Can habitat banks save nature?

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As the sixth mass extinction looms, companies are under growing pressure to not only slash emissions, but also reduce their impacts on nature.

The biodiversity crisis is here – and the world needs to spend an extra USD 700 billion a year by 2030 to preserve nature at its current levels.

To help raise those funds, we’ve seen the rise of new innovative financing mechanisms to help us reverse biodiversity loss, such as biodiversity credits.

But what if we could turn nature into a bank in itself? Here’s where habitat banks come in.

What are habitat banks?

Habitat banking, also known as biodiversity banking, is when an area with valuable biodiversity is set aside for conservation activities. This area is known as a habitat bank.

On the commercial market, the benefits of biodiversity are quantified into credits, which entities can purchase to offset the negative effects of their own activities, such as land development.

This way, a developer’s net environmental impact can be neutral – or even positive – while it directs money into improving biodiversity.

First, ecologists assess damage to an ecosystem to quantify a company’s impact on it.

Companies are supposed to mitigate these impacts as much as possible, such as by building roads outside of important habitats or reducing pollution, before turning to offsets.

Then, for any unavoidable impacts that have been quantified, they can either preserve or create habitats near the site, or they can purchase ready-made biodiversity credits from a habitat bank elsewhere.

Conservation actions can range from removing invasive species and reintroducing native biodiversity to restoring wetlands.

Habitat banks set the price of a biodiversity credit by factoring in the cost of creating and maintaining their habitats, before selling those credits on the private market.

Since biodiversity restoration is a gradual process, a minimum duration is set for each credit – typically several years.

Habitat banks first emerged in the U.S. to preserve wetlands in the 1980s, when it was known as mitigation banking. Since then, it has emerged in various forms in other countries, such as Australia’s Biodiversity Offsets Scheme and Canada’s proposed fish habitat bank.

They can operate under various arrangements, ranging from companies running their own habitat bank projects to markets operated by private actors or public authorities.

Examples of habitat banks

In recent years, several countries have seen new developments in their habitat banking sectors. Let’s take a look at some examples.

Terrasos, Colombia

Terrasos is a Colombian company that operates several habitat banks in the country, including the Meta Habitat Bank, which became Latin America’s first when it was launched in 2016.

This bank dedicates more than 600 hectares to conserving and restoring the forests and savannas of the Orinoco River watershed, home to tapirs and jaguars.

Then in 2017, the Colombian government issued regulations for habitat banks, setting requirements for banks to be registered and the principles in which they operate.

Companies can buy credits from habitat banks as part of any legal obligations to rectify environmental damage they’ve caused.

Terrasos engages local residents to commit to biodiversity-enhancing activities for 30 years – the minimum time needed for rainforests to significantly recover and regain some of their ecosystem services that were lost when they was degraded.

The company was founded to address weaknesses under the current system, which forces companies to offset their own impacts in a piecemeal, short-term manner that reaps fewer biodiversity benefits than the habitat banks that Terrasos manages.

“We wanted to shift how environmental offsets were done in Colombia,” says Mauricio Serna, a biologist and voluntary markets leader at Terrasos.

“We wanted to put the bar high up for other companies to say: two years or five years is just not enough for biodiversity conservation restoration. We need long-term projects and we need permanency.”

He says a single credit that restores one hectare of habitat costs USD 10,000–15,000, but Terrasos also sells smaller credits made for the voluntary market called Terrasos Biodiversity Units (Tebus), which restore 10 square meters and are sold for as little as USD 25.

While he concedes that establishing this market has been one of the company’s greatest challenges, Serna points to its success in creating the region’s first habitat bank, which has already sold roughly 80 percent of its credits and is continuing to expand.

Biodiversity net gain in England

Since February, developers in England have been required to show that their work will boost biodiversity by 10 percent in order to receive planning permission.

This requirement, known as biodiversity net gain, uses an official metric to calculate the current existing biodiversity value of a land and to provide guidance on how to create or improve it.

Developers can fulfill these requirements by fostering biodiversity on site. If this isn’t feasible, they can instead restore habitats off site or purchase biodiversity credits on the market. If this still isn’t possible, they must buy biodiversity credits from the British government.

This new law aims to create a funding stream for landowners to commit their land to biodiversity restoration. As with Terrasos’s habitat banks in Colombia, land must be restored for at least 30 years to be eligible for a credit.

Some of the activities that can be taken to enhance habitats include sowing wildflower seeds and digging ponds. Landowners can also end practices that harm biodiversity, such as by changing grazing patterns or not applying fertilizer to grasslands.

An industry has cropped up to help builders adapt to the BNG policy. A leading provider of biodiversity credits, Environment Bank, currently manages a network of 26 habitat banks across England, while exchanges like BNGx seek to streamline the process for developers and land owners.

What’s next for habitat banks?

Serna says that the first challenge of establishing a habitat bank comes from finding the land in the first place.

This is especially true in Colombia, where a long history of armed conflict involving guerrilla fighters, paramilitaries and drug cartels has led to shaky land tenure and the need to verify land ownership.

He adds that the voluntary market for credits remains nascent, and companies are often unsure whether such credits have high integrity.

“We need to have credits that are meeting principles like permanency because biodiversity needs time to restore and be conserved, and also in terms of payment for results,” he says.

The climate crisis, too, threatens the biodiversity that habitat banks are working to improve.

A drought, for example, could raise the risk of a wildfire burning forests in a habitat bank, undermining long-term investments and preventing companies from meeting their environmental offset obligations.

Researchers in 2015 raised concerns that it can be difficult to compare the biodiversity levels of a site undergoing development with that of a habitat bank.

And with land prices being factored into the price of credits, developers could also possibly prioritize offsets in places with cheaper land prices rather than restoring biodiversity in the areas where they work.

Nevertheless, the cases of England and Colombia show that habitat banks are continuing to develop, often spurred by legal mandates for compensating environmental damage.

And elsewhere in the U.K., Wales and Scotland have recently held public consultations on adopting their own biodiversity metrics and net gain requirements for land planning.

Terrasos has not yet passed the 30-year mark, but Serna points out that it has already celebrated some successes. The company now has a dozen projects scattered around the country, protecting endangered species in a variety of ecosystems.

So, what’s the key to a successful habitat bank?

For Serna, it’s a good relationship with landowners, as they will be the ones improving biodiversity on the ground – hiring rangers, building plant nurseries, and monitoring biodiversity through trail cameras.

“They have to be happy and eager to have a conservation project for 30 years,” he says.