How biodiversity credits can deliver benefits for business, nature and local communities

Continuous degradation threatens critical ecosystems and the services they provide and economies are getting dangerously close to tipping points that will be irreversible.

At the 'climate COPs' – COP26 in Glasgow and COP27 in Sharm El-Sheik – there was growing recognition of the role of nature as a key solution to help deliver the Paris Agreement. Subsequently, this has increased the expectation that a Global Biodiversity Framework can be agreed upon at the UN BD COP15, currently happening in Montreal.

A growing number of businesses are looking at their nature footprint through the lens of the Science Based Targets Network (SBTN) mitigation hierarchy - 'Avoid, Reduce, Restore & Regenerate, Transform.' Similarly, the framework under development by the Taskforce on Nature-related Financial Disclosures (TNFD) is paving a way for companies to assess, disclose and manage nature-related financial impacts and dependencies.

Accounting for and mitigating biodiversity-related risks is not enough, however. Governments and the private sector alike know that a massive reduction of greenhouse gas emissions is essential. This requires a concrete transformation of economies and it must also enable nature-positive action, with investment and new business opportunities.

One mechanism to help businesses deliver nature-positive outcomes is a biodiversity credit. A 'biodiversity credit' is an economic instrument used to finance activities that deliver net positive biodiversity gains. Unlike carbon or biodiversity offsets, which are payments made by a business to compensate for its damaging impacts on location-specific ecosystems, biodiversity credits allow companies to support nature-positive action, funding long-term conservation and restoration of nature, a higher order contribution than simply offsetting negative impact.

Voluntary biodiversity credits can help the private and public sectors achieve a nature-positive economic system, but only if there is transparent governance. For example, the indigenous people and local communities who safeguard natural ecosystems must be included in respectful and active engagement. Clarity of additionality, robust measuring, reporting and verification (MRV) and solutions to address double counting, permanence and unintended outcomes leaked to nearby geographies must all be considered to ensure success.

Governance principles can be drawn from best-in-class efforts from the carbon market and from conservation and restoration initiatives already happening on the ground. Furthermore, in a market with high reputational risk, establishing broadly accepted baseline voluntary principles now will help build further legitimacy in the project methodologies that will be developed in the years to come.

The number of actors and project proponents engaged in the biodiversity space has grown exponentially over the past few months and will continue to do so. Indigenous people, local communities, conservation organizations and other project developers are looking for ways to fund and scale up their efforts and the sale of high-integrity biodiversity credits will support them in their operations and outcomes. A few examples of how this is unfolding are the Cusco Cloud Forest National Park credits in Honduras, the Wilderlands program in Australia and the Boreal Forest Ecosystem Biodiversity Credits in Sweden.

While the market is advancing at a fast pace, critical questions are still to be answered. Some will require debate and collaboration among all actors, such as the durability and assurance of outcomes, differentiation with the carbon market and if measuring an activity could equal measuring the resulting outcome. Other questions will only be answered through practical applications and the implementation of pilot projects, such as market dynamics, motivations on the demand side and testing of technology enablers.

Overall, the voluntary biodiversity market provides important growth opportunities to protect our natural resources, mitigate risk and adapt to the impacts of climate change. The societal goal to stop biodiversity loss by 2030 remains a substantial effort and voluntary biodiversity markets can play an important role in mobilising capital and showcasing the drive of the private sector for nature-positive outcomes.

However, it will struggle in the long term to get to the scale needed without a worldwide accepted ambition and framework, such as the one that governments are negotiating in Montreal at the UN CBD COP15. A robust 'Paris Agreement' for nature is needed to bend the curve on nature loss by 2030.