FEATURE: Dos and don’ts – Biodiversity market looking to carbon for guidance

Published 09:35 on January 11, 2023  /  Last updated at 06:43 on March 27, 2023  / Roy Manuell /  Biodiversity

With momentum building behind biodiversity crediting following a string of announcements at COP15 in December, market experts have highlighted the lessons to learn from carbon, their close links and key differences, and why there is no time to waste in devising the framework to scale the nascent nature-based market.

With momentum building behind biodiversity crediting following a string of announcements at COP15 in December, market experts have highlighted the lessons to learn from carbon, their close links and key differences, and why there is no time to waste in devising the framework to scale the nascent nature-based market.

Interest is ramping up in biodiversity crediting with several new initiatives emerging out of the recent UN’s annual biodiversity summit including a new, well-backed credit alliance launched at the Canadian COP to help scale the market.

This week, non-profit Inevitable Policy Response (IPR) released its first integrated climate and nature policy scenario for investors, predicting that on top of nature-based carbon projects a biodiversity credit market is set to emerge that could be worth $18-43 billion by mid-century.

Meanwhile, global consultancy McKinsey earlier had published a report in December that estimated both established and nascent nature-based markets including those to curb biodiversity loss are worth $10 trillion per year.

Edit Kiss, chief investment officer at project developer Revalue Nature described the McKinsey report as a clear signal that biodiversity crediting is moving into the minds of investors.

“It definitely shows [biodiversity] is in the mainstream … it is not niche thinking anymore,” she told Carbon Pulse.

“There is a lot of momentum.”

With interest surging in biodiversity crediting, many have drawn comparisons to the voluntary carbon market (VCM) given the crossover on both the demand side, with corporates as the likely predominant target buyers, and supply side – due to the high volume of nature-based projects based in hotspots for biodiversity that are currently issued carbon credits.


Due to these shared characteristics, biodiversity could learn several lessons from the past decades of development on international carbon markets, according to Edward Pollard, strategic director of nature strategies at the Biodiversity Consultancy.

“In the same way companies can purchase carbon credits to meet carbon commitments, biodiversity credits can help meet corporate biodiversity targets – such as contributions to a nature-positive future – but the same good practice principles for use of carbon credits need to be applied for biodiversity credits to ensure integrity of the market,” he told Carbon Pulse.

Best practices to draw from carbon would be ensuring robust integrity standards, as well as ensuring that buying credits does not replace primary reductions of ecosystem damage or damaging activities.

“Just as carbon credits should not be used as an alternative to making absolute emissions reductions, biodiversity credits can be used to go beyond the mitigation hierarchy to make contributions to global nature recovery and should not be used to offset ongoing loss of nature,” Pollard added.

There has been a strong push towards integrity over the past few years on carbon markets, with bodies such as the ICVCM and VCMI soon to publish new codes of practice for suppliers and buyers of credits, as well as the emergence of ratings agencies that seek to determine the success of existing projects.

This has come in the face of heightened public scrutiny over an offsetting practice that is thought to have pressured VCM demand in 2022.

Despite this, Leah Glass, technical advisor at social enterprise Blue Ventures, argues that there has been an overall improvement in the integrity of the carbon market over the past two decades that correlates to the surge in demand since the end of 2021.

“The crash in the carbon market that we saw in the noughties and the 2010s came down to a total lack of integrity in the market and the demand side realising this,” she told Carbon Pulse.

“The explosion in interest [in carbon] post COP26 was partly because there’s now increased reassurance in the demand side that the integrity has increased.”

Ensuring that robust standards are set out early for the biodiversity crediting market is likely to also be key to driving growth.


The challenge facing the biodiversity market, however, is that this takes time. On carbon, the ICVCM for example, has been working on its code for several years, with many viewing the task facing the biodiversity market even more complicated given the sheer diversity of ecosystems around the world.

But time is of the essence to channel the much-needed finance to protect and restore biodiversity, with concerning reports released around COP15 that point to goals slipping away already and finance flows into nature at currently just one-third of the required total for global targets.

