Nature targets will be a core driver of demand for biodiversity credits, as companies can already see the business case for the market, according to a survey published by the UN-backed Biodiversity Credit Alliance (BCA).

Companies rated action to implement nature targets as the most important of 12 potential demand drivers for the emerging market, BCA said.

They ranked nature targets as almost four out of five on average – with five being “very important” – with the next most-significant drivers being wanting to contribute to global biodiversity targets, and expectation of regulatory recognition of credits, the alliance said in a paper.

The survey of 29 unnamed companies across a range of sectors was conducted during the second quarter of this year by BCA, the World Business Council for Sustainable Development (WBCSD), and the International Institute for Environment and Development (IIED).

“Meeting corporate nature strategies and targets is likely seen as a key driver of demand, because companies can already see the business case for biodiversity credits in supporting their immediate corporate needs and priorities,” said Josh Brann, technical coordinator at BCA.

Science Based Targets Network (SBTN)’s target on landscape engagement has “particular applicability” for biodiversity credits, Brann told Carbon Pulse.

“This target stipulates that action must be within landscapes that are ‘materially relevant’ to a company’s business, so geographically-specific credits would be needed by different companies.”

The BCA is a forum backed by UN Development Programme, the UN Environment Programme Finance Initiative, and the Swedish International Development Cooperation Agency, consisting largely of project developers.

Interest in the fledgling voluntary biodiversity market is growing quickly, but has yet to translate into many actual trades despite standards and pilots emerging over the past year.

Last week, the World Economic Forum said demand for the credits could reach $180 billion annually by 2050 in a radical scenario, though likelier numbers stood far lower.

Nature targets for companies have only begun to emerge over the last couple of years but, with the launch of related guidance by SBTN, they are being encouraged to set them as soon as possible. Looming regulation on nature could boost the adoption of such targets.

OTHER KEY DRIVERS

The report takes a broad look at a wide range of potential sources of demand for biodiversity credits beyond nature targets.

Timothy Male, technical lead of a BCA working group, said the new paper on the motivations of potential buyers was “a critical foundation to build subsequent work on which buyers and features are most important, and to build credits that meet those needs”.

According to Brann, other key takeaways from the survey showed companies would be interested in credits that:

• Have high credibility and quality
• Are not overly complex, and potentially focus on segments of biodiversity at manageable scales, but which have real concrete and verified benefits
• Are fungible if possible, but fungibility is not a dealbreaker
• Are geographically diverse, and not necessarily directly linked to a company’s operations on the ground
• Are preferably linked with carbon credits, but again, not a dealbreaker

The driver of least importance out of 12 options was the expectation to make a profit by reselling the credits later, ranked as 1.4 out of 5 on average by company respondents.

STALLING REGULATION

Regulation could play a key role in boosting demand, the report found.

Biodiversity credits could help companies implement strategies to align with financial regulation such as the EU’s Sustainable Finance Disclosure Regulation and Corporate Sustainability Reporting Directive.

Demand for credits could also be catalysed by the spread of restrictions on domestic biodiversity impacts, the report said.

However, companies may use credits to try to stall regulation by enabling them to argue that obligations are unnecessary, it continued.

“Voluntary actions can be taken to demonstrate leadership and proactive approaches, avoiding, or delaying regulation, under the view that voluntary strategies can be more effective and less costly.”

NATURE IS NOT CARBON

Market actors often stress the need for a biodiversity credits market to learn from the lessons of the carbon markets.

Brann said that while some inferences can be taken from the carbon market, “biodiversity is so substantively different from carbon that there are limitations to how much insight a potential biodiversity market can draw.”

“Much of how the carbon market function is likely to be different to how biodiversity or nature markets function,” he said.

Brann acknowledged that the relatively low number of respondents to the survey, 29, limited the extent to which broad conclusions can be drawn.

Furthermore, “at this stage of market development, potential purchasers may not even have a good understanding of their own needs, in relation to the potential use of biodiversity credits,” he said.

NEXT STEPS

The demand report was one of the first steps from the BCA to explore the market’s potential.

Brann said planned actions from the alliance include:

• Three more papers on review mechanisms, definitions, and digital frameworks published in the “near future”
• A series of workshops in 2024 examining the issue of offsets in relation to biodiversity credits, as there is “a lot of confusion” here
• Conducting another survey with more respondents
• Examining the comparability of biodiversity credit metrics with WEF
• An Indigenous Peoples and local communities charter
• Exploring the role of governments in biodiversity credits market through regulation and as a demand source
• Supporting the consolidation of high-level governance and integrity principles for the biodiversity credits market

Although BCA is affiliated with an event happening at the COP28 in Dubai, the next “key milestone in the development of the biodiversity credits market” will be the COP16 biodiversity conference late next year, Brann said.

By Thomas Cox – t.cox@carbon-pulse.com

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