland was transformed into thriving native ecosystems.

It is a powerful example of how things can go wrong… quickly and unexpectedly.

But this story isn’t just about trees. It highlights the inherent risks of nature-based projects and why investments in nature-based carbon initiatives fail without proper safeguards: insurance, reserves, and provisions. For investors, carbon credits offer both returns and impact, but the difference between success and disaster often depends on what happens when - not if - things go wrong. Because we deal with nature and if it’s the best carbon sink there is, it’s also subject to risks

So how can you prepare for the worst and protect your project?

At Apolownia, we design nature-based carbon projects to withstand real-world shocks. Below, we break down the mechanisms that safeguard your investment, from force majeure insurance to community cash buffers, and why omitting them is like betting on a rain dance during a drought.

I. Why Nature-Based projects need more than optimism

The green gold challenges

Carbon credits from reforestation or mangrove restoration are often called “green gold” because they channel capital to local communities. But unlike metal, their value depends on living ecosystems, fragile systems vulnerable to storms, political shifts, and even community conflicts.

The problem? It is natural to focus on the potential and projected carbon yields, but it is also important to take a step back and ask a few critical questions:

What happens if a cyclone destroys 20% of the planted areas?
What if a regulatory change voids the project’s permits?
How do you ensure credits are delivered if growth underperforms?

The four pillar safety net

In our projects we use a four-tiered protection system:

Insurance (transferring risk to third parties).
Buffers (non-marketable credits for irreversible losses)
Reserves (Additional cash reserve for operational shocks).
Provisions (Budget reserve for irreversible losses)

Without these, even the most promising projects can collapse under unforeseen risks.

II. Insurance: the invisible shield for carbon investments

CAPEX insurance: protecting your upfront investment

When you invest in a nature-based project, your capital (CAPEX) funds planting, infrastructure, and permits. But what if:

Permits are revoked due to political instability (Reps & Warranties insurance)?
A tsunami flattens the nursery (Force Majeure insurance)?

How it works:

Reps & Warranties: covers contractual failures (e.g., invalid land rights).
Force Majeure: reimburses losses from disasters or political crises.

Example: In our projects, CAPEX is insured, ensuring investors either:

Reinvest (if the project is salvageable).
Recoup funds (if the project is doomed).

Cash flow insurance: securing future revenues

Starting a few years after planting, carbon credits begin to generate revenue, but only if the trees survive and thrive. Cash flow insurance covers:

Underperformance (e.g., slowed mangrove growth resulting in reduced credit deliveries) and consequently:
Non-delivery (e.g., inability to fulfil a carbon credit sales contract).

Two compensation models

Financial payment: based on the contracted credit prices or market value.
In-kind delivery: replacement of missing credits with credits of equivalent quality.

The more senior an investor’s claim (e.g., prepaid offtakers), the more critical this insurance becomes.

III. Buffers, reserves and provisions: the project's emergency funds

Buffer: example of Verra's non-permanence buffer

Under VERRA’s VM0033 methodology for wetland restoration, projects are required to set aside 12% of the issued credits into a "buffer pool". This buffer is designed to cover unforeseen losses in carbon stocks due to events such as:

Wildfires,
Disease outbreaks,
Illegal logging.

Important note: the buffer does not cover shortfalls caused by underperformance (e.g., slower-than-expected biomass growth).

Why it matters: The buffer pool functions like an insurance mechanism for the carbon market. By mutualizing risk across all projects, it ensures the environmental integrity of credits, even if some projects experience reversals. Without it, buyers could be exposed to the risk of credit delivery failure.

Operational resilience: setting aside provisions for the unexpected

In any nature-based restoration project, allocating a contingency line within the overall budget is essential. This provision provides a financial buffer to address unforeseen operational challenges, such as:

Replanting due to nursery failures, propagule degradation, or soil quality issues.
Unexpected costs not covered by insurance, such as logistics breakdowns or material losses.

Including this buffer ensures that the project can continue without compromising quality or timelines when things don’t go as planned.

