Canada needs to close the policy gaps in its approach to biodiversity offsets and stormwater credits, such as third-party investor involvement, a conservation investment-focused network said in a paper this week.
The Nature Investment Hub said Canada needs to clarify its policy and to align more with the US approach to nature markets, in order to realise the full benefits of nature-related instruments.
“Effective policy and regulation can enable the creation of new markets and provide assurance that there will be demand for the ecosystem value stream being produced,” said the group, part of Ottawa-based non-profit The Natural Step Canada, in a policy paper.
“Several examples of conservation finance instruments implemented in the US, some of which have resulted in multi-billion dollar nature markets, stem from policy or regulatory changes that currently lack parallels in Canada,” it said.
These markets include biodiversity offsets alongside stormwater credits – units purchased by developers representing ecosystem restoration activities to help manage stormwater, the Nature Investment Hub said. The hub aims to drive nature investment through its collaboration with members across public and private sectors.
“In Canada, mitigation banking can only take place on federal lands, is especially limited in provinces, and only one development project can be mitigated on any site,” it said.
Mitigation banking is when project developers conserve land, ‘banking’ it, to generate credits in the future.
The US system allows for landscape-scale protection prior to developers degrading land, with a rule change in 2008 enabling wetland mitigation banking to scale through allowing the involvement of third-party investors – unlike in Canada – in creating a market.
Canada can also learn from the US on stormwater credits, Nature Investment Hub said. In the latter region, a price floor for stormwater credits, as well as a guaranteed government buyer for unsold units, has incentivised the market.
“There are several municipalities in Canada that offer stormwater credits to homeowners for certain activities, but these are typically one-offs. As these offer individual rewards for specific actions, they are not poised for a larger scale market,” said the paper.
The market for general measures to manage stormwater beyond credits in the US was over $1.6 bln in 2023, expected to reach $2.6 bln by 2030, according to SNS Insider.
This week, a group of Canadian risk experts called on the country’s government, regulators, and business leaders to ensure their climate risk frameworks include nature-related issues.
INVESTMENT STANDARDS
New investment standards could further help to scale conservation finance activities in Canada by reducing barriers and boosting data collection, the network said.
Senior managers at companies should recognise that ecological benefits can often not be represented every three months in traditional financial reporting.
“The emergence of bond evaluators equipped to deal with ecological projects will also help attract investors and provide confidence to those less familiar with the nuances of the space,” the network said.
“Likewise, attaching bond ratings and other types of risk assessments on conservation finance instruments will contribute to investor confidence and interest.”
The value of bonds addressing biodiversity conservation has risen significantly in recent years, though it remains a relatively small part of environmental issuances.
By Thomas Cox – t.cox@carbon-pulse.com
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