Image Generated by DALL-E
In a previous blog about being Nature Positive, there was brief mention of biodiversity credits (BC), which aim to assign an economic value to efforts to preserve or restore ecosystems. Investing in BCs is seen as a way for companies to improve the reputation of their brands and products as well as attract talent, retain customers, and reduce the risk of regulatory exposure. Biodiversity credits have existed for decades in some countries such as Australia, the U.S., Canada, and Colombia. In June 2023, the UK and France announced a joint plan to launch a new biodiversity credits initiative. In this blog, we will discuss what biodiversity credits are, how they work, and what this means for conservation.
What are they? Why are they needed?
Biodiversity credits are a novel financial instrument that could play a pivotal role in contributing to a nature-positive future. While there is no firmly agreed definition yet, biodiversity credits can be described as a verifiable and tradeable financing instrument that rewards positive outcomes for biodiversity over a fixed period. With sufficient safeguards and high-integrity standards, credits can be used to finance actions that result in measurable improved outcomes for biodiversity, encompassing species, ecosystems, and ecosystem services.
To halt and reverse the trend of nature loss requires investments to restore and regenerate natural functions in agriculture and forestry, as well as make progress across all targets set by the Kunming–Montreal protocol, such as 30X30 and Nature Positive. To be successful, sufficient financing and comprehensive mechanisms for monitoring and accountability are required. Until now, 80% of the funding going to nature conservation comes from public sources. This presents an opportunity for forward-looking companies and business leaders to get ahead of the curve and shape an investment environment that values nature and people as well as the bottom line.
It should be noted that biodiversity credits and carbon credits are different. While they both aim to encourage positive environmental actions, carbon credits specifically target the reduction of greenhouse gas emissions to combat climate change, whereas biodiversity credits focus on preserving and enhancing biodiversity. Both concepts contribute to the broader goal of sustainable development and environmental stewardship, albeit through different pathways. BCs don’t put a price on nature but rather put a price on the “human labor and technology cost” required to conserve or enhance biodiversity. One proposed pricing scheme has the BC defined as a unit of space and time: a set number of square meters being actively conserved for a defined number of years. The credits enable companies to buy units of conservation projects simply as an investment in the cost of doing business.
How do biodiversity credits work for the seller?
The steps involved for the seller are:
- Companies that develop biodiversity credits identify a threatened habitat and partner with the landowners.
- A biological survey is conducted to establish the habitat’s baseline condition. This survey uses factors like water quality, ecological integrity, and species richness.
- The land is assessed by an accredited assessor.
- The landholder applies for a Biodiversity Stewardship Agreement (BSA). A BSA typically refers to a formal arrangement or contract between landowners and relevant authorities to promote and support biodiversity conservation on private land.
- The credits can be sold.
- The landholder receives annual payments and implements the management plan.
Biodiversity credits can be sold on a market to other developers who need to offset the environmental impacts of their own projects. They can be transferred and sold to individuals and companies seeking to make claims on those outcomes.
Biodiversity offsetting is a system for placing a value on a habitat, plant, or animal. The credit or unit can be bought or sold to offset damage being done. This creates a financial incentive to conserve natural assets elsewhere.
How do biodiversity credits work for the buyer?
Businesses that have already signed up to nature-positive strategies or that are otherwise convinced to support conservation efforts may also be swayed by the simplicity and cost-effectiveness of BCs.
“Companies don’t have the capacity in-house to gauge if a conservation project makes sense or not – credits make the transaction easy,” says Carlos Drews of OceanWise, an organization looking to package its work in credits.
The World Economic Forum has proposed a few potential use cases for the biodiversity credits including:
Source of Graphic: Biodiversity Credits: Demand Analysis and Market Outlook, World Economic Forum
Use case #1 – Enhance carbon credits for better nature outcomes – A company may purchase biodiversity credits to meet dual climate and biodiversity targets, given the complementarities of actions required to regulate the climate and restore biodiversity.
Use case #2 – Access ecosystem services as inputs – Biodiversity credits can be purchased that may help to secure or enhance the provision of ecosystem services within a company’s supply chain.
Use case #3 – Contribute to nature recovery beyond own impact – A company could purchase biodiversity credits to demonstrate its commitment to improving outcomes for nature, if it makes no claim against that purchase in relation to its own impacts and dependencies, and as long as the purchase does not substitute actions to avoid and reduce those impacts.
Use case #4 – Offer products bundled with nature recovery – Companies may offer biodiversity credits bundled with the sale of a product or service they offer.
Contested use case #5 – Take responsibility for unmitigated biodiversity impacts – In certain circumstances, companies may seek to take responsibility for their residual direct and indirect impacts through voluntary, positive investments. There is no consensus around using biodiversity credits in this way, and the high-integrity applicability of this use case requires additional market infrastructure and governance which are currently absent.
In addition, investing in BCs could be one way for companies to improve the reputation of their brands and products as well as attract talent, retain customers, and reduce the risk of regulatory exposure.
What does it mean for conservation?
While BCs are in their infancy, many conservationists are embracing credits as a new tool to fund, if not revolutionize, the business of conservation. The World Economic Forum estimates that policies to reverse nature loss could offer opportunities for new products and services worth $10 trillion a year to businesses.
For businesses, BCs could be part of an “eco-portfolio.” They would complement donations to conservation organizations and other sustainability NGOs. For example, PepsiCo supports and rewards farmers who are new to conservation practices AND those who have been using these practices for years. PepsiCo offers a higher payment during the first two years that a field is managed with cover crops and reduced tillage. For years three and beyond, PepsiCo has continued to offer financial incentives in exchange for the right to claim carbon assets against their corporate climate commitments.
Whether or not BCs will be a game-changer for biodiversity conservation will likely depend on whether they add value above what conservation has at its disposal today. If they succeed in unleashing private investment into biodiversity and conservation data, BCs have an opportunity to fundamentally alter the conservation landscape for the better. By packaging it into units that can be transparently monitored over time, conservation may finally have a new outlet and market for its services and end its dependencies on government budgets.
How can The Conservation Foundation work with biodiversity credits?
Conservation land trusts like The Conservation Foundation may not directly issue biodiversity credits, as this is often a more formalized and regulated process involving government agencies and sometimes third-party organizations. However, a conservation land trust could potentially play a role in a larger conservation or mitigation strategy that includes biodiversity credits.
Through The Conservation Foundation’s Conservation@Work program, The Conservation Foundation educates business owners and organizational leaders on efforts that positively affect biodiversity and wildlife habitats along with educating on the benefits of native plants, ways to conserve the rainwater that falls on their land, proper management of invasive species, and how to reduce chemical use and watering. The Conservation Foundation helps organizations to protect land and water, and, therefore, be nature positive. The Conservation Foundation can work on projects that could sell biodiversity credits. It can also advise companies on how to take advantage of biodiversity credits and help with identifying buyers.
These practices not only help preserve and restore our natural environment, but they can drastically reduce maintenance costs while providing shelter for beneficial wildlife and beautiful outdoor spaces to enhance employee and customer satisfaction. In other words, being nature positive is not only good for the planet and biodiversity, but is also good for business.
Those who employ these principles can earn Conservation@Work certification, receive a sign recognizing their efforts and one-on-one advice about ways to make an even more positive environmental impact on their property. There is a one-time fee of $300 for certification, which includes a one-year membership to The Conservation Foundation.
Ready to support conservation? Well, that is what The Conservation Foundation does every day. We can all do more together than we can alone. Join our collective momentum – become a member today!
Feel free to comment on this blog with your ideas on conservation and biodiversity credits.
By Steve Stawarz, Oak Brook
DuPage County Advisory Council Member
