A New Way of Financing Nature Protection

Biodiversity credits have emerged as a novel instrument in the fight against climate change, with the United Nations touting their potential to address shortcomings of carbon offsets or step in where such mechanisms prove inapplicable. 

The UN has thrown its weight behind these credits, signalling their growing importance in global environmental strategies.

Yet, as interest in biodiversity credits grows, questions arise about their mechanics and how they differ from biodiversity offsets. For those pondering these distinctions, this guide aims to provide clarity and insight.

What is a Biodiversity Credit?

From coral reefs to rainforests, the remarkable diversity of life on Earth—biodiversity—is disappearing at an alarming pace. 

This erosion not only imperils the ecosystems that sustain life but also jeopardises humanity’s future, destabilising economies, food systems, and exacerbating the impacts of global warming.

The loss of mangroves, for example, increases vulnerability to coastal flooding, while the collapse of pollinator populations threatens agricultural yields. 

These cascading effects reveal how deeply human prosperity is intertwined with the natural world. As biodiversity vanishes, the stability of both ecological and economic systems hangs in the balance.

The stakes are enormous. The World Economic Forum estimates that nearly half of global GDP—approximately $44 trillion—depends on nature’s bounty. The destruction of ecosystems, then, is not just an environmental tragedy but a profound economic one.

Despite comprising a mere 0.01% of the planet’s biomass, humans have wrought disproportionate havoc, wiping out 83% of wild mammals and half of all plants. 

The imbalance is stark, and the consequences could be catastrophic.

Safeguarding biodiversity benefits not only the planet’s ecosystems but also the millions of people who depend on them for their livelihoods and well-being. 

Yet the financial resources needed to protect nature fall woefully short—an estimated $700 billion annually. To address this gap, individuals and firms have devised a novel mechanism: biodiversity credits. 

These credits allow entities to channel investments into projects that enhance and restore biodiversity, offering a market-based approach to reversing the rapid loss of the natural world.

A biodiversity credit is a certified legal document that represents an environmental action. The document details the location, developer, methodologies, and certification system used for the environmental action.

Biodiversity credits, or “biocredits,” are measurable, traceable, and tradeable units designed to finance the conservation and restoration of nature. They offer a market-based approach to tackling one of the planet’s most pressing challenges: the rapid decline of ecosystems.

Investor interest in biocredits is surging, with asset managers increasingly viewing them as a promising opportunity. 

The allure is clear: biocredits align environmental impact with financial returns, offering a compelling reason for investors to channel billions of dollars into preserving the natural world.

Biodiversity is the bedrock of global nutrition and food security, with countless species collaborating to provide the fruits, vegetables, and animal products essential to a healthy diet. Yet this intricate web is fraying, threatening humanity's sustenance. 

The fallout is stark: a third of the global population suffers from micronutrient deficiencies, while food supply chains grow increasingly fragile.

Take rice, a staple for billions. In Asia, the number of rice varieties has plummeted from tens of thousands to just a few dozen. In Thailand, half of the land dedicated to rice cultivation produces only two varieties. 

The loss of agricultural diversity erodes resilience and jeopardizes the plates of millions. Preserving biodiversity is, therefore, as much about feeding humanity as it is about maintaining planetary health.

Biodiversity’s Role in Combating Disease

Encroachment on natural ecosystems not only depletes biodiversity but also invites disease. As animals and humans share shrinking habitats, the conditions for zoonotic disease transmission flourish. 

Around 60% of infectious diseases originate in animals, highlighting the link between biodiversity and human health.

Plants, too, are vital in fighting disease; 75% of cancer drugs are derived from or inspired by nature. Every species lost is a potential breakthrough medicine left undiscovered. Biodiversity is, quite literally, a lifesaver.

Biodiversity's Business Case

Nature is not just an ecological asset but an economic one. The World Economic Forum estimates that over half of global GDP—roughly $44 trillion—depends on biodiversity. 

Pharmaceuticals alone generate $75 billion annually from natural materials. Industries like food and tourism are equally reliant, making biodiversity loss a tangible threat to business continuity.

Conversely, restoring ecosystems pays dividends. Every dollar invested in restoration delivers an estimated $9 in economic benefits, while helping to avert trillions in environmental and social damages. For businesses, biodiversity is not just a moral imperative but a financial opportunity.

Livelihoods at Stake

Natural ecosystems generate $125 trillion in value annually and underpin livelihoods worldwide. Three-quarters of jobs involve water, while agriculture employs 60% of the working poor. 