“The one thing that is emerging from this increase in integrity in the carbon market is there’s now a point of trying to make everything pragmatic. So it needs to be science-based and have high integrity but it also needs to be accessible. We desperately need to conserve biodiversity,” Glass commented.

But if these standards are not reinforced from the start, the market risks a “race to the bottom” in terms of delivery of sub-par quality biodiversity outcomes, according to Pollard of the Biodiversity Consultancy.

“While we need to get funding to on-the-ground conservation and restoration quickly, we also have a critical requirement to get the design of biodiversity crediting schemes right so that they avoid potentially negative outcomes,” he said.

His organisation published a technical paper in December that proposes integrity principles for a voluntary biodiversity credit framework in a bid to speed up this process, and others such as the UN Development Programme (UNDP) have also called for careful design of the market prior to rushing into anything.

If the world were to jump into creating a biodiversity market without adequately ensuring integrity rules, then it risks repeating what some describe as wasted time in developing carbon markets in the past.

On the other hand, there will need to be a degree of realism in terms of the urgency in devising the standards and rules of integrity.

“We need to be pragmatic and not waste as much time as we did on carbon going in circles. I hope there has been learning from this,” Kiss of Revalue Nature said.

“We need demand and we need capital … hopefully we can short-circuit a bit the methodologies and the standards.”


While parallels have been drawn to carbon, a biodiversity market would have to necessarily take a different form mainly because there is no simple equivalent to the “tonne is a tonne” premise on which the VCM is built.

“While a tonne of carbon is the same everywhere, biodiversity is typically locally specific. We need to find a way that accounts for this patchiness of biodiversity in the value of a credit,” noted Pollard.

“So biodiversity credits will need to grapple with this added complexity and develop flexible frameworks that can accommodate differences in the composition, values, and uses of biodiversity between sites.”

Creating an alternative metric by which to value biodiversity will be very challenging due to the highly localised nature of biodiversity, as well as more obvious measurement hurdles.

Oversimplifying the measurement unit or failing to adequately take into account the context of the ecosystem could lead to adverse impacts.

“It shouldn’t be protecting a hectare because what does a hectare mean when it comes to biodiversity?” Glass of Blue Ventures said.

“Biodiversity credits need to learn that basing stuff on a unit area like a hectare doesn’t necessarily make sense for biodiversity [and] also can encourage land grabbing. That poses real danger to indigenous people in local communities across the globe,” she added.


The next steps towards creating and then scaling the market should be defining what could constitute a metric of biodiversity as well as different methodologies for protection or restoration activities.

One early initiative has been the Species Threat Abatement and Recovery (STAR) metric put together by the IUCN, the world’s largest environmental network.

STAR measures the contribution that investments can make to reducing species’ extinction risk, aiming to help channel investments to ensure the best conservation outcomes.

“It’s the first metric I’ve seen on species that can create a unit you can compare across countries as it uses the IUCN as a global layer but then you can drill down into the local layers,” Kiss told Carbon Pulse.

This would allow for a calibration of the impact in the same way the VCM calibrates emissions baselines, she added.

“Suddenly, this could be fungible, which from a trader’s perspective is amazing.”

Several methodologies are being developed with a number of pilots underway. Carbon standard Verra is also working with multiple organisations to push forward on developing this side of the market, and is expecting to unveil a nature-based methodology later this year.

Verra’s aim is to have one overarching type of credit to ensure the fungibility that many regard as key to scaling the market, they recently told Carbon Pulse.

“What we need is pilots and experience. There is now largely enough scientific evidence that we need to do this, there is a way to do it, but until you actually bring examples to the table it is never going to arrive at a conclusion,” Kiss continued.


Once methodologies have been outlined and metrics defined, in order to scale the market on the buyer’s side a regulated framework will be necessary such as that being developed by the Taskforce on Nature-related Financial Disclosures (TNFD), according to David Hill, founder of UK-based organisation the Environment Bank.

