Biodiversity credits could be key to funding the conservation of the Earth’s ecosystems, but setting up a functioning market to buy and sell these payment tokens won’t be easy.
Protecting the world’s diversity of plants and animals has a direct bearing on the economy and companies: Around half of global output—some $44 trillion—is dependent on nature, according to research from the World Economic Forum. Roughly $600 billion to $800 billion more a year is needed to halt and repair the damage done to the natural world by global industry and agriculture, according to the think tank Paulson Institute.
One potential funding source is the nascent biodiversity-credit markets. Credits act as tokens that can be bought by companies and investors to fund restoration and conservation projects that, in theory, demonstrate positive outcomes for biodiversity.
Public spending alone cannot supply the funding needed to ensure the survival of ecosystems, making capital markets and the private sector vital, said Professor John Tobin-de la Puente, an ecologist at Cornell University.
A figure of around 1% of new and reinvested capital in private markets could serve to address the biodiversity crisis, said Tobin, a former global head of sustainability at lender Credit Suisse.
The World Economic Forum is working on bringing together stakeholders, but admits that a scaled-up market is still some way in the future.
Some biodiversity-credit systems have already begun. For example, a recently launched system in Australia allows investors to fund restoration projects without buying land. It follows the lead of so-called voluntary carbon credits that allow firms to buy credits to offset their own emissions. Those global carbon credit markets are now worth some $2 billion, up from $200 million five years ago, according to environmental-finance data provider Ecosystem Marketplace.
But the carbon-offset system has been beset by criticism, including that credits don’t deliver the promised emissions reductions, shuffle most of the cash to middlemen, and allow businesses to buy offsets, thereby delaying investment in developing cleaner new technology. A biodiversity credit market would need to surmount those problems, as well as some of its own.
Companies will eventually be asked to assess and reduce their impact on the world’s natural systems, in line with agreements reached by governments at last year’s COP15 biodiversity conference. And this month, a U.N.-backed framework will be published guiding business on how to report and act on nature-related risks such as deforestation, pollution, water stress and over farming. However, the market for biocredits is likely to be voluntary at first, with no plans for a major regulated market on the lines of the respected European Trading Scheme for carbon emissions.
“I feel a bit of ‘carbon envy’ when I look at the carbon markets,” Cornell’s Tobin said, noting that biodiversity markets lack a universal metric that can apply to every project, unlike carbon markets where each credit represents one metric ton of carbon dioxide.
“One [biodiversity] project intends to conserve habitat, and they measure their own success by the hectares of forest restored or set aside and conserved,” Tobin said. “But the next project down the road, which also claims to be delivering biodiversity returns, what they’re interested in is preserving the hippo, or the rhino.”
Companies will eventually be asked to assess and reduce their impact on the world’s natural systems, in line with agreements reached by governments at last year’s COP15 biodiversity conference, pictured.
Photo:
JULIAN HABER/UN BIODIVERSITY/via REUTERS
Carbon-market standard setter Plan Vivo plans to launch a biodiversity standard later this year to kick-start the market for credits for projects that conserve or restore important habitats. It has been working in partnership with project developers and in July announced a collaboration with biodiversity data startup Pivotal.
“It will be the first certified biodiversity certificate that’s available in what is a brand-new market,” Pivotal co-founder Zoe Balmforth said.
She warns buyers to be wary of projects that mark their own homework. “There will be a lot that come out with their own methodologies, their own systems of collecting data, and their own ways of putting that data together and saying, ‘I have a million credits,’” she said.
In addition to the challenges of building a reliable supply, the biocredit market also faces some uncertainty over demand.
Balmforth says there is burgeoning interest for biocredits. “Chief sustainability officers are talking about their interest in purchasing credits. [But] because the market doesn’t really exist yet, what we haven’t seen is that inflecting into purchase,” she said.
No major companies have confirmed their interest in purchasing biodiversity credits. Firms that depend on long agricultural supply chains, such as global food companies, would be expected to be among those most interested in using credits to redress their impact on biodiversity, Balmforth said. But consumer-goods giant
said “our focus is on addressing biodiversity through activities in our own value chain (and beyond) not through credits.”
Nestlé, the world’s largest packaged-foods company, similarly said it isn’t exploring the use of biocredits. The Switzerland-based group, which makes KitKat chocolate bars and Nespresso coffee pods, is focusing on its own actions including regenerative agriculture and forest restoration, though it is monitoring developments in biocredits, a spokesperson said.
Nestlé is also among the companies that have begun pulling out of carbon-offset markets amid doubts over their reliability.
Moreover, biocredits aren’t the only means of ensuring the necessary cash to protect nature, said Markus Mueller, chief investment officer for ESG at
private bank. Other tools are nature-linked bonds or blended finance, which uses development funds to spur private capital, he said.
“If we do it right, this can be one big driver for innovation in the context of creating a nature-compliant economic model,” Mueller said.
Write to Joshua Kirby at joshua.kirby@wsj.com
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