Forests sustain over a billion people in the Global South. Protecting biodiversity is not merely an ecological necessity—it is a socioeconomic imperative.

Why Biodiversity Credits Matter

Given these stakes, investing in biodiversity should be a no-brainer. Biodiversity credits—or "biocredits"—are emerging as a market-based solution to finance restoration and conservation efforts. These credits quantify ecological benefits, making them tradable and easily integrated into economic decision-making.

For businesses, supporting biodiversity credits enhances reputation and meets rising consumer expectations for sustainability. 

Landowners, meanwhile, can profit from conservation projects while providing stronger ecological protections than would be possible without compensation.

Biodiversity offsets function in a way akin to carbon offsets. They operate on the premise that the environmental impacts of development—be it construction, mining, or other land-intensive activities—can be counterbalanced by protecting, enhancing, or establishing equivalent habitats elsewhere. 

After all reasonable steps to prevent and mitigate damage have been taken, offsets are deployed to achieve measurable conservation outcomes that compensate for residual biodiversity loss.

The concept hinges on the principle of “no net loss” of biodiversity. Offset sites are designated areas where ecosystems are preserved or improved through measures such as fencing, pest control, and the planting of native species. 

These initiatives aim to ensure that development proceeds in a way that does not irreversibly harm ecosystems or the species that rely on them. Moreover, biodiversity offsets incentivize the conservation of private land, offering landholders a source of income while fostering long-term ecological preservation.

Biodiversity Offsets vs. Credits

While biodiversity offsets and credits may appear similar, their purposes and applications diverge significantly. 

Offsets are rooted in the “polluter pays” principle and are typically mandated by regulatory frameworks. Developers seeking permits for land exploitation are often required to implement offsets, ensuring that the external costs of biodiversity loss are accounted for in their projects.

In contrast, biodiversity credits are voluntary financial instruments aimed at funding initiatives that generate measurable biodiversity gains. 

Unlike offsets, credits are not tied to compensating for harm but rather serve as investments in ecological recovery. 

A company purchasing biodiversity credits does so as part of a broader commitment to a “nature-positive” strategy, rather than as a means of rectifying environmental damage.

A Subtle but Crucial Distinction

The difference lies in intent and claims. Biodiversity offsets are compensatory, designed to neutralize the ecological footprint of specific projects. 

Biodiversity credits, by contrast, represent a proactive effort to restore and enhance nature, contributing to its recovery without offsetting prior damage.

Both mechanisms have roles to play in addressing the biodiversity crisis. Yet for companies seeking to align themselves with environmental stewardship, biodiversity credits offer a forward-looking opportunity to invest in nature’s recovery, unencumbered by the obligation to mitigate past harm.

Here are additional examples of biodiversity credit initiatives from around the world:

Australia: “EcoAustralia™ credits”

In 2018, Australia introduced its unique EcoAustralia™ credits by developer South Pole. Unlike other biocredits, each EcoAustralia™ credit is a combination of one “Australian biodiversity unit” (ABU) and one carbon credit (issued by Gold Standard). 

Each ABU represents 1.5 square meters of habitat protection. 

An example of a project that issues ABUs is the Mount Sandy project. It protects a rare pocket of native vegetation in South Australia’s Coorong region under the care of the Ngarrindjeri people. Buyers of EcoAustralia™ credits are Porsche Australia, the University of Melbourne, and CareSuper.

India: "India Biodiversity Credit" Pilot

India has initiated a biodiversity credit pilot project in collaboration with local environmental NGOs and academic institutions. 

This program focuses on community-led conservation efforts. For instance, credits are earned by farmers and tribal communities who protect endangered flora and fauna in designated regions, such as the Western Ghats. 

These credits are sold to corporations looking to demonstrate social and environmental responsibility.

United Kingdom: "Habitat Banking Credits"

The UK launched habitat banking initiatives to comply with its biodiversity net gain (BNG) policy under the Environment Act 2021. 

Developers are required to purchase biodiversity credits to offset the environmental impact of construction projects. 

These credits finance the creation or restoration of natural habitats, such as wetlands and meadows, ensuring long-term biodiversity conservation.

South Africa: "Biodiversity Offset Credits"

South Africa developed biodiversity offset programs under its National Biodiversity Strategy and Action Plan. 

A notable project is the Grassland Offset Programme, where mining companies purchase biodiversity offset credits to fund the conservation of grasslands that house threatened species. 

These offsets ensure compliance with environmental regulations while supporting ecological sustainability.

Brazil: "Biodiversity Compensation Credits"

Brazil’s initiatives, such as those facilitated by the Amazon BioCredits program, aim to conserve the Amazon rainforest. 

