[Blog Part 1] Biodiversity credits: a turning point for nature?
Reversing the decline of nature will be no mean feat. For decades, wildlife populations have declined as a result of habitat loss and degradation, climate change and resource exploitation. Right now, the financial incentive to exploit nature outweighs the rationale for restoring and protecting it. But what if this was turned on its head and the real prize was found in helping to restore precious landscape, ecosystems and wildlife? This is where biodiversity credits come in.
In this emerging space, even the definition of a biodiversity credit is hotly contested. At its simplest form, a biodiversity credit is a financial incentive attached to a unit of biodiversity that is protected or restored. It is clear that biodiversity credits have a strong potential to channel private finance into conservation.
A recent Coalition for Private Investment in Conservation (CPIC) webinar explored this topic in-depth with expert panellists and guests. Introducing the webinar, Frank Hawkins, of the International Union for Conservation of Nature (IUCN) said: “The hope is biodiversity credits have the potential to drive a significant amount of private finance in conservation. But what do we need to make that happen?” The conversation was spirited and raised many questions from the audience, demonstrating a real curiosity from a range of stakeholders in the conservation finance space.
There is a growing interest from companies that are now looking beyond carbon, and new biodiversity credit schemes are expected to come to fruition in the next few months, focused on the voluntary market. Harnessing this interest will be crucial to jump starting the sector.
In fact, CPIC’s Conservation Finance report showed that investors were planning substantially higher investments in conservation in 2021 compared to 2020. Edit Kiss from Mirova Natural Capital said: “There are investors, corporates and buyers that are demanding more biodiversity impacts and results.” Edit continued saying, “there are some studies that show that the biodiversity market could be larger than the carbon market.”
Similarly to the carbon markets, there are both regulated and voluntary markets for biodiversity credits. Regulated markets come with metrics and protocols set by regulators, which means there can be issues around how strong and well-enforced the underlying policies are. Voluntary markets offer more flexibility; however, as yet, no widely used set of standards and principles exists, leading to worries about greenwashing. Leading conservation NGOs such as IUCN and partners are looking to help lay out some of the conditions by which credits can contribute to genuine impacts on biodiversity.
With the potential to monetize and make the business case for landscape, ecosystems and wildlife, it is clear that scaling biodiversity credits comes with a range of challenges, including the need to reach a common definition for a biodiversity unit, which can be turned into a tradable asset. Dr Tim Coles from Operation Wallacea, used the concept of the Consumer Price Index (CPI), which is based on the price of a basket of goods and services in a given country which can be compared year-on-year. Dr Coles said, “Why not look at the conservation objectives for an eco-region or a habitat, as a basket of metrics that reflect what you’re trying to achieve? … The same way CPI gives inflation figures, you could compare the uplift between different projects. This is a way of defining a biodiversity unit: it’s a 1% uplift or avoided loss in the median value of a basket of metrics per hectare.”
Measuring impact is another issue: multiple metrics to monitor impact for biodiversity exist, but they tend to only give a partial picture of the range of the effects on biodiversity within an area, and may not be comparable at larger scales. Monitoring costs for biodiversity are also likely to be higher than for carbon, and the use of new technologies will be crucial to reduce those costs.
Zoe Balmforth from The Biodiversity Consultancy is optimistic on the prospects of biodiversity credits and said, “what we’re seeing on the voluntary side is there are a lot of companies looking to deliver against nature targets. Crucially, they are willing to spend money to do that. At the same time we know the world is full of landowners and land managers who would love for it to be financially viable for them to manage that land to benefit biodiversity. Perhaps credits is a way to link these two if we can do it right.”
We know scaling biodiversity credits come with a range of challenges. None more so than the need to reach a common definition for a biodiversity unit, which can be turned into tradable assets. Acting now is crucial. It is clear there is an enormous opportunity to drive action at scale and biodiversity credits could become a valuable new tool to aid nature’s recovery.