Voluntary nature credit suppliers are exploring strategies to spur companies’ appetite for units, including streamlining purchases and organising awareness-raising events, as players in the carbon space do not yet have the confidence to foray into the market.

While attention to the voluntary biodiversity credit market has ramped up after the 2022 Kunming-Montreal Global Biodiversity Framework (GBF), which carved out a role for nature-based solutions to help bridge the biodiversity financing gap, most companies are still reluctant to translate their interest into transactions.

Earlier this year, environmental trading platform Regen Network said a sheep grazing pilot project launched in 2023 sold as few as 30 units in five months, with revenues falling short of covering the cost of marketing credits. The initiative in California had 109 credits for sale at time of launch.

A separate pilot for jaguar conservation in the Ecuadorian jungle sparked more interest among buyers, expecting to sell out of biodiversity credits.

However, corporate purchases in general stand below Regen’s target, Gregory Landua, Regen Network’s CEO and co-founder, told Carbon Pulse.

“In our current model, less than 30% of credit purchases come from companies. The rest are made up of individuals who want to contribute to a project or have a special connection with the place where it’s being developed. I’d like to see the next phase of our approach be a 50-50 mix,” Landua said.

Dave Fortson, the network’s chief growth officer, said: “Once we get a few major companies that are first in and set the tone, most will follow.”

“But we need to design credits that are governed by the communities in order to avoid some of the nasty stories we’ve seen in the carbon credit markets. It’s critical to ensure that they are firmly seated at the table of decision making.”

CORPORATE FRIENDLY

In an attempt to drive corporate demand, Regen Network is planning to streamline purchases by creating an index linked to different projects. A company investing in that index would buy credits from all the qualifying projects.

The network aims to have at least 20 nature-related projects up and running by the COP16 UN biodiversity summit, due to be held in Cali, Colombia, from Oct. 21 to Nov. 1.

While 20 is not a large enough number to generate an index, it could be sufficient to showcase the mechanism and spark confidence among potential buyers, Landua explained.

“Big multinational corporations need a standardised unit that can pass their compliance filters. If we’re going to meet that type of demand, we need to create a bundle that indexes parallel local projects. We want to create an index unit without enforcing a single standard across all the projects,” he said.

“This model enables a translation between our belief that radical local stakeholder engagement is key and the need for a standard unit that a company can see and fit into its framework. I think that’s how we solve the bigger challenge of stimulating corporate demand. Clearly, there’s a will there, but the situation is still confusing.”

“NO MARKET”

Outside mandatory schemes, such as the UK’s newly established biodiversity net gain (BNG), plenty of voluntary biodiversity credit projects have emerged over the past two years, but most have failed to scale up.

The majority of developers, including Terrasos in Colombia and Wilderlands in Australia, sell units based on small plots of land, and mostly hinge on individual buyers.

“At the moment, there is no biodiversity credit market. In Sweden, plenty of forest owners want to create biodiversity credits, but the demand is a big issue,” Aleksandra Holmlund, a PhD researcher at the Swedish University of Agricultural Sciences (SLU), told Carbon Pulse.

Holmlund was part of a team of experts at SLU tasked with developing the methodology for a forestry project in central Sweden, which sold 91 biodiversity credits to Swedbank last year, marking the first – and lone – transaction of its kind in Europe.

“I don’t think there will be a lack of available projects. The problem is that many project developers will work on quite small-scale projects, while the big money is going to look for large-scale impact. And that may be a challenge, because you need to have the whole value chain ready for big players to come in.”

More recently, the team had conversations with some companies and financial institutions, all of which expressed interest but have not yet bought credits, according to Holmlund.

RAISING AWARENESS

Holmlund, who is also the CEO of Qarlbo Natural Asset Company, a subsidiary of family-owned investment firm Qarlbo AB, is participating in a joint effort to lay the groundwork for a Swedish market for voluntary biodiversity credits.

The initiative, led by a group of forestry-linked companies who make up the Swedish Biocredit Alliance, looks to present a batch of new pilot projects at an event in late May, before arranging a sales event in September.

“We’d like to have three to five pilot projects at this event. If we manage to sell those few, probably very small projects, this may help us propel the system. We want to create awareness and more comfort for future buyers, by giving examples of businesses that purchased those first credits. It will be easier and easier at every step we take,” Holmlund said.

“It’s crucial that this process involves different stakeholders, including potential buyers. It will help create demand by increasing the buyer’s understanding of how the methodology will work. Transparency is key to ensure that nobody gets burned.”

