The World Economic Forum (WEF) and consultants McKinsey & Co have taken the lead in initiating a Frontrunners Coalition seeking to contribute to shaping the development of and building confidence in the emerging voluntary biodiversity credit market.

Starting work at WEF’s annual Davos forum in January, the group’s early members include major corporations from industries such as finance, mining, fossil fuels, renewable energy, and pharmaceutics.

“The Frontrunners Coalition is an informal group of corporates interested in building confidence in the emerging biodiversity credits market and advance current debates on this instrument, bringing the private sector perspective to the fore,” Alessandro Valentini, a sustainable finance specialist with WEF told Carbon Pulse.

WEF has previously talked about launching a biodiversity credit buyers club, though Valentini stressed that membership in the new alliance does not come with any specific commitments, and that it as such is not a buyers club.

Piloting transactions is among the alliance’s ambitions, however, as a lack of demand for credits so far has meant potential future buyers have few if any relevant examples or experiences to learn from at this stage.

A minor purchase of local forestry-based credits by Sweden’s Swedbank last year remains the sole announced transaction of voluntary biodiversity credits in Europe, although developers Terrasos, Savimbo, and Wilderlands in Latin America and Australia have sold credits on various platforms.

“Pilots will cover a key role in initiating the market and we are keen to explore various opportunities. We will continue exploring various opportunities with the members and key external partners to work on some innovative solutions to test and learn,” said Valentini.

However, he also noted that this is a long-term ambition, and that certain criteria must be met.

“We won’t rush into any pilot until we can ensure the highest standards of social and environmental integrity,” he said.

SAFE SPACE

The Frontrunners Alliance is far from the only group set up to come to terms with how best to use a market mechanism to address some of the massive finance gap that experts say must be closed to adequately deal with the crisis of nature and biodiversity loss.

The UN-backed Biodiversity Credits Alliance (BCA), comprised largely of project developers but with advisory groups spanning multiple sectors as types of organisations, was launched on the sidelines of COP15 in Montreal in Dec. 2022.

Earlier this week it released its second issue paper, looking at options for how to assess the integrity of the nascent market.

Meanwhile, the French and UK governments last year created the International Advisory Panel on Biodiversity Credits (IAPB), another global body involved in stakeholder consultation ahead of the planned launch of a market framework during COP 16 in Cali, Colombia later this year.

What sets the Frontrunners Alliance apart, according to Valentini, is that it is the only non-multistakeholder group looking at this market.

“The ambition of the Frontrunners Coalition is to create a safe space for business to identify the key elements that will strengthen the business case in investing in biodiversity credits and other market-based instruments for nature,” he told Carbon Pulse.

“Working with the members of the coalition we will address and unpack the risks, opportunities, incentives, and challenges of these emerging instruments.”

In addition to piloting transactions, the group is also seeking to signal the increasing interest to finance healthy ecosystems and build a stronger business case to deepen the trust and confidence in the market, according to material distributed by WEF and seen by Carbon Pulse.

“Businesses participating in the coalition will have the opportunity to raise the ambition around these innovative instruments and gain a reputation as leaders on nature markets and financing mechanisms globally,” the document said.

There will be dedicated discussions and workshops, looking at issues like interconnection between various instruments such as carbon credits, payment for ecosystem services, and biodiversity credits.

The coalition “is conceived as an informal group of corporates … which are interested in contributing to bring the private sector perspective in the development of the biodiversity credits market discussions”, said Valentini.

CONTROVERSY

News of the initiative comes as discussions around a number of controversial topics are ramping up in the biodiversity space, buoyed by a series of scandals in the carbon markets, which have seen projects and credits criticised both for lack of integrity and in some cases for the treatments of local communities in or near project areas.

European think tank Green Finance Observatory (GFO) recently released a paper urging Indigenous Peoples to reject biodiversity credit projects altogether, fearing developed-country buyers will merely use them to offset the damage they are already doing to nature.

The risk that Indigenous Peoples and local communities will be left with little or nothing from projects, while developers and intermediaries pocket most of the revenue is one of the factors making some potential market participants hesitant to take the plunge, though there are developers working with locals in a way designed to prevent that from happening.

The issue of offsetting remains sensitive as well. Most market participants say privately or on social media that they do not want voluntary biodiversity credits to be eligible for offsetting use, though some observers argue that allowing offsetting might be the only way to significantly scale the market and transition it away from its current demand funk.

According to Valentini, the Frontrunners Coalition is collaborating with IAPB and BCA through various working groups.

It is unclear to what degree the coalition will issue publications of its own, though some of its internal discussions will focus around a 2022 consultation paper from WEF on high-level governance and integrity principles for the market.

As well, it will work towards defining a roadmap with clearly defined steps for companies looking to buy or invest in credits and other nature products.

“This exercise will build on the work done in our guidance for early movers, published in December, and will also build upon the work – consultations and position papers – from others, rather than providing completely new information,” said Valentini.

By Stian Reklev – stian@carbon-pulse.com

** Click here to sign up to our twice-weekly biodiversity newsletter **