Rethinking Carbon Market Integrity Through Benefit Sharing and Community Governance

Mamta Lama

Community and land-based carbon credits—forestry, agroforestry, soil, mangrove and similar project types—generate real value, but the people who generate it rarely have a formal say in how the market rules are set. This is not just a fairness question, it is also a pricing and risk question.

Addressing this could mean building on existing safeguards and giving communities real, structural roles in rule-making, financial design, information systems, and consent processes over the life of a project. The market not only needs equitable benefit sharing but durability overall.

This piece looks at what these changes could look like, with particular focus on benefit sharing, since this is where communities struggle most deciding whether to give or withhold consent for the operation of a project.

Standard-setters describe integrity as the market’s foundation, while benefit-sharing is often treated as a separate fairness question. In practice, the two are linked: how proceeds are shared reflects who had a say in setting the terms.

Current approaches to assessing project integrity often place considerable emphasis on whether benefits are distributed, but benefit distribution is not the same as meaningful decision-making power. Where Indigenous Peoples and/or local communities have limited influence over decisions affecting land, project design, monitoring, revenues, and risk management, those governance gaps may translate into higher counterparty, dispute, operational, reputational, and long-term durability risks. Yet these risks are not consistently measured or reflected in project pricing. The result may be an important information gap: risks that communities experience directly are not necessarily risks that markets can see or price effectively. Closing that gap requires better data on decision rights, participation, accountability, and how these factors relate to project performance over time.

The carbon market has an opportunity to accomplish two critically important goals with the same set of policy approaches: 1) build more durable and meaningful risk management and mitigation systems through true community ownership and engagement, and 2) make the market work better for the people who are most impacted by it.

In many projects, a substantial share of the value generated by credits can be absorbed before it reaches the people managing the forest, soil, or mangroves. The project may still be recorded as successful because communities received a defined share of the proceeds. What is often less visible is whether the value reaching them was fair from their perspective, or whether the people closest to the land had any meaningful say in how that value was determined. Their knowledge may also be critical to identifying whether a land-use change is likely to hold, whether project requirements can realistically be sustained, and whether the promised climate outcomes will endure. The problem, then, is not simply how much money was disbursed. It is whether the market has adequately valued the knowledge, decision-making power, and risks held by the people on whom the project's long-term performance depends.

Communities have typically little to no seat at the table where the percentage or the risk premium underneath it gets decided. They rarely sit on methodology committees, hold voting power over when or how their credits get sold, or have access to the data on their own project’s market value. Structurally, this makes them price-takers in a market built on their land, which means they're also risk-absorbers in a market that has never asked them what the risk actually looks like from where they stand.

What systems change actually requires to make the market work better for the people who are most impacted by it

Better communication and more capacity-building have real value, and many organizations—including standard-setters and market participants—have already invested meaningfully in this work. On their own, though, they’re unlikely to fully resolve these gaps. Training can make communities more effective participants in a system whose rules someone else still largely writes and whose risk someone else still misprices.

Real systems change likely needs to operate at five levels simultaneously:

Decision-making architecture: Standard-setters, registries, and verifiers sit largely outside the communities whose land and labour generate the credits. Community input, where it exists, typically arrives as feedback on rules that are already largely finalized, not as a vote on what those rules should be. This is one of the more direct versions of the mispricing problem: the people with the earliest, clearest view of whether a project is drifting toward reversal have no formal channel to flag it before it shows up as a market event. 

Many standard-setters and developers have invested in Free, Prior, and Informed Consent (FPIC) processes, safeguard policies, and community liaison roles, and these steps matter. But governance reform can still be piloted at the margins while the underlying extractive architecture remains largely intact. Capital continues to flow upward, decision-making stays concentrated at the top, and signals about risk from the ground rarely reach those in a position to price them. Add-ons don't change architecture. Real reform likely means embedding communities inside rule-making bodies with actual voting power, not adding another advisory seat that can be outvoted or ignored. This is what puts an early-warning signal for reversal risk directly into the room where the rules get written.

Financial architecture: Communities are often positioned as service providers compensated for delivering an output, rather than  as partners whose land, labour, and risk represent a distinct form of capital. Capital can take many forms—financial, human, natural, social, and intellectual—and the returns should reflect both the type contributed and the risk assumed. The more intangible the capital, the harder it is to value. In practice, direct equity ownership in the project entity remains uncommon and isn’t always the most workable mechanism; community trusts and other revenue-sharing structures are more typical. What matters more is whether communities have real visibility and influence over how credits are pooled and structured before sale (credit aggregation), when they are issued, and how the negotiated share was calculated in the first place. FPIC processes are already designed, in part, to open up exactly this kind of conversation about risk and opportunity cost before a project begins. In practice, though, FPIC is frequently sought at a point when the risks and outcomes the revenue depends on haven't materialized yet, which can make it difficult for communities to evaluate what they’re consenting to, and difficult for developers to offer a number that feels justified. Revenue-sharing terms are sometimes renegotiated as circumstances change, but that flexibility rarely extends to who holds decision-making authority over the underlying risk. Building mechanisms to revisit the split as real data emerges could make both the consent process and the benefit-sharing more credible over time.

Communities should benefit from stronger financial instruments, such as community trusts, more transparent revenue-sharing arrangements, or in some cases equity-like stakes in credit revenue and community-led aggregation, rather than developer-mediated payouts alone.

Information systems: In these project types, data tends to flow in one direction—from community, through verifier, into a market the community itself often can't see. Price is shaped by many forces—supply and demand, perceived quality, liquidity and broader risk sentiment—not by any single point. But when community-level risk information is not communicated, it’s harder for that risk to be reflected in project-level pricing at all. 

Credit tracking and market pricing need to be made more publicly accessible and where possible, community-governed, rather than proprietary through open data standards, third-party audits, or registry partnerships, making reversal and dispute risk visible enough to be priced at all.

Policy environment: FPIC needs to function as an ongoing commitment revisited as circumstances change rather than a box checked once at project start. This is what prevents reputational risk from accumulating quietly until it becomes a dispute.

Legitimacy and authority: Authority is currently assumed to belong to standards bodies by default, while communities are positioned as beneficiaries rather than holders of legitimate governing authority. To be fair, crediting programs have strengthened FPIC and related safeguards considerably over time. ICVCM’s Core Carbon Principles, for example, raised the bar broadly and continuous improvements are underway. But formal authority over land varies by country: communities may or may not hold it, depending on how national law and tenure frameworks recognize customary institutions. Rather than a blanket claim about where legitimacy should sit, the more useful question may be jurisdiction by jurisdiction: where do existing governance arrangements already give communities real authority and where does the gap between the authority and market practice create risk that isn’t being priced? Closing that gap is likely to look different in a country with strong customary land rights than in one without them. Any standard addressing this will need enough specificity to be meaningful and enough flexibility to fit varied national contexts.

Also, community authority deserves to be weighed as a serious claim alongside standards bodies, particularly where national law and tenure frameworks already support it. International standards should function more as an interoperable layer that adapts to local legal and governance contexts, rather than an overriding one that requires communities to translate their authority into someone else's framework before it counts.

In community-based and land-based carbon projects, communities aren't simply a constituency carbon markets need to serve better. They are the source of whatever legitimacy the market can claim. They are also often closest to the risks that determine whether a project's claimed climate and social outcomes will endure. Putting Indigenous Peoples and local communities at the center of decision-making does not eliminate the need for guardrails. But it can mean that legitimacy is built closer to the source, by the people with the clearest view of what is happening on the ground. Recognizing that does not weaken market integrity. It strengthens it.