Investors considering nature-based projects (e.g., reforestation, agroforestry, carbon credits, eco-tourism, biodiversity conservation) should be aware of several warning signs that may indicate poor project viability, greenwashing, or outright fraud. Key red flags include:
1. Lack of Scientific or Technical Credibility
- No baseline data on biodiversity, carbon sequestration potential, or ecosystem health.
- Unverified ecological claims (e.g., exaggerated carbon offsets or restoration impacts).
- No third-party certification (e.g., Verra, Gold Standard, FSC, Rainforest Alliance).
- Overreliance on buzzwords like “regenerative,” “sustainable,” or “climate-positive” without evidence.
2. Vague or Incomplete Business Model
- Unclear revenue streams (e.g., relying solely on future carbon credits with no diversification).
- No clear exit strategy or ROI timeline for investors.
- Poor financial projections or overly optimistic assumptions (e.g., unrealistic tree growth rates or market prices).
3. Regulatory and Land Tenure Issues
- Lack of land ownership or usage rights — critical in nature-based projects.
- No environmental permits (e.g., DENR-ECC/CNC in the Philippines).
- Non-compliance with local or indigenous rights, which could lead to legal and ethical risks.
4. Weak Governance and Oversight
- Unqualified management team without experience in forestry, ecology, or sustainable development.
- Lack of independent auditing or transparency in project reporting.
- Concentration of control with no checks and balances (e.g., founder-controlled without a board or advisors).
5. Greenwashing or Misrepresentation
- Unrealistic claims (e.g., “1 tree = 1 ton CO₂ offset per year”).
- No evidence of community benefit or stakeholder engagement.
- Use of misleading impact metrics without third-party verification.
6. Overpromising on Carbon Credit Revenue
- No registered carbon methodology or project design document (PDD).
- Unrealistic carbon yield projections without scientific validation.
- No buffer for reversals (e.g., wildfire, disease, land use change).
7. Operational and Monitoring Gaps
- No long-term monitoring plan or maintenance strategy for nature-based outcomes.
- Limited scalability due to logistical, ecological, or social constraints.
- Lack of contingency planning for pests, drought, or market changes.