Few large companies can meet their public climate commitments on emissions reductions alone.

With most emissions sitting in Scope 3, beyond a company's direct control, credits and increasingly removals have become a fixture of corporate climate strategy. Businesses are increasingly exploring nature-based credits as part of their sustainability strategies. But the legal environment around voluntary credits is likely to become more demanding: evolving disclosure frameworks, greenwashing risks, stakeholder expectations and performance concerns all point to an ever-greater focus on the quality of a credit portfolio.

For in-house legal teams, the question is no longer whether to buy credits, but how to buy them in a way that will survive scrutiny from a regulator, an auditor, a shareholder, a customer, or an employee five or ten years from now; long after the procurement team has moved on and the project has faced its first drought.

In our previous article on 'What makes nature markets work?', we explored why voluntary nature and carbon markets are attracting attention and what they can learn from England’s biodiversity net gain (BNG) regime. This article turns to execution: the regulatory exposure, the contractual mechanisms that allocate delivery risk, and the governance and disputes choices that determine whether a credit purchase strengthens an organisation's transition plan or undermines it.

Regulatory uncertainty and evolving market standards

Unlike BNG, which operates within a defined statutory framework, voluntary nature and carbon markets remain largely self-regulated. Some discipline comes in practice from the framework a company reports against: for example, the Science Based Targets initiative (SBTi) does not permit credits to count towards near-term reduction targets, and the Carbon Disclosure Project (CDP) asks companies to disclose credits separately, by type, standard and vintage.

Mandatory sustainability reporting regimes, including the Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board-based (ISSB-based) standards, increasingly require companies to disclose the volume, type and quality of the credits they rely on. Going forward, large organisations may need to name the carbon and nature credits they buy in a public disclosure. Procurement decisions therefore need to be made with the eventual disclosure, and the claim it supports, in mind.

Whether you are looking to invest in biodiversity projects, forestry restoration or procure carbon credits and other nature-related opportunities, it’s important to conduct careful due diligence and build in robust structures. Getting the contractual detail right can help mitigate future risks, protect investor interests and deliver sustainable outcomes.

High-integrity projects are not defined by labels alone. In the carbon offtake market, for example, the Verified Carbon Standard is one important mechanism, but buyers may also look to the Gold Standard and the Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles as additional quality benchmarks. From a transactional and due diligence perspective, high integrity means testing robust project governance and implementation arrangements, additionality, permanence and long-term monitoring, as well as the reliability of the underlying data and verification process.

Together, these factors help ensure that credits represent real, additional and durable emissions reductions and that projects deliver over the life of the offtake. And as both carbon and nature markets mature, the related standards, reporting expectations and regulatory landscape will continue to develop. Businesses entering into long-term arrangements should therefore consider how future changes may impact how projects are assessed and managed.

The cross-border claims landscape

For a global business, the greatest legal exposure usually lies not in the credit itself, but in what is said about it.

European Union: The Empowering Consumers for the Green Transition Directive (EU) 2024/825, applicable from 27 September 2026, prohibits claims that a product has a neutral, reduced or positive environmental impact where that claim is based on offsetting. Consumer-facing “carbon neutral” product claims built on credits are, in effect, no longer available in the EU. The proposed Green Claims Directive, which would have added substantiation and third-party verification requirements for explicit environmental claims, has stalled since the Commission signalled in 2025 that it might withdraw the proposal.

United Kingdom: The Competition and Markets Authority’s (CMA) Green Claims Code sets the standard for environmental claims. In addition, since April 2025, the Digital Markets, Competition and Consumers Act 2024 has allowed the CMA to impose fines of up to 10% of global turnover for consumer law breaches directly, without going to court.

United States: The Federal Trade Commission’s Green Guides require offset claims to be supported by competent and reliable scientific evidence, to avoid double counting, and to disclose where reductions will not occur for two years or more. While the Guides are not themselves binding rules, they are (for now) persuasive and inform enforcement decisions.

Regulatory enforcement is only part of the picture. Greenwashing allegations can do lasting damage, long before any regulator becomes involved. Campaign groups, journalists and competitors increasingly scrutinise corporate climate claims, and a credit portfolio exposed as low quality can quickly erode customer trust, unsettle employees and investors, and undo years of brand building. For many organisations, the reputational cost of a claim that cannot be substantiated will far outweigh any regulatory fine.

