Why Understanding Risk is Key to Unlocking Investment in Nature

Risk in natural capital project development, when properly understood and managed, can be transformed from a constraint into an opportunity. However, effective risk management in this context is not the responsibility of any single stakeholder. It requires a system-wide approach that combines robust ecological project design and implementation with comprehensive risk assessment and, where appropriate, the transfer of residual and inherently unavoidable risks to an insurer’s balance sheet.

This joint article by Kew Reach and leading natural capital insurer Kita explores how these complementary approaches come together in practice. Drawing on Kew Reach’s ‘Kew Method’ for building resilient, high-integrity projects, alongside Kita’s data-driven risk assessment and insurance solutions, it sets out a structured framework for identifying, mitigating, and transferring risk across the project lifecycle. The result is a more complete risk management strategy: one that strengthens project outcomes, enhances investor confidence, and enables greater capital mobilisation into natural capital.

Key risks in natural capital project development: a high-level description of the risk landscape

The risk landscape of natural capital project development is defined by the overarching risk of underperformance, where a project fails to deliver its intended outcomes, or, in more severe cases, complete project failure. Such outcomes can arise from a range of underlying risk factors, each of which requires careful assessment. 

• Ecological risk: Projects may underperform due to ecological factors such as high mortality of plantings, vegetation failing to reach expected growth trajectories, or lack of ecosystem function despite apparent establishment. These risks are often driven by unsuitable species selection, poor site conditions, or the emergence of novel pests and diseases. Biological factors like the ones described above can undermine even well-intentioned schemes if not anticipated at the outset. The impact can be significant, leading to reduced biomass, lower-than-expected carbon sequestration, and ultimately a failure to deliver projected outcomes. 

  
  

• Extreme weather and natural catastrophe risk: Projects may be adversely affected by extreme weather events and natural catastrophes such as wildfires, floods, droughts, or storms. These risks are driven by increasing climate variability and geographic exposure to natural hazards. Their impact can be immediate and severe, causing large-scale loss of biomass, damage to infrastructure, and, in extreme cases, complete project failure.

  
  

• Long-term climate change risk: Long-term climate change poses a systemic risk to project performance. Shifts in temperature, precipitation patterns, and climate regimes can alter ecological conditions over time, often exacerbating biological stressors such as pests and diseases. These changes can reduce project resilience, impair growth trajectories, and compromise long-term project viability.

  
  

• Operational risk: Projects may underperform due to operational challenges such as supply chain disruptions, delays in implementation, or the lack of suitable seed or planting material with the right provenance and quality. These risks are often driven by logistical constraints, inadequate planning, or overestimation of local capacity. The impact can include delays in project timelines, cost overruns, and reduced investor confidence, ultimately affecting financial viability. 

  
  

• Social risk: Projects may face challengers where local community needs are not properly met (e.g. not providing the right crops or culturally important species), or where projects fail to generate tangible local benefit. This can diminish community support and participation over time. Without sustained local buy in, long term stewardship is weakened, and the durability of outcomes is placed at risk. 

  
  

• Carbon-related risk: Projects may underperform due to risks associated with the carbon registry, methodologies, and standard-setting bodies under which they operate. These risks are driven by uncertainties in registry processes and timelines for validation, verification, and credit issuance, as well as the possibility of methodology revisions, restrictions, or invalidation. Risk can also arise from assumptions and potential inaccuracies within the carbon modelling itself. The impact can include delays in credit issuance, reduced or uncertain revenue streams, and, in severe cases, projects failing to be registered altogether.

  
  

• Counterparty risk: The timely delivery of project outcomes may depend on counterparties such as contractors or service providers playing critical roles in project execution. This risk arises when counterparties fail to meet their obligations due to causes such as insolvency, operational failure, or poor performance. The impact can include cost overruns and delays in project timelines and, in more severe cases, underperformance of the project.

  
  

• Political, legal, and regulatory risk: The successful implementation of a project may be affected by political and regulatory conditions in the host jurisdiction. This risk arises from factors such as land tenure failure, revocation or disputes over project rights, changes in regulation, or forced project abandonment. The impact can range from delays and disruption in project activities to complete project failure.

  
  

The risks described above can be broadly grouped into three categories. First, there are risks that can be largely mitigated through robust project design and implementation, helping to strengthen overall project resilience. Ecological and operational risks are key examples of this. Second, there are risks that can be partially mitigated. Carbon-related risks fall into this category: while developers can account for certain registry processes and methodology considerations during project development, some risks are systemic in nature and sit beyond their direct control. Third, there are risks that are fundamentally unavoidable. Extreme weather events and natural catastrophes are the clearest examples. 

Kew Reach’s approach to mitigation of these risks using project design and implementation

Through the Kew Method, Kew Reach’s proprietary framework for delivering high quality nature restoration, we address these risks in a structured way across the project lifecycle:

• At the baselining stage, rigorous site assessment is essential. Understanding soil characteristics, hydrology, aspect, and microclimate allows restoration objectives and planting approaches to be tailored to the specific ecological context. This reduces the likelihood of establishment failure and underperformance by ensuring that interventions are grounded in evidence rather than assumption.  

