The evolving market for biodiversity credits should seek to avoid some of the pitfalls of the voluntary carbon market (VCM), while capitalising on the interdependencies between climate and nature, said speakers during an event in London on Monday.
Creating products that “deliver value for both climate and nature will be a richer source of opportunities than considering them in isolation’’, said Stephanie Maier, global chief sustainability officer of GAM Investment Management, at the Climate Change Summit hosted by City & Financial Global.
She spoke of the need for clear standards and assurances around the burgeoning biodiversity credit market, to ensure integrity, and called for biodiversity benefits to be delivered alongside carbon in some circumstances.
Investors’ appetite for natural capital is growing, with half of UK institutional asset owners having already invested in the field or planning to do so within the next 18 months, though the biodiversity credit market is early stage, with a lack of confidence and awareness from potential buyers.
Challenges with developing biodiversity crediting include lack of clarity around how to most effectively measure biodiversity, how to ensure there is permanence, and that the biodiversity improvement is globally relevant, said Maier.
Given that nature is a very local phenomenon, she questioned whether it is it even appropriate to offset one type of ecosystem with another.
Other market instruments, like green bonds, where some of the proceeds are channelled to nature-based solutions, can also play a key role in biodiversity protection, Maier said.
PREFERENCE FOR REGULATION
Meanwhile, Karen Ellis, chief economist at WWF, expressed concern that crediting biodiversity outcomes might follow a similar path to voluntary carbon credits, some of which have been embroiled in scandals around over-crediting and human rights, leaving many buyers now reluctant to engage in credit purchases.
“For carbon and biodiversity credits, we would prefer to see them in compliance-based markets with regulation, where the finance is being used to invest in things that governments have decided are a priority based on their Nationally Determined Contributions and their national climate action plans,” said Ellis.
The focus for biodiversity credits should be on moving away from damaging activities, such as through nature-friendly farming techniques or some renewable energy generation, she said.
While there also needs to be a state-led economic strategy to deliver on the nature positive transition, with carefully laid out pathways for each sector, said Ellis.
The Global Biodiversity Framework (GBF), signed in Dec. 2022 by delegates from 196 nations, stipulates the need for financial flows to support the goals laid out, but so far there is little clarity on how exactly that is to be reached, she said.
The Kunming-Montreal agreement sets out a framework for how the world will act to stop and reverse the rapid loss of global biodiversity, including a commitment to protect 30% of land and oceans by 2030.
The document was ultimately watered down on finance, where developed nations committed to increase their contributions to $20 billion per year by 2025 and $30 bln by 2030, well below the $100 bln developing nations had asked for.
Also during the City & Global event, Jason Mitchell, head of responsible investment research at Man Group, called for government oversight of biodiversity credit markets, in order to avoid them veering off track.
“As these markets start to mature there will be questions about the securitisation of some of this, legal rights, and the financialisation of nature …. These are really strong arguments for regulatory oversight of the market,” he said.
England’s biodiversity net gain (BNG) policy became mandatory in mid-February, whereby development projects in the country need to achieve a net biodiversity improvement of at least 10%, either onsite or via the purchase of offsite BNG units.
Observers are keenly watching the progression of the law as it could set a global standard for government nature requirements, while creating a market for statutory biodiversity credits that developers have to buy offsite as a ‘last resort’.
The BNG market is expected to be worth between £135 million and £274 mln annually, the government said last year.
By Bryony Collins – bryony@carbon-pulse.com
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