Summary
From co-benefits to core-benefits:
how to ensure carbon finance is equitably and transparently distributed

True value assessment: Fair compensation goes beyond just covering basic costs. It should reflect the full spectrum of IPs and LCs' contributions, including their traditional knowledge, land stewardship, and the potential social and environmental impacts of the project on their livelihoods and cultural heritage. Assurance of full compensation is critical for credit buyers in ensuring the efficacy of work performed to achieve carbon sequestration and the integrity of project permanence and ultimately credit life.

Participatory processes: IPs and LCs must be actively involved in the compensation design process, ensuring their voices are heard and their priorities are considered. This includes transparent communication about project impacts and benefits, and a clear understanding of how compensation is calculated.

Dynamic adjustments: Compensation mechanisms should be adaptable to changing circumstances, such as fluctuations in carbon prices or unforeseen project impacts. Regular reviews and adjustments should happen to ensure that compensation remains fair and equitable over time.

Direct payments priority: Direct payments to communities, ideally through mobile money or other accessible digital platforms, empower IPs and LCs to make their own decisions about how to use the funds. This fosters self-determination and avoids potential bottlenecks or misappropriation risks.

Capacity building: In cases where communities may lack the financial infrastructure or capacity to manage direct payments, phased approaches or capacity-building programs can be implemented to ensure funds are used effectively and sustainably.

Flexibility and choice: Payment mechanisms should be flexible enough to accommodate the diverse needs and preferences of different communities. This may include a combination of cash payments, in-kind payments, or community-managed funds.

Robust due diligence: Thorough due diligence on community compensation plans is essential to ensure transparency and accountability. This includes verifying that free, prior, and informed consent (FPIC) procedures have been followed, that compensation is being distributed as agreed, and that any grievances are addressed promptly and fairly.

Clear communication: Open and ongoing communication with IPs and LCs is crucial throughout the project lifecycle. This includes providing clear information about project activities, impacts, and benefits, as well as regular updates on compensation payments and how they are being used.

Transparent accounting: Project developers should maintain transparent and accessible records of all financial transactions related to community compensation. This allows for independent verification and helps build trust with IPs and LCs and other stakeholders.

Simplified fund flows: Complex financial structures involving multiple intermediaries can obscure the flow of funds and make it difficult to track how much compensation is actually reaching IP and LCs. Project developers should strive for simplified and transparent financial arrangements that prioritise direct payments to communities.

Clear contractual agreements: Contracts between project developers, investors, and communities should clearly outline the terms of community compensation, including payment amounts, schedules, and mechanisms. This helps prevent misunderstandings and ensures that all parties are held accountable.

Independent oversight: Implement third-party audits and monitoring to help ensure that community compensation is being delivered as agreed and that complex financial structures are not being used to divert funds away from IPs and LCs.

Pre-issuance buyer engagement: Buyers should actively shape project design and community compensation plans by specifying monitoring and evaluation reporting requirements during the pre-issuance phase.