European and North American companies are not keen to invest in biodiversity credit initiatives in Africa, as the continent strives for innovative funding solutions alongside carbon credits to preserve its nature, a conservation finance expert has told Carbon Pulse.

Marios Michaelides is among the early members of the Biodiversity Credits Incubator (BCI), an initiative launched in Apr. 2023 by the Sustainable Finance Coalition to investigate opportunities and risks related to the development of the biodiversity credits market within Africa.

In a report released on Friday, BCI recognised the biodiversity credit market as an opportunity to scale investments in Africa and that is sustainable over the long term. Yet, speaking to Carbon Pulse, Michaelides advised caution since it is “still a young emerging market with several key challenges facing it before it is fully adopted”.

Despite all the ongoing conservation projects, there are fewer opportunities for biodiversity credits in Africa than in Europe, according to Michaelides.

“What we see is that European companies are more keen to invest in nature around them. There is less inclination or incentive rather as they will invest where their supply chain has impact,” he said.

“At the end of the day, it all depends on who’s buying the credits, and most of the buyers are in Europe, North America, and Asia.”

CARBON TAKES IT ALL

Michaelides said even though there is a growing interest in the voluntary biodiversity credit market, carbon credits still catalyse the bulk of corporate demand.

“At the moment, the market is more oriented towards adding value to carbon credits,” he said.

“Companies are more interested in carbon credits with biodiversity co-benefits than in creating a standalone market.”

Michaelides is also director at the Africa’s Most Endangered Species (AMES) Foundation’s Habitat Fund, a project that aims to scale the conservation of protected areas through nature-positive investment models.

AMES Foundation is one of the members of the BCI, along with other organisations such as WWF Africa, the South African biodiversity credit project facilitators ValueNature, and Johannesburg-based Rand Merchant Bank (RMB).

The BCI forum is also closely linked to the Biodiversity Credits Alliance, the UN-backed body that is working on shaping the biodiversity credits market.

DEMAND ISSUES

BCI’s work addressed the current status and potential growth of the biodiversity credit market, with a particular focus on emerging demand.

In November, it hosted a roundtable with financial institutions to investigate the market appetite for biodiversity investments.

“The market needs to build a product that considers the investor needs as well, in order to create a market that sees significant demand,” Michaelides added.

According to Michaelides, companies that are highly reliant on nature are identified as the bigger potential buyers of biodiversity credits. However, some companies are still sceptical about investing in nature credits due to unclear returns on investment.

“The bottleneck is that biodiversity credits are designed to not be an offset,” he said.

“This limits demand as companies would need to invest not for financial gains or due to regulatory pressures, but for nature positive aspirations. While these aspirations are growing there is still a long way to go.”

Nevertheless, South African banks are starting to set biodiversity targets to avoid financial risks linked to habitat loss, in a move poised to spark interest towards nature-positive initiatives among companies.

“The companies that have an impact on nature would be the easy first movers, especially the big firms in the mining and agriculture sectors, as well as those heavily relying on ecosystem services in their value chain – such as water, timber, pollination, and medicines,” he said.

Last December, Sam Lacey, strategic director of nature finance at UK-headquartered The Biodiversity Consultancy (TBC), told Carbon Pulse that companies in the mining sector set their sights on biodiversity credits to go beyond offsetting to make nature positive claims.

“While I can appear pessimistic, I am still optimistic that there is a future for biodiversity credits,” Michaelides said.

In April, the African Natural Capital Alliance (ANCA) said it plans to establish a comprehensive nature data platform for the continent, in a bid to drive investment into nature-based solutions.

The platform could help to drive investment in carbon and biodiversity credits through baselining metrics, Dorothy Maseke, head of the alliance’s secretariat, told Carbon Pulse last month.

By Giada Ferraglioni – giada@carbon-pulse.com

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