Believing in biodiversity credits

TL;DR: We have focused so far on protecting and restoring ecosystems for their ability to sequester CO2 - and that’s good, but not enough because we are placing a value on an ecosystem that is limited to that function. Bringing biodiversity into the discussion allows us to look at the full spectrum of services the ecosystem is delivering -i.e. how much we need nature for our survival and wellbeing. And bringing credits into the financing tool box allows us to build strategies and projects for long-term resilience-based management with rigorous, measured, and audited outcomes. Let's give biodiversity credits a chance!

The?Convention on Biological Diversity ?(CBD) defines biodiversity as “the variability among living organisms from all sources including, inter alia, terrestrial, marine, and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species, and of ecosystems.”

"Biodiversity is complex… not as straightforward as CO2"

"What are we measuring?"

"How do you define and quantify biodiversity?"

I heard too many sceptical statements, I even repeated them myself for a moment and ultimately found those thoughts unhelpful, unfounded. There are a lot of questions around biodiversity to address, and most of the time, more questions are the answers. But first, let’s clarify a few points:

• Biodiversity credits are just a tool in the toolbox of nature finance:

Nature finance refers to mechanisms to fund the protection, restoration and sustainable management of natural habitats. There are various instruments available to governments, NGOs, businesses and individuals to contribute to this action (e.g. grants, donations, bonds, debt-for-nature swaps, insurance, taxes, fees, payments for ecosystem services, credits and offsets). Biodiversity credits is an emerging instrument which, like other ones, has its advantages and limitations.

It shares with government-led bonds or debt-for-nature swaps the benefit of supporting large-scale action without the difficulty of implementation, with the inclusive perspective of building resilience of ecosystems and communities in the face of climate change. It shares with philanthropic projects the ease of implementation while reinforcing higher transparency and integrity of outcomes.

It is aimed at businesses and financial institutions in the first place without the “offset” purpose of carbon credits. Companies that voluntarily make net zero commitments purchase credits on the voluntary carbon market to compensate for their emissions. Biodiversity credits should not be used to offset a negative impact on nature. In fact, they do not allow for comparability unlike carbon (you cannot compare x% damage in a site to y% biodiversity uplift at another). Negative impact linked to a company’s operations should be avoided, otherwise minimised, restored, and ultimately compensated using offsets. Biodiversity credits are designed to generate a positive impact, an uplift from today’s state of nature, outside of a company’s value chain. And finally, unlike other mechanisms, credits do not deliver a financial return (assuming they are purchased to be retired).

Biodiversity credits are for climate leaders that genuinely want to support a nature-positive action at scale, without a financial incentive or offsetting motivation. We need to see more of these leaders!

• Biodiversity uplift is a broader goal than carbon sequestration:

Looking at carbon avoidance and reduction is candidly insufficient, even in the context of net zero targets.?GHG reduction goals can run up against local biodiversity issues. For instance, the extraction of resources required for the green transition (e.g. minerals for batteries) can put stress on biodiversity.

Inversely, healthier ecosystems are correlated with more carbon sequestration. In the case of forests for example, species-rich ones store twice as much carbon as monocultures . If you can think of an ecosystem that sequesters less carbon when it is more biodiverse, let me know in the comments.

There is a shared path between achieving net zero and reversing biodiversity losses, the latter being the more inclusive and ambitious goal. Biodiversity is associated with a broader assessment of the health and resilience of an ecosystem and the sustainability of its services, thereby taking into account socio-economic goals alongside the ecological ones. Illustratively, examples of ecosystem services are air quality regulation, moderation of extreme events (prevention of erosion and flooding), provision of food, water, raw materials or medicinal resources, soil fertility, pollination, and many more. All these services present a much more important socio-economic benefit and value than just a carbon measure or even biodiversity indices. If you are curious about what services are provided by each ecosystem, I invite you to browse the Ecosystem Services Valuation Database which aggregates 10k+ records from studies providing a monetary value to ecosystem services (or simply check out a research paper summarising the findings ). Spoiler: Coral reefs enjoy the highest value per ecosystem services!

• Biodiversity uplift is not more complex to measure than carbon:

How accurate are models that estimate carbon sequestered from accredited projects? Although they are scientifically-backed, peer-reviewed, audited, etc… measuring carbon isn’t as straightforward as it seems (not yet - more research could address this). For example, if we look at soil carbon, it can vary depending on the depth of the sample and within just a metre of breadth making it difficult to extrapolate soil sample results to tens and hundreds of hectares . This challenge does not rule out the overall climate benefits of agroforestry or regenerative agriculture projects for instance. So why not consider biodiversity as a complementary or even primary approach to measure impact? If we look at a coral reef ecosystem as an example, we could map coral cover and reef rugosity, detect the presence of species of different categories (e.g. with eDNA), and count the abundance of species (e.g. using underwater imagining, of course long enough in time at at different seasons of the year). The recovery of threatened species could magnify the impact of projects. So, aren't those metrics tangible and measurable? Are they really more complex than carbon? Similarly to carbon, we need more research to improve our monitoring capabilities while lowering their cost. Demand for biodiversity credits will support this.?

Delivering a positive evolution of those metrics over time and therefore an overall biodiversity uplift (additionality) requires project developers to look beyond numbers into the overall health and resilience of an ecosystem and human-nature interaction. For project success to be permanent, the elimination of stressors is likely indispensable: e.g. sources of pollution, blast fishing (or in other terms educating local fishermen to adopt more sustainable practices), illegal logging (or in other terms shifting local communities to alternative sources of income).?This applies to both carbon and biodiversity projects.

Complexity arises when we try to compare and rank the outcomes of different project types, ecosystems and regions. If we consider two projects of the same type (e.g. afforestation) in the same biome (e.g. cloud forest) in different regions, we wouldn't see the same level of carbon sequestration for various reasons - investors would still make a comparison given the metric is standard. When it comes to biodiversity, we wouldn't be able to define it in the same way - available standards offer to project developers the flexibility of selecting the relevant metrics within their framework. Due to this complexity, investors should not expect the same outcome for $1 invested in different projects regardless of their similarity. Is there even a merit in or need for establishing any comparison in the first place? Every project has a multi-dimensional impact on nature and the people who depend on it. And last but not least, we should not fall into the trap of focusing on certain type of projects, biomes or geographies because "they deliver a higher carbon or biodiversity outcome per $1 invested". In fact, certain projects (e.g. marine restoration) are more expensive and could command a higher price. We need to recover biodiversity everywhere to build a healthier and more resilient planet. The comparison that makes sense is the cost of project vs. the value of ecosystem services it is intended to protect or restore.

Overall, credit buyers should focus on the specific goals of a project, the execution of the developer and integrity of outcomes. If you are a (prospect) biodiversity credit buyer, I am curious to hear how you would look at different projects and choose which ones to support.

The purpose of these thoughts is to demystify certain ideas around biodiversity credits, and not to undermine any other instrument (including carbon credits). Each has its applications, benefits and limitations. Surely, biodiversity credits has its own challenges and project developers should address these from the start - namely baselining; establishing effective monitoring, reporting and verification mechanisms; safeguarding and strengthening the rights and livelihoods of local communities; and ensuring permanence of outcomes.?And in this nascent market, the #1 challenge today is generating demand to unlock funding for nature initiatives. Please leave your suggestions on this!

Food for thought - What catalysts are needed to engage potential credit buyers with available high-integrity projects that are outside of their scope of impact as businesses, and also awareness as decision makers? How do we support the development of this market?

Invitation to connect - If you are a forward-thinking organisation willing to champion a nature-positive economy, and invest in biodiversity credits, let’s talk!