Biodiversity market stakeholders grapple with balancing steady demand, quality supply

Published 22:56 on December 20, 2022  /  Last updated at 22:56 on December 20, 2022  /  Biodiversity  /  No Comments

The need to incentivise demand to invest in biodiversity as a tradeable commodity versus the value of high-quality, diverse ecosystem supply in the evolving biodiversity credit market architecture is creating challenges for market proponents.

The need to incentivise demand to invest in biodiversity as a tradeable commodity versus the value of high-quality, diverse ecosystem supply in the evolving biodiversity credit market architecture is creating challenges for market proponents.

A high-level dialogue on biodiversity credit markets jointly convened at the sidelines of the COP15 conference last week by the UK-based think tank International Institute for Environment and Defence (IIED), United Nations Development Programme (UNDP), the World Economic Forum (WEF), and the Swedish International Development Cooperation Agency (SIDA) brought together government, regulators, academics, indigenous representatives, and private investors.

While all stakeholders present agreed for the most part on the premise for biocredits – a coherent unit of measurement to channel finance towards conservation and restoration of global biodiversity – participants were far from a cohesive approach to leveraging investment towards achieving optimal social and economic benefits.

DEMAND IS KEY

Swedish Environment Minister Romina Pourmokhtari stressed that it was crucial to engage corporate private investors such as pension funds, banks, and other investors looking for nature positive investment opportunities.

“Demand is key, and this demand includes private citizens who care about biodiversity,” Pourmokhtari said.

Marine de Bazelaire, group advisor on Natural Capital at HSBC bank agreed on the importance of leveraging demand.

“We have a few convictions that you may have the best supply in the world, [but] if there’s no demand for it, the flow of capital doesn’t go to it,” de Bazelaire cautioned.

For capital to flow into the biodiversity credit market, generating a return on investment was important, according to the HSBC representative.

She cited a UN coral reef credit initiative in Australia that HSBC had funded as a “spend” rather than an investment.

“If we want to scale better, we need to shift to an investment,” de Bazelaire advised.

Another area likely to generate demand in de Bazelaire’s view was large corporates’ “license to operate” for companies that have direct impact on lands, especially the mining industry.

Having a carbon credit and biodiversity credit become a commodity, in essence creating a legal instrument that describes the underlying project and can be transacted after issuance, de Bazelaire felt would help generate a viable marketplace for biocredits.

She suggested two possibilities for the design of biodiversity credits. One would be to add additionality and biodiversity attributes to high quality carbon credits that would enable capital to finance conservation and restoration of lands.

The second concept was to link biodiversity credits to payment for ecosystem services.

For example, more than 50% of hydroelectricity dams depend on cloud forests that are concentrated in 25 countries. Hence power projects and other industrial water users who benefit from cloud forests would pay for the service, financing water flow while helping indigenous people and local communities.

BIOCREDIT DESIGN

However, researchers on the panel had a different approach to the design of biodiversity credits.

“We believe that the biodiversity credit should not be treated like carbon,” credit developer Aleksandra Holmlund, a PhD researcher with the Swedish University of Agricultural Sciences, stated categorically.

Holmlund welcomed participants to join the Biodiversity Credit Alliance, an informal working group of experienced field-based practitioners and academics involved in the design of voluntary biodiversity credits that was formally launched at the Montreal conference.

While demand for biodiversity credits had been absent in the market until now, Sinclair Vincent, director of sustainable development innovation and markets at certification body Verra, explained that fledgling interest in the sector has helped justify putting resources towards development of their “nature framework”.

Verra is looking to develop a credit meant to foster positive investments in nature, rather than an offset used in carbon markets to compensate for negative impacts that a company or investors have had on the land.

But Vincent expected several iterations of the nature framework given the different methodologies that are in development, as well as “the absolute gap” between the developers and the standards’ bodies that are certifiers.

“We talk about nature differently. We have very different terminology, and we have to bring that together in order for us to get this as right as we can, recognising it won’t be perfect,” Vincent noted.

Swedish minister Pourmokhtari’s advice to biocredit developers, certifiers, and government regulators was to ensure the biocredit “delivers what it says and is a stable investment environment”.

However, Ramson Karmushu, spokesperson for International Indigenous Forum on Biodiversity, noted a critical flaw in the concept of a singular biocredit given the abundance and diversity in ecosystems.

“We have seen people treating nature when we talk about carbon sinking and giving all landscapes the same amount of money in the same way, without thinking which ecosystem is giving more to me,” Karmushu said.

SUPPLY SIDE CUSTODIANS

One area where panelists found consensus was including indigenous people, who are custodians of much of the world’s biodiversity, in the design of biocredit instruments.

More than 75% of the world’s biodiversity is found in indigenous people’s lands and territories, but they occupy less than 25% of the landmass, Karmushu pointed out.

Karmushu referenced another study that has shown biodiversity to be decreasing at an alarming rate across the globe, but at a slower rate in areas occupied by indigenous people.

He also cautioned that increasing protected areas did not guarantee protection of biodiversity, as did increasing protected areas owned by indigenous peoples.

Karmushu also advocated for a bottom-up market design of biocredit instruments, with increased board representation for indigenous people in grassroots discussions.

“Without indigenous people and local communities fully onboard, biocredits cannot and should not work,” minister Pourmokhtari concurred.

Verra’s Vincent also discussed the importance of developing a framework that ensured the majority of the revenues received from the sale of these biocredits would actually go to the communities on the ground.

“That’s not something that necessarily happens in carbon all the time,” Vincent noted.

Lindsey Embinga, a representative for Gabon’s government, outlined the role of government as less of a regulator but more as a facilitator in enabling supply.

“Government must create … regulation and policies to enable the development of the biocredit market,” Embinga said, underlining that it was important to keep administrative costs low to ensure majority of the biocredit market revenues reach communities who are on the frontlines of biodiversity conservation.

Valuing biodiversity could mitigate the tribal crisis while achieving sustainability goals, Gabon’s representative said, pointing to the country’s leadership in the carbon credit market.

The UNFCCC in November valued Gabon’s potential forestry carbon credit issuance at 90.6 million tonnes of CO2e.

By Joan Pinto – joan@carbon-pulse.com

*** Click here to sign up to our weekly biodiversity newsletter ***