Thought Piece

Navigating Nature’s Value | Insights into the Biodiversity Credit Market

Posted: 8 May 2024

Resource Type: Thought Piece

As we gear up for the City of London Corporation’s eagerly awaited Net Zero Delivery Summit, my attention turns to the quickly evolving domain of biodiversity credit markets.

Exploring instruments like biodiversity credits, as well as broader opportunities in nature finance, will be among the themes we will touch upon during our panel discussion, Securing a nature positive future, at the Net Zero Delivery Summit in June. The Summit is free to join online – click below to register. 

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Find out more about the third annual Net Zero Delivery Summit

Find out more about the third annual Net Zero Delivery Summit

Nature sustains both economies and livelihoods; 55% of global GDP, equivalent to about US$58 trillion, is moderately or highly dependent on nature. By 2030, nature loss could cause global GDP reductions of around £2.1 trillion. Yet despite the alarming risks that society faces from nature loss, nature restoration and conservation projects still face a significant financing gap.

The public sector continues to channel capital towards nature conservation and restoration, however existing funding alone falls far short of the required levels of investment needed to achieve a nature-positive future (an estimated US$484 billion by 2030 or three times the current annual investments). Meanwhile, private sector investment in nature-based solutions amounts to just US$26 billion per year, a fraction of the estimated US$87 trillion of global assets under management. Boosting private investment is vital to reversing biodiversity loss by 2030 — and nature-based solutions could offer a significant opportunity for investors.

Biodiversity credits are one such opportunity for the private sector, helping to put a value on nature by rewarding positive actions to conserve and improve the natural environment.

What are biodiversity credits?

Biodiversity credits are measurable units of biodiversity that can be bought by companies to measure milestones towards becoming nature positive, with the goal of developing a market to channel funding into nature restoration and conservation.

Our Head of Sustainable Finance Innovation - Felicity Hall - explains that “while many companies have set nature-related goals, there isn’t currently a standard methodology for assessing and reporting on biodiversity, creating a challenge for investors. High-integrity biodiversity credits offer a way to address this, allowing companies to trust their investments, measure impact and avoid greenwashing accusations”.

However, biodiversity credits are not as simple as carbon credits, where one credit purchased is equivalent to one tonne of carbon dioxide which has been reduced or removed from the atmosphere. Whilst carbon credits are reasonably well-understood and widely used, Felicity explains, “although a tonne of carbon can be considered fungible, biodiversity is much more complex. Thus, a number of initiatives are underway to develop standardised metrics, frameworks and scientific monitoring tools to support the development of biodiversity credit markets. These include the UK-France initiated International Advisory Panel on Biodiversity Credits (the UK’s background in building voluntary carbon markets means it is in a strong position to lead the development of a biodiversity equivalent) and the UNDP-backed Biodiversity Credit Alliance. Both initiatives emphasise the importance of ensuring biodiversity credits have measurable positive impact at both national and local levels, especially for Indigenous peoples and local communities”.

A global centre for nature finance

A global centre for nature finance

How the UK is driving forward biodiversity credit markets

As the first major country to publish a green finance strategy (in 2019), as well as a pioneer in the use of market mechanisms to mobilise finance for climate and nature, the UK is well-placed to be a global centre for nature finance. At the heart of this is the City of London, which holds huge amounts of the expertise required to scale markets in nature finance across the UK and beyond. The development of high-integrity nature markets is a key part of the UK’s strategy to grow annual private investment flows to nature to at least £500 million every year by 2027 in England, rising to more than £1 billion by 2030. These markets also form part of a wider vision for economic growth.

The UK government is working closely with the scientific and financial sectors to lead the way in developing robust and high-integrity biodiversity credit markets. This includes working to stimulate private investment into projects that safeguard the domestic natural environment through the Natural Environment Investment Readiness Fund (NEIRF).

As well as strong government support for biodiversity credit markets, the UK is also home to a breadth of nature finance expertise, stretching across the scientific, professional services and data and metrics sectors. UK-based experts, such as Dr Axel Rossberg of Queen Mary University of London, are doing globally-notable work in the field. 