These credits compensate local communities for their efforts in preserving the biodiversity-rich rainforest while providing funding for sustainable economic activities. Buyers include multinational corporations committed to zero-deforestation supply chains.

Canada: "Biodiversity Performance Credits"

Canada’s program focuses on measurable outcomes in biodiversity conservation. 

For example, forestry companies can purchase credits to support projects that protect caribou habitats in boreal forests. 

These credits, issued by the Forest Carbon Initiative, integrate carbon sequestration and biodiversity benefits, ensuring sustainable forest management.

Costa Rica: "Biodiversity Payment Credits"

Costa Rica, a pioneer in payment for ecosystem services (PES), now extends its model to biodiversity credits. 

Landowners earn credits for preserving critical ecosystems such as mangroves and cloud forests. 

These credits are sold on international markets to fund conservation efforts, helping the country maintain its leadership in ecological preservation.

Indonesia: "Mangrove Biodiversity Credits"

Indonesia, home to some of the world's largest mangrove forests, introduced mangrove biodiversity credits. 

These credits are tied to projects that restore and protect mangroves, which are vital for marine biodiversity and carbon sequestration. Buyers include coastal tourism companies and seafood exporters aiming to reduce their environmental impact.

These examples illustrate the diversity in approaches to biodiversity credits globally, ranging from habitat protection to species-specific conservation and integrated credits that combine biodiversity with carbon offsets. 

The market is rapidly evolving, opening new opportunities for environmental conservation and sustainable development.

Understanding Biodiversity Stewardship

To navigate the process of earning biodiversity credits, one must first grasp the concept of biodiversity stewardship. 

This approach involves agreements with private and communal landowners to manage and protect areas of ecological significance. For landholders, the path to generating and selling biodiversity credits begins with establishing a biodiversity stewardship site. 

Australia, with four years of experience in the field, offers a clear framework to follow.

Here are the four key steps to earning and selling biodiversity credits:

Step 1: Determine Eligibility

The first task is to confirm that your land qualifies for biodiversity credits. 

This involves meeting specific eligibility criteria, which can be assessed with the help of an accredited biodiversity assessor. The assessor will identify the types of credits your site could generate based on its ecological features.

Before submitting a formal application, you might consider advertising your site on the relevant registry to attract potential buyers for your future credits.

Step 2: Apply the Biodiversity Assessment Method

Next, an accredited assessor conducts an evaluation of your site using the Biodiversity Assessment Method (BAM). 

This results in a Biodiversity Stewardship Site Assessment Report, which details the type and quantity of biodiversity credits your site can produce.

The report also includes a proposed management plan for your stewardship site, forming the basis of the Biodiversity Stewardship Agreement (BSA). Both the report and the agreement are then submitted to the responsible authority for approval.

Step 3: Enter into a Biodiversity Stewardship Agreement

Once your application is reviewed and approved, the biodiversity credits are registered on the appropriate platforms and linked to the title of your land. 

At this stage, the credits are ready for sale. Transactions are recorded in a public register, ensuring transparency.

The sale of biodiversity credits allows buyers—such as developers needing offsets or companies seeking to bolster their environmental credentials—to contribute to conservation efforts while meeting their own obligations or goals.

Step 4: Manage the Site and Receive Payments

Upon receiving your first annual management payment, your site enters the "active management" phase. 

This requires you to implement the agreed conservation measures, such as habitat restoration, pest control, or planting native species.

When the term of the BSA concludes, you can either renew the agreement or continue maintaining the site under the existing terms, often receiving ongoing payments for your stewardship efforts.

Australia’s experience in biodiversity stewardship highlights the practical and economic benefits of this model. By turning ecological conservation into a measurable and marketable asset, biodiversity credits provide landowners with a direct incentive to preserve nature while creating a financial return.

For those interested in entering this emerging market, the process is rigorous but clear—a testament to the growing sophistication of biodiversity finance.

Biodiversity credits represent an innovative and promising mechanism for funding nature protection and restoration. 

By quantifying and valuing biodiversity, these credits create a market-based approach to conservation, aligning financial incentives with ecological outcomes. 

While still an evolving field, the growing interest and investment in biodiversity credits signal a potential paradigm shift in how we finance and prioritise the protection of our planet's natural capital. 

As the world grapples with the urgent need to address biodiversity loss and climate change, biodiversity credits offer a compelling path forward, fostering collaboration between businesses, landowners, and conservationists to safeguard our planet's rich and vital ecosystems.