Habitat Banks: Nature’s New Asset Class to Bridge the $800 Billion Biodiversity Finance Gap. A column by Victoria Galeano

By Victoria Galeano*

In the rolling hills of California, a quiet revolution in conservation finance has been unfolding for decades. Since the 1980s, habitat banking—a market-based approach to preserving biodiversity—has steadily evolved. What began as a tool to protect wetlands under the Clean Water Act has now expanded globally, offering a promising solution to one of the most pressing challenges of our time: the global biodiversity crisis (Environmental Law Institute, 2002).

Today, this innovative financial mechanism is gaining traction. From the United States to Australia, Colombia to the United Kingdom, habitat banks are emerging as powerful means to channel private capital into large-scale ecosystem restoration and protection. As the world grapples with the dual crises of climate change and biodiversity loss, these banks represent more than just a conservation strategy—they are the foundation of a new asset class that could help bridge the substantial biodiversity financing gap (Paulson Institute, 2020).

The Scale of the Crisis

The numbers are staggering. According to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), around 1 million animal and plant species are threatened with extinction, many within the next few decades. The rate of species loss is tens to hundreds of times higher than the average over the past 10 million years (IPBES, 2019).

This is not just an environmental tragedy—it’s an economic time bomb. The World Economic Forum estimates that $44 trillion of global GDP, more than half the world’s total economic output, is moderately or highly dependent on nature and its services (World Economic Forum, 2020). Key areas at risk include:

  • $235-577 billion in annual global crop value threatened due to pollinator loss (IPBES, 2016).
  • 60% of global coffee varieties are facing extinction due to climate change and disease (Davis et al., 2019).
  • $2.5 trillion per year in ecosystem services provided by the world’s oceans (OECD, 2016).

The economic impacts are already being felt. Swiss Re Institute’s Biodiversity and Ecosystem Services Index found that 20% of countries worldwide are at risk of ecosystem collapse due to biodiversity decline and related services (Swiss Re Institute, 2020).

The Financing Gap

Addressing this crisis requires massive investment. The Paulson Institute estimates that between $722-967 billion is needed annually to reverse biodiversity decline by 2030. Current investments fall woefully short, as global biodiversity finance amounts to just $78-91 billion per year, leaving a funding gap of $598-824 billion (Paulson Institute, 2020). Private sector finance, which currently accounts for just 14% of global conservation investments, must be mobilized at scale (Deutz et al., 2020).

Habitat Banks: A New Asset Class for Nature

Habitat banks are market-based mechanisms that pool multiple conservation projects to preserve, restore, and enhance ecosystems at a landscape level. They generate biodiversity credits—quantifiable units representing positive environmental outcomes—which can be sold to developers or companies to offset their unavoidable impacts on nature (OECD, 2016).

This concept is gaining traction globally:

  • In the United States, conservation banking has been used since the 1990s under the Endangered Species Act. As of 2017, there were 137 approved conservation banks in the U.S., protecting over 153,000 acres of habitat (U.S. Fish and Wildlife Service, 2019).
  • Australia has implemented biodiversity offset schemes at the state level, such as the BushBroker program in Victoria (Victorian Government, 2021).
  • Colombia introduced habitat banking regulations in 2017 and now has 14 registered habitat banks (Ministry of Environment and Sustainable Development, Colombia, 2023).
  • The United Kingdom is developing habitat banks as part of its Biodiversity Net Gain policy, set to be fully implemented in 2024 (UK Government, 2023).

Applying Infrastructure Finance Models to Nature

The key to scaling habitat banks lies in applying proven infrastructure finance models to biodiversity conservation. Public-private partnerships (PPPs), which have successfully financed roads, power plants, and hospitals, can be adapted for ecosystem restoration (Terrasos, 2024).

Several PPP models show promise for habitat banking:

  1. Build-Operate-Transfer (BOT): This model is particularly effective for large-scale ecosystem restoration projects with clear milestones and a defined transfer point. For example, the Great Barrier Reef Foundation in Australia uses a BOT-like approach for coral reef restoration. Private investors fund and manage restoration efforts, generating reef credits over a 25-30 year period, after which restored reef sections are transferred to public management (Great Barrier Reef Foundation, 2022).
  2. Design-Build-Finance-Operate (DBFO): Suitable for complex, long-term conservation projects on public lands. The Baviaanskloof Hartland Conservancy in South Africa exemplifies this approach, with a private consortium designing and implementing restoration strategies, financed through ecotourism revenues and payments for ecosystem services (Baviaans.net, 2023).
  3. Concession Agreements: Work well for established protected areas needing private sector efficiency and additional investment. Costa Rica’s national park management model grants 20-year concessions to private operators to manage visitor services and conservation activities, sharing revenues with the government (UNDP, 2021).
  4. Joint Ventures: Public-private entities form new companies to manage conservation projects. The Seychelles’ blue bond initiative created a partnership between the government and The Nature Conservancy to manage marine protected areas, funded by blue bonds and fishing license revenues (World Bank, 2022).

