Demand for biodiversity credits could reach $180 billion annually by 2050 if a radical transformation in valuing nature happens, the World Economic Forum (WEF) has said.
Under this “illustrative” scenario for the biodiversity markets realising their full potential, demand could hit $7 bln per year in 2030, WEF said in a report.
“This scenario … features strong policy support, a revolution in consumer preferences and pressure from society, leading to near-universal adoption of nature targets among large companies,” WEF said.
Almost all of the largest 500 companies in the US adopt nature-related targets, with biodiversity credits playing a significant part in reaching them, under this future.
The finding came in a pair of reports from WEF on the market outlook and high-integrity use of biodiversity credits, published on Friday.
Interest in the fledgling voluntary biodiversity market is growing quickly, but has yet to translate into actual trades despite many standards and pilots emerging over the past year.
Two other “central range” scenarios for biodiversity credits were given much more emphasis in the WEF report, grounded in observations of market growth, with figures below half those in the most optimistic trajectory.
The market could see demand reach $69 bln by 2050, and $2 bln by 2030, under a scenario of “effective development”, WEF said in its market outlook report published with consultancy McKinsey.
This pathway follows “more ambitious market development and growth, grounded in historical parallels in the voluntary carbon market”. Features include the steady adoption of nature targets, supported by credible guidance.
However, demand would only scale to a fraction of this at $6 bln by 2050, and $760 million by 2030, in a scenario of “limited development”, WEF predicted.
This low-ambition future will be characterised by the “historical precedent in slow-growing and niche sustainability-related markets”, with only companies who set nature targets in 2023 participating in biodiversity credit markets by 2030.
Source: WEF
The figures in the graph are “conservative” as they assume only large companies will buy credits, most sectors will focus on one type of use, and sectors will not participate if they lack significant nature dependencies.
FIVE-YEAR EXPECTATIONS
Corporations expect to see a “large increase” in biodiversity credit transactions by around 2028, WEF said following interviews with 30 large companies and financial institutions.
“Nearly all the corporate representatives surveyed expect the biodiversity credit market to see growth in transactions and market development within the next five years.”
Smaller companies, under less regulatory and reputational pressure targets, may have more flexibility to engage in biodiversity credit markets than larger firms, WEF said.
Actions to de-risk the market taken over the next year could enable “large-scale” uptake within just two or three years, WEF said.
Source: WEF
The optimism came despite none of the interviewees having yet identified a role for biodiversity credits.
The forum acknowledged there was “not yet a widely accepted or proven business case for the value that companies can derive from the purchase of credits”, or consensus around how to make a claim.
CREDIT USES
The report outlined five potential biodiversity credit uses:
- Enhancing carbon credits for better nature outcomes
- Reducing indirect impacts and preserving access to natural resources
- Contributing to nature recovery beyond own impact
- By consumer products to improve nature recovery
- Taking responsibility for unmitigated biodiversity impacts
The third use on contributing beyond own impact is likely to play a relatively small role, compared with the others, WEF predicted.
WEF has also published a guide for how companies can use biodiversity credits with integrity for these use cases, based on interviews with potential buyers.
ACTIONS NEEDED
WEF outlined actions for potential buyers, sellers, regulators, independent governing bodies, and policymakers.
The market could grow by “100-fold” by 2030, up from around $8 mln in pledged funding so far this year, following “immediate and sustained efforts to accelerate this market towards maturity, including opportunities for communities to learn by doing”, WEF said.
Three key results are needed to unlock scale in biodiversity credit markets, WEF said:
- Establishing the business case for buyers
- Developing high-integrity supply at sufficient scale
- Consolidating common principles, standards and methods
Policy can support actions through requiring the reduction of nature impacts, regulating the supply of biodiversity projects, and clarifying the land rights of Indigenous Peoples.
WEF aims to launch a buyers club for biodiversity credits early next year, it said in October.
Carbon Pulse has requested more information from WEF.
By Thomas Cox – t.cox@carbon-pulse.com
*** Click here to sign up to our twice-weekly biodiversity newsletter ***
