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You’ve probably heard of carbon credits. But what about biodiversity credits?
There’s no question that the world is losing its biodiversity at alarming rates, with a million species threatened with extinction in the decades to come.
Enter biodiversity credits – an economic instrument used to finance activities that boost biodiversity, such as the conservation and restoration of ecosystems.
Over half of global GDP depends on nature and its services, and yet, humanity is spending nowhere near enough on protecting it.
In fact, we need to spend an additional USD 598 billion to USD 824 billion each year to reverse the biodiversity crisis by 2030, according to a report by The Nature Conservancy published in 2020.
That financing gap was a hot topic leading up to the signing of the Kunming-Montreal Global Biodiversity Framework (GBF) in 2022, when countries agreed to mobilize at least USD 200 billion in financing per year by 2030 to halt and reverse biodiversity loss, including through innovative schemes such as biodiversity credits.
Now, biodiversity finance is set to feature high on the agenda again as world leaders prepare to gather in Cali, Colombia, for the United Nations Biodiversity Conference (COP16) this October.
But what are biodiversity credits, exactly?
Biodiversity credits are an innovative approach to channel private investment into biodiversity. Essentially, companies can fund the protection of biodiversity by buying credits from organizations that are working to conserve and restore landscapes.
Much like carbon credits, biodiversity credits are generated through conservation and restoration, with each credit assigned a value equivalent to a certain area of land conserved or restored for a given length of time.
Private companies can then buy these credits to meet their own biodiversity commitments.
Biodiversity credits have seen interest from environmental charities, non-governmental organizations, donors, governments, development banks and private investors.
In fact, global demand could reach USD 2 billion by 2030 and USD 69 billion by 2050, according to a recent report by the World Economic Forum and McKinsey.
“Many organizations with nature-related mandates or targets might find biodiversity credits an attractive vehicle to deliver verified outcomes,” says the Biodiversity Credit Alliance (BCA), which includes scientists, academics, conservation practitioners, and agencies that set standards for financial instruments.
The price and unit of a biodiversity credit can vary widely.
In some schemes, a credit represents a basket of outcomes that benefit biodiversity. In others, it’s a single metric – say, the number of trees of a given species protected, or a calculation of protection of an area for a fixed period of time.
For example, Savimbo, which describes itself as a company created by and for Indigenous Peoples and local communities, sells biodiversity credits online at prices as low as USD 7.50 per credit for projects that focus on biodiversity conservation in the Colombian Amazon.
Each credit from Savimbo represents one hectare of 100-percent conserved biodiversity in a biodiversity hotspot for a month. Its methodology is based on a single metric of measurement involving 20 to 30 indicator species, including endangered, trafficked and culturally significant species.
At the more complex end of the scale, U.K.-based plant conservation charity Botanic Gardens Conservation International (BGCI) issues biodiversity impact credits (BICs) to fund tree species recovery projects.
While the cost of a BIC varies by species and country, they “average out at USD 100,000 per year for five to six years until the trees are established in the wild.” BGCI says its work focuses on trees that are close to extinction, large-scale afforestation and deforestation, and organizational biodiversity footprints.
Carbon credits aim to reduce greenhouse gas emissions to combat the climate crisis, whereas biodiversity credits focus on preserving and enhancing biodiversity, explains the Conservation Foundation.
And while there’s no standardized unit for biodiversity credits, carbon credits are universally measured in tons of carbon dioxide equivalent.
It’s worth noting that in many cases, actions that boost biodiversity can also deliver ‘co-benefits’ to the climate. For instance, restoring degraded peatlands can benefit the flora and fauna that live in them, as well as sequestering huge amounts of carbon.
As such, it’s possible that a project could issue both biodiversity and carbon credits.
Biodiversity credits are designed to be nature positive – meaning they have a net positive impact on biodiversity, such as by conserving and restoring landscapes in the long run.
On the other hand, biodiversity offsets are designed to compensate for damage done in one location by protecting biodiversity somewhere else.
According to BCA, corporations and financial institutions may want to use biodiversity credits to preserve access to key inputs and ecosystem services, demonstrate their commitment to global frameworks like the Kunming-Montreal GBF, comply with regulatory requirements or maintain their ‘social license’ to operate.
Corporations have also faced mounting pressure to publicly disclose their impacts on nature through such efforts as the Task Force on Nature-related Financial Disclosures, a government-supported global initiative that provides companies with guidance on how to report their impacts.
The market for biodiversity credits is still young, and there are still major concerns over the measurement, reporting and verification of biodiversity outcomes. That includes risks linked to accounting and integrity, especially given the lack of a standardized unit for biodiversity.
It’s important that regulations and standards are quickly developed and enforced to ensure that these credits are genuinely nature positive, not just greenwashing.
Lastly, it’s crucial to respect the rights of traditional landowners, including Indigenous Peoples and local communities – especially as many carbon credit projects have been accused of fueling land grabs and causing various forms of harm to communities in the Global South.
Biodiversity credit schemes must ensure that local people receive a fair share of benefits and also participate in the design and implementation of projects on their land.
With the global market for biodiversity finance still in its infancy, it’s early days for the development of standards and methodologies to create and regulate biodiversity credits.
Given the potential demand, governments and regulators have a crucial role to play in enabling the market to develop by devising and enforcing clear and transparent rules to promote the supply of high-quality credits and robust verification standards.
Some governments are already preparing for the growth of biodiversity credits. Last year, the U.K. and France started working on a global roadmap to facilitate the creation and growth of high-integrity biodiversity credit markets. An advisory panel report on the roadmap is set to be released at COP16.
Meanwhile, the government of New Zealand recently held a public consultation on the feasibility of biodiversity credits. More than three-quarters of respondents supported the creation of a biodiversity credit system, while 70 percent believed it would attract investment to support indigenous biodiversity.
Public development banks can also help promote greater investment in biodiversity and nature-based solutions in countries where they lend, according to a 2021 report by The Biodiversity Consultancy and World Wildlife Fund (WWF) for Nature France.
With their USD 2.3 trillion in annual financing, usually to sectors that private investors consider unprofitable, the world’s 552 public development banks can help their clients contribute to nature-positive finance and reduce investments that harm biodiversity, the report found.
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