By Victoria Galeano*
Imagine sipping your morning coffee in a bustling city, knowing that your actions are helping to preserve distant rainforests. This is the magic of biodiversity credits—a financial innovation blending economics with environmental stewardship. These credits provide a tangible, measurable impact on biodiversity, offering a lifeline to endangered ecosystems and species at risk, creating a direct link between everyday actions and the health of distant natural habitats.
Biodiversity credits serve as certificates that signify positive outcomes for nature. They ensure benefits that are real, measurable, and enduring. For instance, one biodiversity credit might represent conserving 10 square meters of rainforest for 30 years, maintaining the entire ecosystem, from soil microorganisms to canopy-dwelling birds. These credits are meticulously calculated to ensure their impact is genuine and sustained over time, providing lasting ecological benefits.
The criteria for generating biodiversity credits are stringent. Projects must demonstrate additionality, ensuring that the outcomes would not have occurred without the project. They must also ensure the durability of these outcomes, maintaining them over the long term. This rigorous approach guarantees that biodiversity credits have a real, positive impact on the environment. By adhering to these strict criteria, biodiversity credits ensure that conservation efforts are sustainable, providing long-term benefits for ecosystems and communities.
The importance of biodiversity cannot be overstated. It supports essential services like clean water, fertile soil, and climate regulation. Economically, biodiversity underpins industries such as agriculture, pharmaceuticals, and tourism, contributing significantly to global GDP. Estimates suggest that reversing biodiversity loss could require an annual investment of $600-800 billion. Biodiversity credits offer a market-based approach to mobilize private sector investments, bridging the funding gap needed to protect our natural world. This financial tool provides a sustainable way to fund conservation efforts, ensuring long-term ecological health and stability.
COP16, scheduled in Cali, Colombia, from October 21 to November 1, 2024, aims to shape the future of biodiversity conservation. This conference will be crucial in translating the Kunming-Montreal Global Biodiversity Framework’s ambitious targets into actionable national plans. Countries will present updated National Biodiversity Strategies and Action Plans, aligning global efforts and integrating biodiversity credits into national conservation strategies. The outcomes of COP16 are expected to significantly influence the biodiversity credit market, enhancing international cooperation and financial commitments from both public and private sectors.
The current level of biodiversity loss worldwide is alarming. Human activities have accelerated species extinction, putting around 1 million species at risk within decades. This decline threatens crucial ecosystem services like food production, water purification, and climate regulation. Immediate action is necessary to implement mechanisms like biodiversity credits to safeguard biodiversity. Without these measures, continued biodiversity loss could lead to ecosystem collapse, more frequent natural disasters, and loss of livelihoods for millions reliant on natural resources. The urgency of this issue underscores the importance of innovative solutions like biodiversity credits, which can provide much-needed funding for conservation.
The Instrument
Biodiversity credits emerged in the early 2000s, inspired by the success of carbon credits. The aim was to create a financial mechanism that could generate positive outcomes for biodiversity, attracting investments from corporations looking to offset their environmental impacts. The Terrasos project in Colombia was a pioneering effort, assigning specific values to biodiversity credits based on land conservation or restoration, helping establish a structured market. These early initiatives laid the groundwork for the current biodiversity credit market, providing a model for future projects and helping to refine the methodologies used to value and trade these credits.
Selling biodiversity credits involves various platforms and exchanges, although the market infrastructure is still evolving. Sellers typically collaborate with project developers, conservation organizations, and financial intermediaries. Notable platforms include the International Platform on Biodiversity and Ecosystem Services and initiatives supported by the World Economic Forum. Companies looking to buy biodiversity credits can engage with these platforms or work directly with conservation projects, with organizations like the Biodiversity Credit Alliance providing structured programs. This evolving market infrastructure ensures that biodiversity credits can be effectively traded, supporting global conservation efforts and creating new opportunities for investment.
Calculating the value of biodiversity credits involves detailed metrics. Projects generating these credits must show measurable improvements in habitat quality, species population, and ecosystem health. The Biodiversity Credit Alliance emphasizes using robust methodologies to ensure these outcomes are real and not just theoretical. This means employing multiple metrics to capture the full spectrum of biodiversity benefits, avoiding any unintended harm to other ecosystem components. Such rigorous standards ensure that biodiversity credits truly contribute to conservation goals, providing verifiable and lasting benefits for nature.
The price of biodiversity credits can vary widely depending on the project and the specific conservation outcomes. For example, biodiversity credits from the Bosque de Niebla-El Globo Habitat Bank in Colombia were priced at around $30 each (ClimateTrade, CarbonCredits.com). In other cases, biodiversity credits associated with carbon projects can fetch a premium, adding about 30% to the price of the carbon credit itself (WRI, World Economic Forum). This variability in pricing reflects the diverse nature of biodiversity projects and their respective impacts.
Various industries can benefit from biodiversity credits. Agriculture, forestry, real estate, and finance sectors can use these credits to demonstrate their commitment to sustainability. Companies can show they are not just profit-driven but also care about the planet, enhancing their corporate social responsibility profiles and complying with environmental regulations. This can also boost their brand reputation, appealing to eco-conscious consumers. By integrating biodiversity credits into their business models, companies can contribute to global conservation efforts while achieving their sustainability goals and improving their market position.