Project under-delivery and credit shortfalls

One of the most significant commercial risks in voluntary nature and carbon markets is the possibility that a project delivers fewer environmental outcomes than originally anticipated. For purchasers, one of the most important key questions is, what happens if biodiversity units or carbon credits ultimately fall short of expectations?

Habitats may take longer to establish than forecast, environmental conditions may change, or projects may generate fewer credits than anticipated. This is particularly relevant where organisations are purchasing future environmental outcomes rather than credits that already exist.

As natural capital grows as an asset class, the projects coming to the market are increasingly sophisticated and being tailored to different types of purchaser. This flexibility can create opportunities, but it can also introduce additional delivery risks. Organisations may find themselves purchasing outcomes that depend on a range of very specific environmental, operational and commercial factors over a lengthy period.

The question then becomes what happens if those outcomes are not delivered as anticipated. Protections may include replacement credits, revised delivery arrangements, financial security or other contractual remedies.

Replacement credit mechanics

The core remedy for a shortfall should be delivery of equivalent credits, not merely a refund. A refund does not help a buyer meet a public target. The contract should define “equivalent” precisely (standard, methodology, credit type, removal versus avoidance, vintage, geography, CCP label and any co-benefits), set a cure period, and specify what happens if equivalent credits are unavailable or only available at a higher price.

Indemnities and warranties

Sellers should give warranties on title, freedom from encumbrances, no prior sale or retirement, compliance with the relevant standard and accuracy of project information. These may be backed by an indemnity covering losses from invalidated, cancelled or reversed credits and from third-party claims, including regulatory action or consumer litigation arising from defects in the credits.

Financial security

An indemnity is only as good as the party giving it, and many project developers are thinly capitalised special purpose vehicles. Buyers should consider parent company guarantees, letters of credit or performance bonds, retention or escrow of part of the price, and payment profiles linked to verified issuance rather than upfront payment. Where an upfront payment is commercially necessary, as it often is for early-stage removals, security over the project assets and step-in rights become more important.

Step-in rights

For forward offtakes and direct investment, step-in rights allow the buyer to take over project management if the developer becomes insolvent, abandons the project or persistently fails to meet milestones. They need to be backed by a direct agreement with the landowner and key subcontractors so the rights can actually be exercised, and should be drafted with an eye to local land and insolvency law. Projects involving local communities need particular care: step-in arrangements must not undermine community agreements or benefit-sharing commitments on which the project’s legitimacy, and the buyer’s reputation, depend.

Climate change, resilience and force majeure

Many nature-based projects are designed to operate over extensive time periods. Woodland and carbon projects, for example, may involve commitments extending over 80 or even 100 years, while BNG habitats must typically be secured and managed for at least 30 years.

Over such timeframes, environmental conditions will inevitably change.

Drought, flooding, disease, wildfire and other climate-related impacts may all affect a project’s ability to deliver the outcomes originally anticipated. These risks become more significant as organisations look beyond short-term outcomes and consider whether projects remain resilient over decades rather than years.

The challenge is not simply the existence of climate risks, but how those risks are managed. Some risks may sit within the provider’s control, while others may not. Businesses investing in natural capital projects increasingly want a clear understanding of how risks are allocated and what protection exists if circumstances change significantly over time. These can then be accounted for in contractual arrangements to build in resilience and ensure desired outcomes are met.

Force majeure provisions, insurance arrangements and contingency planning can all play an important role in supporting project resilience. As nature and carbon markets continue to mature, these considerations are likely to become increasingly important when structuring long-term agreements.

A standard force majeure clause, which suspends obligations for events beyond a party’s reasonable control, sits uneasily with nature-based projects. A better approach distinguishes between risks the project is expected to absorb through its design – buffer allocations, species diversity, firebreaks, insurance – and genuinely catastrophic events.

In practice, that means defining force majeure narrowly and excluding foreseeable climate events up to a defined severity threshold. Agreements should also make clear that force majeure suspends the delivery timetable but does not extinguish the replacement credit obligation.

Measuring, verifying and reporting environmental outcomes

The credibility of environmental markets depends on outcomes being measurable and verifiable.

This is particularly important in nature markets, where outcomes can be more difficult to quantify than carbon alone. The ability to demonstrate environmental change through recognised methodologies and reporting frameworks is critical to supporting market confidence.