As private sector interest in high-integrity biodiversity credit markets continues to grow (fuelled by the increased adoption of nature-related financial disclosures and target-setting), so too do the aligned opportunities for the UK’s financial and professional services industry. The World Economic Forum predicted that global demand for voluntary biodiversity credits could reach $2 billion in 2030 and $69 billion by 2050.

With the right guardrails, the growth of biodiversity credit markets can create positive outcomes for the climate and environment, provide vital revenue streams to finance nature projects, and enable responsible companies to meet their net zero and environmental commitments transparently and efficiently.

Chris Hayward

Chris Hayward, 
Policy Chairman of the City of London Corporation

Vision for Economic Growth
a roadmap to prosperity

Vision for Economic Growth
a roadmap to prosperity

Q&A: Dr Axel Rossberg, Queen Mary University, on Biodiversity Impact Credits

Dr Axel Rossberg is a Reader in Theoretical Ecology at Queen Mary University of London and a leading voice in the field of biodiversity credits. He has finalised three methodologies to generate Biodiversity Impact Credits (BICs). These methodologies offer a solution for private sector organisations that must account for biodiversity risk by providing an auditable mechanism linking conservation practitioners with investors seeking conservation outcomes. To date, BICs are the only credit metric endorsed by the Taskforce on Nature-related Financial Disclosures (TNFD).

Can you explain a little about the thinking behind biodiversity impact credits? How will these credits support climate and environmental goals?

Sustainable development has two aspects: activities that meet present needs and activities that meet the needs of future generations. Often, people developing biodiversity credits conflate the two, which makes it very difficult to find a clear way forward. Otherwise, they focus solely on present needs, which differ vastly depending on local context, making it almost impossible to generate comparable credit units (the linchpin of a global market).

That’s why we’ve developed biodiversity impact credits with a focus on the needs of future generations and, in particular, reducing extinction risk, in line with the UN Global Biodiversity Framework. Species conservation is clear-cut and of global importance, meaning that BICs offer a well-defined solution to a well-defined problem.

How are BICs defined and measured?

Similar to CO2 emission equivalents in the climate context, BICs are not defined by a tool or methodology but through the logic of the underlying science, leading to optimal allocation of resources.

The mathematical formula is fairly simple: as an investor, the credits you receive are proportionate to the degree to which you have contributed to the current population of a specific species. For example, if you increase a species’ population by 10%, you will receive 0.1 credits. If it’s not possible to measure species population, you can use alternative metrics like range size.

How do BICs solve some of the challenges in scaling high-integrity nature markets?

Firstly, the sheer scale of the challenge lends itself to a scaled market. There are nearly 20,000 tree species alone in danger of extinction. Also, the simplicity of the formula makes it straightforward for investors to understand the concept and channel capital towards meaningful conservation projects. One such project is Botanic Gardens Conservation International, who are committed to conserving plant diversity worldwide and are now doing this valuable work for BICs.

Why is the UK well-placed to play a leadership role in high-integrity biodiversity credit markets?

The UK’s background in scaling voluntary carbon markets (VCMs) puts it in a strong position to play a leadership role in building an ecosystem around BICs. The same infrastructure, experience and learnings created for VCMs can be transferred to create and scale biodiversity credit markets, from the registry, to the brokers, to the professional services expertise.

Why should the UK finance sector be paying attention to the development of nature markets?

Unlike carbon markets, which move on an annual cycle, you won’t have to purchase a biodiversity impact credit every year. Instead, biodiversity credit markets can function more like assets and liabilities: your BICs are your assets, while your liabilities are the pressure you put on natural ecosystems through your business activities. Biodiversity impact credits will allow you to create balance between the two.

To support this process, we are building a tool that will allow businesses to calculate their biodiversity footprint and translate it into credits, just as they might do for carbon, so they can become a biodiversity-positive organisation.

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London and the UK are positioned to take a leading role in galvanising the action needed to drive progress across the global ESG agenda.

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