Biodiversity credits play a crucial role in the conservation of endangered ecosystems and species. They channel funds into projects that protect and restore critical habitats. For example, the Tondwa Game Management Area in Zambia uses biodiversity credits to conserve vital habitats, ensuring the survival of numerous species. Similarly, in Colombia’s Bosque de Niebla cloud forest, biodiversity credits fund the preservation of this unique ecosystem, safeguarding its rich biodiversity for future generations. These projects highlight the tangible benefits of biodiversity credits in protecting the natural world and ensuring the survival of diverse species.
Biodiversity credits differ from carbon credits in their focus and metrics. While carbon credits aim to reduce or offset carbon emissions using standardized metrics like tonnes of CO2, biodiversity credits focus on generating positive biodiversity outcomes. These involve complex and diverse metrics related to ecosystem health and species diversity, beyond just offsetting emissions. This broader focus makes biodiversity credits a comprehensive tool for addressing various environmental challenges and promoting holistic conservation strategies.
Can a project obtain both carbon and biodiversity credits? Absolutely. This process, known as “stacking” or “bundling” credits, allows a single project to deliver both carbon sequestration and biodiversity conservation outcomes. For instance, a reforestation project might sequester carbon while also restoring habitats for local wildlife, thereby earning both types of credits. This dual crediting approach ensures that projects provide multifaceted environmental benefits, enhancing their overall impact and appeal to investors.
Colombia offers valuable lessons in biodiversity conservation. The country has implemented innovative mechanisms such as biodiversity corridors, which connect protected areas and allow species to migrate and maintain genetic diversity. Their Payment for Ecosystem Services (PES) program compensates landowners for managing their land sustainably. Additionally, involving local communities and Indigenous peoples in conservation efforts ensures that traditional knowledge guides these initiatives. Innovative financing mechanisms like green bonds and biodiversity credits have also led to significant conservation successes, such as preserving the biodiversity-rich Chocó-Darién region.
Other countries are also leading the way. Australia’s Biodiversity Conservation Act and market-based instruments like the BushBroker program have been effective in ensuring that development projects contribute to conservation. Costa Rica’s PES programs have led to significant reforestation and biodiversity conservation. New Zealand employs a mix of legal protections, community-led conservation projects, and biodiversity credits to restore native ecosystems. These examples demonstrate the effectiveness of integrating biodiversity credits into national conservation strategies and the potential for replicating these models globally.
Success stories
Achieving bankability and investability in securing biodiversity credits requires a detailed roadmap. This starts with project planning and design, involving stakeholder engagement and feasibility studies. Ensuring legal and regulatory compliance is crucial, followed by thorough baseline assessments and selecting appropriate crediting standards. Implementing conservation actions, continuous monitoring, and engaging third-party verifiers ensure the credibility of the outcomes. Attracting investment through validated credits, diversifying funding sources, and maintaining transparency in credit transactions build trust and sustainability. Finally, reinvesting revenues in ongoing conservation activities and exploring opportunities to scale up are vital steps to ensure the long-term success and growth of biodiversity credit projects.
Companies must make biodiversity restoration commitments for several reasons. Regulatory compliance is one; in Australia, LendLease uses biodiversity credits to meet habitat conservation regulations. Corporate social responsibility is another; companies like Porsche Australia and CareSuper leverage biodiversity credits to enhance their sustainability profiles. Biodiversity credits also help in risk management, ensuring operational sustainability by mitigating environmental degradation. Market opportunities abound, with companies like South Pole packaging biodiversity projects alongside carbon credits, appealing to a broader range of investors. This multifaceted approach highlights the diverse benefits of integrating biodiversity credits into corporate strategies.
In developing countries, Colombia’s Terrasos Biodiversity Credit Program conserves the Bosque de Niebla cloud forest, while Zambia’s Tondwa Game Management Area uses credits to finance habitat restoration. In South Africa, ValueNature projects finance conservation through biodiversity credits, supporting long-term environmental goals. These initiatives demonstrate how biodiversity credits can drive conservation efforts in diverse contexts, providing essential funding and fostering sustainable practices.
The biodiversity credit market involves various stakeholders: project developers who design and implement biodiversity conservation projects; certifiers and verifiers who ensure the credibility and integrity of biodiversity outcomes; buyers, typically corporations or entities looking to offset their biodiversity impacts; sellers, including conservation projects or landowners generating and selling biodiversity credits; financial intermediaries who facilitate transactions between buyers and sellers; regulatory bodies that set the legal framework and standards for biodiversity credits; local communities and Indigenous peoples, who are stewards of the land whose involvement and rights must be safeguarded; and technology providers offering tools for monitoring and reporting biodiversity outcomes, such as remote sensing and blockchain for transparency.
The market for biodiversity credits is complex, requiring collaboration across various sectors to ensure long-term benefits for nature. As this market evolves, maintaining rigorous standards and ensuring equitable benefits for all stakeholders will be crucial. Biodiversity credits represent a promising tool for driving investment in nature conservation. They support global biodiversity goals and ensure sustainable economic development, providing a vital link between financial markets and environmental stewardship. By integrating these credits into broader conservation strategies, we can significantly enhance efforts to preserve our planet’s rich biodiversity. As we approach COP16, the focus on turning ambitious targets into actionable plans will be critical in shaping the future of biodiversity credits and their role in safeguarding our natural world.
*Victoria Galeano is founder and CEO of consulting firm PRISSMA. It supports clients with strategy consulting, capital raising/advisory, and investment opportunities origination services for projects that contribute to sustainable development.