As voluntary markets continue to develop, organisations are placing increasing focus on how environmental credits are recorded and retired. If an organisation purchases a defined number of credits, it needs assurance that those same credits cannot be sold or claimed elsewhere. Reliable registries, reporting processes and retirement mechanisms help provide assurance that the environmental outcomes being purchased are genuine.

However, accreditation and verification should be viewed as part of a wider due diligence exercise, rather than a substitute for one. Understanding how outcomes are measured, how credits are recorded and how double counting is prevented is becoming an increasingly important part of assessing project quality.

Governance, liability and long-term stewardship

One of the more distinctive features of nature and carbon markets is that the organisation selling environmental credits may not always own the land, manage the habitat or be directly responsible for delivering the environmental outcome being purchased.

Environmental projects often involve a network of participants, including landowners, habitat managers, project developers, local communities, intermediaries and verification bodies. Large organisations will rarely contract directly with local communities. Instead, they are more likely to work through specialist organisations that sit between the purchaser and the environmental outcome itself.

Organisations should therefore understand how these relationships are structured when assessing project risk. That structure creates contractual gaps. A buyer contracting with an intermediary has no direct rights against the landowner whose management failure caused the shortfall, and no claim against a verification body whose error led to invalidated credits. Closing those gaps means requiring the intermediary to flow down key obligations, obtaining direct agreements or collateral warranties from the landowner and developer, taking assignment of the intermediary’s rights against upstream parties on default, and ensuring land is secured for the project’s full duration through leases, conservation covenants or similar instruments that bind successors.

Organisations should also consider long-term stewardship. Environmental outcomes often depend on effective management and maintenance over many years; as highlighted above, BNG habitats must generally be maintained for at least 30 years, while water, woodland and carbon projects may operate over significantly longer periods.

As a result, those engaging in these projects seek to establish confidence not only in the project itself, but also in the organisations responsible for managing it. The experience, capability and reputation of delivery partners can be just as important as the environmental outcome being purchased.

Understanding who is responsible for delivery, how liabilities are allocated and what happens if ownership or management arrangements change over time is often just as important as understanding the environmental outcome itself.

Dispute resolution

Many disputes in these markets will be technical: whether a baseline was correctly set, whether a reversal occurred, how many credits a project should have generated. Expert determination by an appropriately qualified forestry, ecology or carbon accounting specialist is usually faster, cheaper and better suited to those questions than a tribunal. The clause should define which issues go to the expert, how the expert is appointed, and whether the determination is final and binding or can be reopened for manifest error.

On governing law, English law remains a common choice for offtake agreements because of its commercial predictability and well-developed case law. But the law of the project’s location will inevitably govern land rights, security and community arrangements, and may restrict choice of law or forum for some of those matters. The contract structure will need to accommodate both.

Key questions to consider before participating in a project

Before participating in a nature or carbon market project, organisations should ask:

  • Who is responsible for delivering and maintaining the project outcome?
  • What happens if environmental outcomes fall short or are not delivered as expected?
  • How are environmental outcomes measured, verified and reported?
  • How are credits recorded, tracked and retired?
  • How are climate-related risks managed?
  • What contractual protections are available – including replacement credits, indemnities, security and step-in rights?
  • Can environmental claims be supported by evidence, and are they lawful in each jurisdiction where they will be made?
  • Does the project align with wider business and sustainability objectives?
  • How will the credits be reported under SBTi, CDP and mandatory disclosure regimes?

Building confidence in voluntary nature and carbon markets

The future success of voluntary nature and carbon markets is likely to depend on more than environmental ambition alone.

Organisations increasingly want projects that are measurable, transparent, well-governed and capable of delivering lasting outcomes for both nature and business. Confidence will be shaped not only by what projects promise to deliver, but by the governance, verification and long-term stewardship arrangements supporting those outcomes.

England’s BNG regime provides one example of how clear standards, credible measurement and long-term stewardship can help create confidence in environmental markets. While voluntary schemes operate differently, many of the same principles are likely to become increasingly important as participation grows and market expectations evolve.

Our Natural Capital team is working closely with clients across all major nature markets. Bringing together specialists in environment, planning, corporate structuring, M&A and investment finance, tax, real estate, disputes and regulatory, they are well-placed to advise at every stage. Explore our Natural Capital web page or contact Ben Stansfield or James Stanier to discuss what developments in voluntary nature and carbon markets could mean for your organisation.

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