While the event will mostly see the participation of Swedish companies, some EU-headquartered businesses might also join the initiative, especially those with parts of their value chains in Sweden, according to Holmlund.

KEY DRIVERS

As companies step up their efforts to assess impacts on nature across their value and supply chains, biodiversity credits could gain traction as a go-to solution to address risks and dependencies.

Notably, frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) recommendations are slated to play a critical role in boosting the corporate demand for units, according to Carter Ingram, managing director at advisory group Pollination.

“Beyond regulation, which will be the strongest driver, the more companies adopt the TNFD guidance and recommendations, and understand how nature-related impacts and dependencies can translate into financial risks and opportunities, the greater the demand for credits will be,” she told Carbon Pulse.

“If you know that you’re dependent on a functional ecosystem, investing in biodiversity credits that help contribute to its long-term integrity could represent a means to provide insurance that your dependencies will be maintained over time. As well, the TNFD could highlight opportunities where biodiversity offsets might be needed.”

Some 320 companies worldwide have committed to adopting the recommendations within the next two years, TNFD said in January. More firms are expected to join the list, as pressure grows on governments to mandate the taskforce’s framework.

The corporate risk management data generated by TNFD uptake could represent a foundation upon which a high-integrity nature credit market can grow, a report by Australian firm Clayton Utz said after last year’s launch of the TNFD recommendations.

“Businesses have just started to grasp their footprints on nature. This work will take time, and it’s a difficult task. Nobody really knows how to do it,” said Holmlund.

“Right now, we’re not seeing much corporate activity in the biodiversity credit space, and that’s because these demand drivers are not yet clear or robust,” added Ingram of Pollination.

WAIT-AND-SEE MODE

The lack of demand is holding back major players in the carbon market from investing in voluntary biodiversity credits projects, according to Ed Hewitt, natural climate solutions lead at climate financier Respira International.

Respira provides long-term offtake agreements to nature-based projects. To date, its portfolio includes 11 projects globally.

“They’re all carbon transactions because that’s the currency at the moment. We would be interested in transacting in voluntary biodiversity credits if there was a very clear market for that,” Hewitt told Carbon Pulse.

“A couple of clients have asked for information about biodiversity credits. If we saw much more corporate demand, we’d be in a much better position to move forward with transactions.”

Hewitt called for more clarity both on the supply and demand sides, stressing the need for robust information on the reference price of biodiversity credits.

Early initiatives have yielded erratic prices, reflecting the diverse nature of each credit. US-based developer of Colombian projects Savimbo has sold units at $5 each, while Australian developer Wilderlands offer credits at approximately $19.

“We need an idea of what sort of reference price there would be for us. We have no visibility about it at the moment. So it’s very difficult to make an informed judgment and investment,” Hewitt said.

“Furthermore, people are still trying to figure out what exactly they could do with a biodiversity credit. What claim can they make with it? How many do they have to buy to make that claim? Which specific biodiversity credits would be eligible? None of these rules have been written yet.”

“BIG INCENTIVE”

Jo Anderson, co-founder of carbon project developer Carbon Tanzania, also emphasised the challenges of stepping into the biodiversity credit market at a time when companies’ interest has not yet translated into actual trades.

However, he suggested that external drivers might not be enough to drive corporate demand.

“One of the biggest problems is some people want to wait until everything is worked out. But that’s not how the world works. We have to experiment sometimes,” Anderson told Carbon Pulse.

In September, Anderson and Carbon Tanzania launched a new company, Level, which targets the biodiversity credit market alongside the voluntary carbon market.

Level has already started a pilot in Tanzania – currently in the design phase – under the Plan Vivo Nature Standard, one of the emerging standards for biodiversity credits.

The UK-based developer will take part in a pilot auction organised by the World Economic Forum (WEF), which is set to be held in Singapore later this year and aims to put together a buyers club for biodiversity credits.

“Developers will showcase the projects, and the WEF will bring buyers who are, at least in principle, committed to purchasing credits. Then you’ll have a big incentive to move forward and put the money needed in the development stage,” Anderson said.

“Apart from that, we’re talking to other contacts already established through the carbon markets. It may be that we can attract charitable or philanthropic money for the first phase, if there’s no market coming forward quickly. A lot of that will emerge in these next three to four years until big corporates step up.”

According to a 2023 report by the OECD, biodiversity-related finance by private philanthropy reached $932 million in 2021, up from 501 mln in 2017.

A separate study published last year by the Biodiversity Credit Alliance identified philanthropy as a critical source of demand for units.

By Sergio Colombo – sergio@carbon-pulse.com

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