EU member states could include the private sector in their plans to achieve national targets under the Nature Restoration Law (NRL) as public funding will likely prove insufficient, and the newly approved legislation is likely to contribute to scaling the biodiversity credit market, according to experts.

Last week, EU environment ministers ended a year-long legislative dispute by agreeing to green-light regulations that aim to restore at least 30% of EU habitats types and 20% of the bloc’s land and sea areas by 2030, with each member state free to decide to what extent it will contribute to the overall targets.

The NRL framework provides clear guidance on what to restore, but does not specify who should pay for it, Alessandro Valentini, sustainable finance specialist at the World Economic Forum (WEF), told Carbon Pulse.

However, while the law does not include specific obligations for companies, it gives member states a lot of flexibility in terms of the measures that can be put in place to bolster restoration efforts within their territories.

“The private sector will not be exempt,” Valentini said. “Implications will most likely differ depending on a company’s specific industry and value chain and how member states implement the regulation.”

“But we know from past experiences that public finance will not be sufficient.”

BRINGING COMPANIES ONBOARD

In light of that, governments could create fiscal incentives for companies that engage in nature restoration, added Gabrielle Aubert, a policy analyst at the Brussels-based think tank Institute for European Environmental Policy (IEEP).

As well, the regulation could ​​be an opportunity to promote blended finance schemes, which combine public and private investment.

“These schemes apply quite well to nature restoration, with the involvement of investment banks, for example. It has already been done in the past,” Aubert told Carbon Pulse.

Brian MacSharry, head of biodiversity at the European Environment Agency (EEA), said the NRL implementation could also bolster the development of offsetting or, most likely, voluntary biodiversity credit schemes in Europe.

The EEA is the body tasked with assessing the national restoration plans that countries are required to draw up under the NRL.

Due to be submitted by Aug. 2026, these plans must outline the areas each country is going to restore as well as the measures they intend to put in place to reach the law’s targets.

MacSharry told Carbon Pulse he wouldn’t be surprised if we saw more biodiversity credits coming from this, “as investing in restoration schemes can help achieve this target”.

“We’ll probably see a lot of schemes where companies that are very dependent on a particular ecosystem service, habitat, or species will be putting plans in place to protect their business and do something positive for the environment,” he said.

GOOD FOR CREDITS?

Although the law does not mention biodiversity credits, WEF’s Valentini also believes it might “open the door for regulated voluntary markets as one of the many financing instruments available”, he said, citing page 50 of the regulation, paragraph 80, which states:

“Funding nature restoration measures on the ground, through private or public financing, including result-based support and innovative schemes such as carbon removal certification schemes, could be promoted. Private investment could also be incentivised through public investment schemes, including financial instruments, subsidies, and other instruments, provided state aid rules are complied with.”

What would probably make a difference in increasing companies’ interest and engagement with biodiversity credits is what the NRL calls ‘aid rules’, he said.

“Namely, ‘aid rules’ are overarching directions and rules which will allow them to operate with confidence and trust, making claims within the limits of the Green Claim Directive approved last year, and part of the same EU Green Deal package,” said Valentini, who is also a member of the Frontrunners Coalition, an initiative seeking to contribute to shaping the development of the biodiversity credit market.

Overall, the NRL is slated to increase awareness among companies on the need to restore nature, added Sylvie Goulard, co-chair at the influential International Advisory Panel for Biodiversity Credits (IAPB).

“Many corporates based in Europe operate worldwide, and they will be encouraged to act [also outside EU’s borders],” she told Carbon Pulse.

PART OF THE ANSWER

The IAPB’s process to shape reliable biodiversity markets is watched with great interest in the lead-up to the COP16 UN biodiversity summit taking place in Cali, Colombia, from Oct. 21 to Nov. 1, when IAPB is expected to disclose its framework.

Goulard said one of the outcomes of the IAPB’s initiative will be that – at least for a moment – several markets will co-exist and develop, reflecting the diversity of ecosystems, jurisdictions, and solutions.

“The NRL provides very useful definitions, [it] sets steps and time horizons that can be useful for all players, including companies,” she said.

The bill is part of the European Green Deal policy, which includes mandatory disclosure for companies on their impacts and dependencies on nature.

Under the EU’s Corporate Sustainability Reporting Directive (CSRD), more than 50,000 organisations globally will need to start disclosing information about their environmental, social, and governance (ESG) practices from 2025, with the 12 European Sustainability Reporting Standards (ESRS) setting out the technical rules.

“This obligation will provide lots of data that can trigger action on other fronts,” Goulard said.

“To reduce their impacts or to strengthen the resilience of their value chains or prevent liability issues, companies will have to act. Biodiversity credits can be part of the answer.”

OFFSETTING SCHEMES

Member states could also decide to use specific sectoral regulations, similar to the UK’s biodiversity net gain (BNG) policy, to reach their restoration targets, Valentini said.

However, he argued that deploying country-wide, cross-sectoral offset markets doesn’t seem to be fully aligned with the ultimate objectives of the NRL.

“As offsetting requires full equivalence, it could exclude prioritising the most degraded ecosystems that are beyond corporate operations and value chains,” he said.

“Eventually, this might apply differently in each specific geography, country, or ecosystem, meaning that member states will have the final say.”

Ariel Brunner, regional director at BirdLife International for Europe and Central Asia – one of the biggest NGOs advocating for the law – warned against the use of offsetting in the context of the NRL, as the bill aims to ensure additionality.

“You can’t simply pass as restoration the offsetting that you put in place to compensate for habitat destruction,” he said.

“You would allow for destroying 500 hectares of land and compensate with a random patch of 500-ha habitat, counting the latter as restored land. That’s clearly not complying with the law.”

As Brunner explained, if countries are to compensate, they must make sure that what they are restoring has a higher value for nature.

“It would make a lot of sense for those compensation measures to happen in the restoration areas that the national restoration plan identifies as priority areas, making them larger, buffering, or connecting them,” he said.

FINANCIAL LIABILITY

The NRL also requires governments to establish monitoring frameworks to track restoration outcomes, with countries expected to report on how they’re progressing towards planned measures by 2031.

While some member states have already been working on restoration for a long time, MacSharry of the EEA said the majority will have to step up and increase monitoring efforts.

“These countries must sit down and think about how they want to approach it,” he said without naming specific states.

Since increased efforts on tracking restoration progress will require additional funding, part of the costs could be covered by the companies contributing to damaging the ecosystems, said Sergiy Moroz, policy manager for water and biodiversity at the green umbrella organisation European Environmental Bureau (EEB).

“Right now, there is a bit of a squeeze on the public budget, we have seen member states cutting monitoring costs, and it shouldn’t be like that,” he told Carbon Pulse.

“I’m sure we can find ways to pay for those costs, including extended producer responsibility, whereby those responsible for the problems are also contributing to monitoring them.”

Alison Filler, head of innovation at network Climate Collective, also said that for the NRL to be effective, member states will have to ensure that penalties for the destruction of nature are higher than the costs of monitoring.

“If the cost of penalties is lower, companies will just take that and they’ll eat it, and that will be a cost of doing business,” she said.

As well, Filler called on countries to align agricultural subsidies with the NRL, as these incentives have often resulted in fuelling biodiversity loss.

“If member states fail to do this, they will just be splitting their bet, investing in one area and harming another. That could result in an offsetting, ironically.”

By Sergio Colombo and Giada Ferraglioni – news@carbon-pulse.com

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