  
  

• During the design phase, resilience is built in through species, structural, and genetic diversity, with carefully selected native assemblages suited to present and future conditions.  This diversity builds greater ecosystem function and with it, improved resistance to extreme weather, climate shifts and  novel pests and diseases. Where appropriate, commercially valuable or culturally significant species can also be included to support livelihoods and sustain community engagement, and through the work of the Royal Botanic Gardens, Kew we can identify high value crops to provide new and diversified income streams for local communities. Framework planting approaches that encourage assisted natural regeneration can further enhance ecosystem function while reducing planting costs.

  
  

• At implementation, the key focus is on  infrastructure and capability. Developing locally appropriate systems, such as field nurseries and mobile seed banks, can stabilise supply chains, improve cost control, and ensure plant viability. Clear protocols and training for seed collection, storage, propagation and planting help ensure quality and consistency, reducing the risk of avoidable losses in the nursery or on the project.

  
  

• Finally, maintenance and monitoring are fundamental to risk management. Training local teams to steward sites over the critical early years improves survival and ownership. Appropriate monitoring design enables early identification of stress, disease or underperformance, allowing for adaptive management. 

  
  

Kita’s solutions to support Kew’s risk management

Rigorous project design and implementation provide the foundation for effective risk management in natural capital projects. However, it is important to recognise that, regardless of how well a project is designed and executed, a degree of residual risk will always remain, particularly due to the inherently unavoidable nature of certain risks outlined in the previous sections. 

Kita and Kew Reach can work together to enhance a project’s risk profile. First, Kita can provide data-driven insights that deepen the understanding of risks beyond the project level with a comprehensive risk assessment, incorporating market-wide perspectives to further strengthen the project and prepare it for risk transfer. Second, Kita can transfer the residual and unavoidable risks onto its balance sheet through insurance, completing the overall risk management strategy.

Kita’s Risk Assessment

Kita’s risk assessment can effectively complement the Kew Method. While the Kew Method focuses on mitigating risks that can be addressed through robust project design and implementation such as ecological, operational, social, and certain carbon-related risks, Kita provides insight into residual and unavoidable risks. These include extreme weather events, long-term climate change, broader carbon-related risks, as well as counterparty and political risks, helping to further inform and strengthen project design wherever possible. 

At the core of our approach is a sophisticated comparative framework grounded in real-world project data and informed by extensive underwriting experience. By benchmarking a project against an aggregated set of comparable projects operating under similar conditions, we assess its prospective performance within the context of the broader market.

This is enabled by a technology stack purpose-built for natural capital projects, combining proprietary market data derived using Large Language Models (LLMs) with advanced geospatial analytics. These capabilities allow us to analyse on-the-ground project characteristics, including biomass, land use and land cover (LULC), and exposure to natural catastrophes.

The comparative approach enables us to evaluate how a project performs relative to its peers and to derive a proxy for the likelihood of successful delivery. These insights support developers in strengthening project design and risk management practices in preparation for insurance.

Kita’s Insurance

Kita’s insurance further complements projects that are already well-managed using the Kew Method by absorbing the financial consequences of residual and unavoidable risks onto the balance sheet of our capacity providers.

By putting an insurance policy in place, project developers and stakeholders replace the uncertainty of future losses and liabilities with the certainty of defined coverage at a fixed premium. 

Kita’s insurance policies that enable risk transfer at the project level include: 

• Project Failure Insurance: For projects in early development or pre-validation stages, this policy protects against the contractual loss arising from irremediable project failure. It is particularly relevant where extreme weather events or natural catastrophe, land tenure failure, or project suspension or withdrawal lead to project failure. This provides critical protection during the highest-risk phase of the project lifecycle.

  
  

• Non-Delivery Insurance: Once validated, projects can be protected against under- or non-delivery of carbon credits under a relevant carbon contract. This addresses ecological, operational, and carbon-specific risks, including climate perils, pest and disease impacts, counterparty abandonment, or methodology changes. Structured as an all-risks policy, it provides comprehensive protection against under or non-delivery of credits from validation to credit delivery. For project developers, this can reassure credit buyers and address contractual liabilities faced under sales contracts. 

• Non-Payment Insurance: This cover protects lenders or financing counterparties against non-payment of contractually due amounts. It is particularly relevant for prepayment facilities and project finance structures, helping strengthen capital mobilisation and transaction security.

Together, Kew Reach and Kita create a layered and complementary approach to resilience. In combination, ecological robustness reduces the probability of failure, while operational discipline lowers avoidable losses. These foundations are further strengthened by comprehensive risk assessments that incorporate market-wide insights through benchmarking. Insurance then absorbs the financial impact of the tail risks that remain. This integrated approach strengthens investor confidence, improves bankability, and supports the evolution of natural capital into a resilient and investable asset class at scale.