Biodiversity credits are gaining momentum as a market-based financial instrument to mobilize private finance for biodiversity conservation and restoration in the wake of the Kunming-Montréal Global Biodiversity Framework (GBF). Our recent paper Biodiversity credits markets – charting pathways for early investment and sustainable market growth identifies over 30 biodiversity credits – or biocredits, as they are often referred to – schemes announced over the past year. We suggest a framework that organizes emerging biocredit schemes and develop recommendations for private actors’ responsible engagement in the nascent biocredits markets.
Distinct from biodiversity offsets, biocredits are, in most cases, not designed to offset the negative impacts on biodiversity caused by a given project or production process. Biocredits represent net-positive contributions[1] to biodiversity. Biocredits markets hold significant potential to mobilize private finance for biodiversity conservation and restoration, with numerous stakeholders demonstrating interest in marketing or acquiring biocredits. However, uncertainties persist regarding the ability of biocredits markets to scale at the pace needed to effectively contribute to addressing the biodiversity crisis.
A high-level framework to classify biocredits schemes
We propose a framework to classify biocredits schemes based on two criteria:
- Governance entity: Schemes are either publicly-led (i.e., established by national or subnational governments) or privately-led (i.e., managed by non-governmental entities)
- Geographic scope: Schemes aim to standardize biocredits issuance at international or national levels.
The intersection of these criteria results in four categories of biocredits schemes. Figure 1 presents each category and two examples.
Opportunities and challenges of different biocredit schemes
While all the biocredits schemes have the potential to channel finance to ecosystems, each category faces specific challenges and opportunities based on its governance entity and geographic scope. Figure 2 presents common and differentiated opportunities and challenges across schemes following the same categories.
Potential of biocredits to scale up private finance
The mobilization of private capital is crucial to drive demand for biocredits. Three interrelated aspects are expected to influence the mobilization potential of these instruments in the future:
- Methodologies providing credible, transparent, and timely measurements for conservation and restoration projects
- Claims that corporates can make when investing in biocredits based on globally recognized definitions and uses of biocredits
- Prices for biocredits that are fair given the range of biodiversity conservation and restoration activities, ensure just benefit sharing agreements, and attract buyers
How quickly methodologies, claims, and prices will develop is unclear and the volume of finance that could be raised by biocredit markets is uncertain. Despite this, the following potential benefits to private sector actors encourage early engagement in biocredits schemes:
- Meeting voluntary biodiversity commitments set by corporates
- Anticipating transitional risks, such as the emergence of regulations and policies that require the monitoring, assessment, and disclosure of nature-related risks
- Addressing physical risks related to biodiversity loss and degradation,[2] as biocredits could help reduce corporates’ risks – through insetting[3] – with targeted result-based investments within their value chains
- Identifying bankable projects, with ecosystem restoration appearing particularly promising for profit-seeking investors, and mitigating nature-related risks in investment portfolios[4]
Recommendations for companies to engage with biocredits markets
Based on our analysis of the barriers and potential drivers for investments in biocredits, as listed in the previous paragraph, we developed five recommendations for the private sector to engage in the emerging biocredits markets at the early stage:
- Measure how companies’ operations impact and depend on biodiversity, identify the associated risks, and set up voluntary targets for nature. Recognizing these risks is the first step for companies to enable functioning biocredits markets. While most schemes will take time to develop fully, companies can anticipate risks and gain advantages by engaging in nature-related financial disclosures and committing to voluntary targets.
- Prioritize actions in the value chain before investing in other areas. Companies can only make net-positive contributions to biodiversity by addressing the damage caused by their own operations, before making biodiversity-related investments in other areas. Companies already facing vulnerability to biodiversity-related risks can use biocredits schemes as de-risking tools within their supply chains through insetting.
- Consider beyond value chain investments for preserving healthy ecosystems. Conservation and restoration at the landscape level enhance the delivery of ecosystem services, such as provisioning and regulating ones.[5] These services are often crucial for economic activities but not always accounted for as they are not directly integrated into the value chain.
- Engage in holistic approaches considering the multifaceted nature of conservation and restoration and the social and economic benefits for Indigenous Peoples (IPs) and local communities (LCs). These elements should be integrated into biodiversity strategies and measured to track progress, not relegated to a box-ticking exercise.
- Engage in early discussions on the development of biocredits schemes. Participating in these discussions could ensure that the standards address companies’ main impacts and dependencies on nature, and help companies understand their responsibilities to IPs and LCs and the requirements with which they must comply.
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[1] A net-positive contribution on biodiversity is describing an outcome where the impacts on biodiversity are positive, meaning that the initiatives funded by biodiversity credits result in a net gain in biodiversity. The IUCN definition of Net-Positive Impacts is available at: https://portals.iucn.org/library/sites/library/files/documents/Rep-2015-007.pdf.
[2] The risks depend on how highly or moderately dependent the industry is on intact ecosystems and their benefits, such as food and timber production, climate, soil formation, clean water, or air purification, among others.
[3] Insetting is a way for companies to harmonize their operations with the ecosystems they depend upon and transition to a more sustainable business model. International Platform for Insetting. Available at: https://www.insettingplatform.com/insetting-explained/
[4] NatureFinance, & Carbone 4. (2023).
[5] Ecosystem services can be divided into supporting, regulating, provisioning and cultural. Provisioning services include food and water supply; and the regulating services include flood, disease control, and temperature regulation.
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