The TNFD is a body representing financial institutions, corporates, and market service providers with over $20 trillion in assets that is seeking to establish a disclosure framework for organisations to report and act on evolving nature-related risks.

Hill told Carbon Pulse that he thought the TNFD should require corporate entities to account for their impacts on nature, natural capital, and biodiversity, through measurement and disclosure, from which a reduction in impacts would be developed.

“The twin pressures from a TNFD regulatory framework where mandatory annual reports from corporations regarding their nature positive statistics, plus investor pressure, would transform how we view the natural environment and would provide substantial revenues into restoring nature and, by definition, ecosystem service functionality, into the natural environment,” he said.

If this were to emerge, the parallels to what is currently happening in the carbon market would be striking, with similar mandatory corporate disclosure regulation coming into force in the UK last April that requires publicly-listed firms to publish climate-related risks.

Before COP15, some had hoped for mandatory disclosure requirements to be outlined in the final text, though these ultimately did not surface.

In the meantime, voluntary measures are likely to drive early demand for credits, such as that of Spanish utility Iberdrola that set its own updated nature positive goal by 2030 during the UN summit.


Experts agreed that carbon and biodiversity markets are likely to co-develop in some form, building on existing crossover in the form of the CCB standards that are assigned to certain qualifying carbon credits that also engender positive community and nature outcomes.

Such credits tend to trade at a premium to most others due to their added benefits.

The Biodiversity Consultancy’s Pollard warned that the current levels of measurement are not sufficient to ensure significant biodiversity outcomes, however.

“The CCB Standards probably have the most robust requirements for managing biodiversity among the existing carbon credit schemes. But the requirements for verification of positive biodiversity outcomes still need to be strengthened,” he said.

“To help make nature investable, we need to create environmental markets that incentivise meaningful positive changes in biodiversity. These changes need to be easy to see on-the-ground and to verify.”

In this regard, there are companies that are starting to measure biodiversity as a quantifiable benefit and output outcome from the start, but still selling the credit as high biodiversity carbon, enabling baselining, monitoring, and verification of the biodiversity impact from the outset.

“It’s already happening today but it’s quite fluffy. It’s not real yet – it’s just starting,” Kiss of Revalue Nature said.

“Once we start measuring [biodiversity] properly, then that’s where you can start seeing the real differentiation [to carbon],” she added.

Ensuring additionality is the real challenge when looking to combine the biodiversity alongside carbon in a credit, experts agreed.

“It is likely that the two asset classes of carbon and biodiversity could be either co-developed or more likely stacked on the same piece of land since their main similarities are the parcel of land on which they can be provided,” Hill of the Environment Bank said.

“The main problem at the moment in this area is the methodology around stacking asset classes, which recognises the values of both asset classes but also deals with the issue of additionality.”

For example, if a project is creating an area of habitat to enhance biodiversity such as nature restoration of an ecosystem then it also gets the carbon benefits, or vice versa.

Co-development would need to work out a protocol for stacking so that sales of credits for each are delivered in a way that is additional and each make a difference independently, Hill added.

But the interest in biodiversity from the carbon world specifically is also said to be growing fast.

“Environment Bank is more regularly being contacted now by carbon offset providers or brokers to do just this – to enable carbon to piggyback on biodiversity restoration projects,” Hill told Carbon Pulse.

The organisation has also established a working group with industry leaders and some large landowners to work through how stacking can legitimately operate so that the values from the different asset classes can be captured from the same parcel of land.

Some remain wary of creating too close a link between carbon and biodiversity, underlining that the two have shared interests but ultimately a different goal.

“While some of the more robust carbon standards require evidence of positive change in biodiversity, they do not require accurate measurement of how much positive change has been achieved,” Pollard of the Biodiversity Consultancy said.

“Biodiversity credits are aiming to fill this very important gap by going beyond carbon credit requirements for biodiversity, by quantifying the level of biodiversity return.”

By Roy Manuell – roy@carbon-pulse.com

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