Key challenges to scaling the emerging biodiversity credits market include the need for independent verification, robust regulation, and fair engagement with Indigenous Peoples, a UK-France led international initiative told an event on the sidelines of the ongoing UN environment summit this week.

Biodiversity credit markets can support global nature finance goals, but “considerable challenges” to increasing supply and demand remain, the influential International Advisory Panel on Biodiversity Credits (IAPB) said at the launch of its first research, based on a recently concluded survey of market participants and observers.

The IAPB gathered 70 responses from Nov. 27 last year until Jan. 12. Most respondents were from NGOs and nature monitoring initiatives, followed by environmental specialists and corporations.

The panel will launch another call for views in March to “shape the questions we have”, followed by a third outreach this summer, with responses set to be brought to the UN biodiversity summit COP16 in Colombia in October, Sylvie Goulard, co-chair of IAPB, said during a webinar.

Last year, the UK and France announced the panel would present a concept of a global biodiversity credit market ahead of a final set of recommendations for COP16.

The panel’s process has been watched with great interest as the outcome is likely to shape the fundamental design of a global voluntary nature markets.

INDEPENDENT VERIFICATION

Amelia Fawcett, co-chair of IAPB, flagged the “most important” actions required to scale biodiversity credits, based on responses to the first consultation.

“The building blocks that will be needed to be put in place to scale markets effectively are international alignment, clear transparency, and accountability mechanisms,” said Fawcett.

Respondents said “the role of independent and scientifically-trained professionals, in the assurance and verification of biodiversity credits, will be important for buyers and sellers of credits”, according to a consultation summary.

Some 88% of respondents said independent validation of credit claims was necessary to give buyers sufficient confidence to purchase units.

“The primary reasons cited for the need for independent valuation were to reduce risks for corporates, create confidence in the market that credits are credible, fungible, and high integrity (some link this to avoiding greenwashing) and to support disclosures.”

An independent peer review process is underway from the Biodiversity Futures Initiative (BFI) in line with non-profit Wallacea Trust’s framework for measuring biodiversity credits.

A flurry of biodiversity credit standards have emerged in the last year and a bit from companies including Cercarbono, Verra, Terrasos, and Plan Vivo.

However, “there is a lack of consistency across standards, currently creating complexity and uncertainty for buyers and sellers [that] could limit market growth,” the consultation said.

COMPLIANCE MARKETS

Most respondents (82%) said regulatory compliance was the most important driver for creating demand to scale markets.

Almost half (45%) said regulation was the “only” driver able to meet the scale required, as it would solve limitations in funding and safeguard against greenwashing.

“Scale will come if companies have pressure, because of their shareholders, because they have reporting requirements, because financial institutions are asking them for – not just no net loss – but hopefully net gain,” said Mariana Sarmiento, CEO of Colombian credit developer Terrasos.

“That’s the path that we need to visualise,” she told the webinar.

However, while there is plentiful supply about to hit the market, the issue of where demand will come from remains largely unresolved.

“The big question is demand. How to convince or to force companies to contribute, and to bring money to finance these biodiversity projects? … I think regulation is key, and compliance market will be a big part of this,” said Philippe Zaouti, CEO of asset manager Mirova.

The UK’s biodiversity net gain policy became mandatory this month, introducing statutory biodiversity credits. Voluntary markets for credits with government backing have started to develop in Australia, New Zealand, and Gabon.

Others, like India, are developing broader schemes aimed at achieving environmental gains but not limited to just nature or biodiversity.

However, the state of a global market is “unclear, which is impacting both demand and supply of projects”, the IAPB consultation said.

TRANSPARENCY

Transparency is another important driver of biodiversity credits, Mirova’s Zaouti said. Some 80% of respondents said transparency was a “significant” governance requirement for the market.

Governments must enable traceability of financing all the way to the people looking after the land, said Pauline Nantongo, executive director of Ugandan NGO Ecotrust.

“There are some internal rearrangements, even in the developing world, that governments need to invest in to make sure that the channels of delivering money where it matters have been cleared,” she said.

This transparency must cover the sharing of benefits generated by foreign projects, according to the consultation.

“There was a strong sense that Indigenous Peoples (IPs) and local communities should play a leading role in the development of the market, as well as individual projects within it.”

Manesh Lacoul, global coordinator of the Biodiversity Credit Alliance (BCA) – which released a paper on just partnerships last year – told Carbon Pulse that IPs are key.

“In order to ensure that the market is founded on just and equitable principles, and in an inclusive, sustainable manner respectful of Indigenous rights and knowledge, BCA facilitates an independent body known as the Communities Advisory Panel,” Lacoul said.

Last week, IAPB announced that it is creating a network for anyone interested in investing in nature.

Biodiversity credits have attracted an increasing amount of attention over the last couple of years, with lots of project announcements seeking to help plug the nature financing gap, though few actual transactions have taken place.

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

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