Community cash reserve (recommended best practice)

Social risks, such as local disputes or workforce disruptions, can significantly impact project delivery. A dedicated community reserve helps address:

Delays caused by administrative, political, or social tensions (e.g., permit disputes, community disagreements).
Cost escalations due to wage renegotiations or increased demand for local labor.

Projects that lack this reserve often face difficult trade-offs, which can lead to delays, reduced restoration quality, and erosion of community trust. Swift response capabilities are critical to maintaining restoration momentum and securing future carbon credit generation.

IV. The seniority dilemma: who gets paid first?

Nature-based carbon projects attract two distinct investor profiles:

Equity investors bet on the long, term success of the project. They accept higher risk in exchange for potentially higher returns.
Prepaid investors secure a fixed volume of future carbon credits upfront. Their exposure is lower, and returns are more predictable.

The tension arises when a project underperforms due to droughts, floods, fires, or other real-world setbacks.

If credit generation falls short, who takes the hit? You need to have a clear structure on how a reduced amount of carbon credits will be distributed.

Common solutions:

Pro-rata distribution: This approach is simple and aligns well with equity investors’ interests. However, prepaid investors risk not receiving their contracted volumes, potentially putting them in breach if clients are expecting delivery. While equitable in theory, this model can expose prepaid holders to significant operational risk despite their lower upside.
Seniority with insurance: Prepaid investors are prioritized in the distribution, but only if they back their claims with insurance, ensuring both the security of their volumes and fairness toward equity investors.

Insurance acts as a cornerstone of financial resilience. It safeguards contracted volumes, reduces disputes, and ensures that no investor category bears disproportionate losses. Ultimately, building resilience in carbon projects requires robust ecosystems and robust financial structures.

Conclusion: invest in resilience, not just reforestation

Nature-based carbon projects aren’t just about planting trees, they’re about designing systems that can withstand shocks. The difference between a project that endures and one that fails is rarely luck. It’s foresight: adequate insurance, robust reserves, and sound financial structuring.

Key Takeaways for Investors:

Insist on CAPEX and revenue shortfall insurance: without it, extreme events can wipe out your exposure.
Verify the existence and adequacy of reserve mechanisms, both in cash (for operations) and carbon (for delivery).
Understand credit distribution rules, especially seniority terms in case of shortfalls. Don’t find yourself last in line.

At Apolownia, we design not just for impact but for durability. Because in the race to net zero, the leaders won't be those who simply scale fastest—but those who protect their impact and investor capital over time.

Bonus: the full threat matrix

Risk category	Sub-type / Example	Project impact	Associated level of insurance
Political & institutional risks	Withdrawal of authorization, non-issuance of LoA 6.2, regulatory reversal	Project interruption (CAPEX)	CAPEX/CASH FLOWS insurance, REPS & WARRANTIES
Extreme natural hazards (force majeure)	Flood, storm, tsunami, fire	Partial or total loss of plantation (CAPEX)	CAPEX/CASH FLOWS insurance , Force majeure
Organic risks (performance)	Heterogeneous growth, failure of local survival	Underperformance (CASHFLOW)	CASHFLOW insurance , Shortfall
Market risks / carbon demand	Fall in demand, changes in purchasing criteria	Valuation impact, non, delivery	Not insurable , borne by the investor
Social & community risks	Land conflicts, local rejection, refusal to collaborate	Project delayed or partially blocked	Optional reserve

ABOUT APOLOWNIA

Apolownia is a mission-driven company committed to making a significant impact in the climate sector.  

We support businesses and funds willing to engage in long-term and impactful decarbonization strategies - within and beyond their own value chain - by designing, implementing and monitoring science-based carbon reduction projects that restore natural ecosystems.

Through technology and innovative solutions, we aim at shaping a resilient and environmentally friendly world, by encouraging the decarbonization of the economy and supporting social and environmental initiatives.

You can drive positive change for the climate, biodiversity and local communities.