Building a Future Nature Finance System: Introducing the NARIA Framework
Paul Jepson
Freelance Writer, Researcher & Consultant | Rewilding : Nature Finance : Policy Innovation
Last week’s Second Annual Conference on nature-based solutions using carbon and biodiversity credit funding discussed the state of efforts to create a voluntary credit market.
I was invited to present on CreditNature 's innovative NARIA (Nature Accounting, Reporting, and Integrated Analytics) Framework as a contribution to the panel on biodiversity credit methods and here I would like to share some key points from my presentation for wider interest and discussion.
The value of credits
I started by positioning biodiversity and nature credits as intangible assets that hold value in their reporting utility, based on quantification and assurance technologies. Unlike the simpler quantification of carbon, biodiversity and ecosystems present significant challenges in measurement. Because of this, in my view, these credits should not be traded as fungible commodities; instead, they function more like stock market shares, yielding dividends based on the impacts within supply areas.
Key Analytics of the NARIA Framework
Our framework adopts a socio-ecological conceptualisation whereby human activities turn land into assets that generate value and revenues, which impact the integrity of ecosystems for good or bad, which in turn effects the quality and quality of biodiversity and ecosystem services that benefit people, culture and economy.
Our NARIA framework introduces three key analytics which we consider crucial for nature credit markets:
These three NARIA components are connected by technological infrastructure that offers a market infrastructure that connects the ‘needs’ of finance with the needs of ecological systems and the recovery of rural well-being economies. It does this by ensuring connectivity between the standards, codes, metrics, land management, data, and practices of assurance that underpin high-integrity credit markets.
Our Metric Design and Development Approach
I introduced our metric design and development approach, which takes its inspiration from the Human Development Index and aligns with an indicator framework developed for ecosystem accounting under the UN System for Ecological and Environmental Accounting. This process starts by identifying key ecosystem characteristics, then data sources that offer a proxy for these characteristics, and then designing metrics with embedded classifications that represent the characteristics and quantify them on a 0-100 scale.
The Terrestrial Ecosystem Condition Index
CreditNature’s Terrestrial Ecosystem Condition Index combines four metrics that each quantify an ecosystem process, which in interaction, supports the recovery and maintenance of ecosystem integrity. I was pleased to report that the index had been accredited by Accounting for Nature for use in restoration areas across 38 European Ecoregions. It underpins a new class of Nature Credits that quantify improvements in ecosystem integrity.
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Crediting Methods: Issues for deliberation and research
Based on my experience in credit method development, I flagged two issues where more deliberation and research would be valuable:
This is a critical method distinction for nature credit buyers and investors. It determines whether or not the ‘quantity’ of uplift is consistent irrespective of starting conditions, impacting the value of credits and investment returns. Tom Hodgson discussed this in a recent CreditNature article.
At CreditNature, our methods adopt a point uplift approach, which adds the methodological challenge of determining what constitutes 100 but assures that a credit unit represents the same amount of uplift across restoration areas, whether their ecosystem condition has been severely, moderately, or hardly downgraded by human management activities.
2. Approaches to Composite Nature Indexes
Early in the design process, we explored approaches to creating composite indexes and settled on the ‘jigsaw of metrics’ approach, similar to the Human Development Index. Other credit methods have adopted a ‘basket of metrics’ approach, similar to the Consumer Price Index. In my view, a ‘basket of indicators’ approach is unsuited to indexes that measure system interactions (i.e., integrity). I suggested that more work was needed on when and how to apply a basket of metric approach.
In Summary
The Ecosystem Condition Index is designed to underpin the next generation of ecosystem restoration credits, premium carbon and nature credits, CSRD Nature Positive reporting units, and nature-related bonds and fund KPIs.
I concluded by extending my gratitude to CreditNature’s outstanding R&D team: Dan Bass, Rewilding Services Lead; Barney Bedford, Geospatial Analyst; Sophy Jones, Nature FinTech Developer; Dr. Tom Hodgson, Mathematician & Analytics Lead; and my thanks to the AF Science Committee for their constructive challenge and advice.
The NARIA Technical White Paper v3.0 is currently out for invited review, with an anticipated publication date in late August.
#Biodiversity #NatureCredits #Sustainability #Finance #LincolnConference #BiodiversityCredits #Rewilding #NaturePostive #ESG
Director, Ecosystems Knowledge Network
4 个月Pioneering work. With initiatives like CreditNature there is a sense that #nature (and all that it does and means for people) is coming home.