To further incentivize private sector participation, governments can offer:

  • Revenue guarantees: Ensuring minimum biodiversity credit prices or offtake agreements.
  • Tax incentives: Offering deductions or credits for habitat bank investments.
  • Regulatory fast-tracking: Streamlining approvals for investors in priority conservation areas.
  • Risk-sharing mechanisms: Providing insurance or first-loss guarantees to mitigate investor risk.

An emerging model that shows particular promise for habitat banks is the Public-Private-Philanthropic Partnership (4P). This approach brings together government agencies, private companies, NGOs, and philanthropic foundations to leverage their strengths (Levine, 2022).

Key success factors for 4P habitat banks include multi-stakeholder engagement, blended finance structures, robust governance, and technology integration. Tools like remote sensing, eDNA analysis, and blockchain can enhance monitoring and verification of biodiversity outcomes (World Economic Forum, 2020).

Specialized Biodiversity Functions as Investment Opportunities

Different industries are drawn to specific ecosystem services, aligning with their core business needs, here some conceptual illustrations:

  • Pollinator Pro Banks: Restore pollinator habitats, supporting agriculture, food production, and cosmetics reliant on pollinator-dependent plants, boosting crop yields and strengthening food security (The Nature Conservancy, 2021).
  • Water Shield Banks: Promote wetland conservation, appealing to water-intensive industries such as textiles and beverages, securing water resources and enhancing sustainable water use practices (Terrasos, 2023).
  • Carbon+ Forest Banks: Generate both carbon and biodiversity credits, appealing to industries targeting emissions reduction and ecosystem restoration, such as energy and manufacturing, while contributing to biodiversity conservation (World Bank, 2022).
  • Coastal Resilience Banks: Conserve coastal ecosystems (e.g., mangroves, coral reefs) to protect coastal infrastructure and support fisheries, benefiting tourism and real estate industries by reducing climate risks (UNDP, 2021).
  • Soil Health and Agroforestry Banks: Improve soil fertility through sustainable land management, supporting agricultural productivity and agroforestry initiatives, ensuring fertile soil and diversifying revenue streams through agroforestry products (OECD, 2016).
  • Urban Green Banks: Restore urban green spaces to improve air quality, reduce heat, and enhance urban biodiversity, benefiting real estate developers by increasing property values and achieving sustainability certifications (World Economic Forum, 2020).

While still an emerging asset class, biodiversity credits have the potential to mobilize capital at a scale similar to or even surpassing the $2 billion voluntary carbon market (Ecosystem Marketplace, 2021). Unlike carbon credits, biodiversity credits represent localized, tangible improvements to ecosystems.

The market is in its infancy, but early indicators are promising. In Colombia, biodiversity credits are trading at $10-15 per unit, with prices expected to rise as demand increases (Terrasos, 2023). Major corporations like Kering, Nestlé, and Holcim have already committed to investing in biodiversity credits (World Economic Forum, 2023).

Despite their promise, habitat banks and biodiversity credits face challenges such as standardization, additionality, leakage, and long-term sustainability (IUCN, 2021). Initiatives like the Taskforce on Nature-related Financial Disclosures (TNFD) are working to create standardized frameworks for measuring and reporting biodiversity impacts (TNFD, 2023).

A Call to Action for Latin America

Latin American countries, home to some of the world’s most biodiverse ecosystems, are uniquely positioned to lead this financial innovation. The region hosts 6 of the world’s 17 megadiverse countries and contains 40% of Earth’s biodiversity (Convention on Biological Diversity, 2021).

Colombia’s pioneering efforts in habitat banking offer valuable lessons. Since introducing regulations in 2017, the country has seen rapid growth in biodiversity credits, with 14 habitat banks registered as of 2023 (Ministry of Environment and Sustainable Development, Colombia, 2023).

The Road Ahead

The biodiversity crisis demands urgent, bold action from all sectors of society. Habitat banks offer a promising avenue to channel private capital into large-scale conservation efforts. By leveraging proven financial models and aligning economic incentives with ecological preservation, we can build a nature-positive economy that sustains both business and biodiversity.

As we approach critical meetings like the UN Biodiversity Conference (COP16) in Cali, Colombia, in 2024, the spotlight will be on innovative solutions like habitat banks (UN Convention on Biological Diversity, 2023). With the right policies, investments, and collaborations, we can turn the tide on biodiversity loss and create a sustainable future for generations to come.

The question is no longer whether we can afford to invest in nature—it’s whether we can afford not to.

*Victoria Galeano is founder and CEO of consultancy Prissma. It supports clients with strategy consulting, capital raising, investment opportunities, and origination services for projects that contribute to sustainable development.a

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