Many actors in biodiversity see the largest opportunity for biodiversity markets in ‘insetting’, a way of directly supporting nature in their supply chains while potentially generating biodiversity credits, as an alternative to offsetting.
The concept is gaining traction as companies seek ways to reduce the biodiversity impacts in their supply chains. Insetting is particularly well recognised in carbon, but it also has the potential to make up the biggest share of broader nature markets, according to commentators.
The practice may be defined as companies investing in activities that provide environmental boosts in their supply chains, instead of offsetting by funding external projects.
This could be through activities with measurable impacts such as carbon credits, biodiversity credits, or other nature positive actions that are not necessarily unitised but still provide benefits for corporate supply chains.
“The single biggest market for nature biodiversity uplift is within value chains, or insetting,” said Martin Stuchtey, founder and co-CEO of German fintech company The Landbanking Group.
Land-based companies have three challenges: Scope 3 carbon emissions, nature positive expectations, and resilience problems. Biodiversity is part of the solution for each of these issues, making insetting appealing to investors, Stuchtey told Carbon Pulse.
The food sector alone could represent a “triple digit billion theoretical willingness to pay” towards insetting to secure corporate supply chains, through initiatives that reduce carbon emissions while contributing biodiversity uplift, he claimed.
Landbanking proposed a nature asset model last year that Stuchtey said, at the time, had been well received by agricultural corporates seeking to inset.
A BETTER BUSINESS CASE
Indeed, companies working within their value chains are much more effective at mitigating biodiversity risks than those offsetting outside of them, according to biodiversity and climate risk lawyer Zaneta Sedilekova.
This means there is a “better business case” for biodiversity insetting than offsetting, Sedilekova told Carbon Pulse. With disagreement over whether biodiversity offsetting is a credible way to tackle nature loss, the concept of insetting may foster more consensus among companies.
“I want somebody to take insetting forward because it’s a massive opportunity that we are completely overlooking. Everybody’s talking about offsetting, whereas insetting is, legally speaking, so much simpler,” said Sedilekova.
Companies have more control inside their supply chains than over offset projects, with trusting relationships already in place, she said.
VALUE CHAIN BENEFITS
The nature positive movement will have its strongest influence working within the value chain directly, according to MaryKate Bullen, head of business development and sustainability at US-based Forest Investment Associates (FIA).
“When you can clearly tie a biodiversity programme to addressing a potential risk or impact in your value chain, the business rationale can be readily understood,” she told Carbon Pulse.
“Of course, tackling things directly in a value chain may not be the most cost-effective or viable option, which is why offsetting arose in the first place.”
The ecosystem services on which supply chains depend will need to be propped up, whether through insetting or other means, she said. “FIA sees forest investors as well positioned to support this movement,” she said. FIA managed $5.1 bln in assets over 834,000 hectares, as of the end of the March.
DEFINITION PROBLEM
One of the issues with insetting is, as for ‘biodiversity credits’ or ‘nature positive’ phrasing, the lack of a universally acknowledged definition. The disagreement around the carbon-specific insetting meaning also affects the application of the concept in biodiversity markets.
The World Business Council for Sustainable Development has pointed out how several initiatives have presented definitions of insetting typically based on two different factors:
- Whether insetting includes activities around the value chain, or only within it
- Whether it generates certified carbon credits
Although these definitions referred to carbon specifically, Bullen said they could also be applied to biodiversity more broadly.
For example, the International Platform for Insetting, a partner of the Taskforce on Nature-related Financial Disclosures (TNFD), defined insetting as value chain interventions “designed to generate greenhouse gas emissions reductions and carbon storage, and at the same time create positive impacts for communities, landscapes, and ecosystems”.
TO MEASURE OR NOT TO MEASURE?
The range of definitions present a challenge, centred around measurability that could link to biodiversity credits, said Bullen.
“Some … consider any action within the value chain to be an insetting approach, and others seek to create specific types of biodiversity credits from activities. There is a range of approaches, effort, and costs between those two approaches,” she said.
“Some people think insetting requires basically having a known number of credits within your value chain itself. I believe this is one acceptable approach, but it can also be acceptable when insetting is bringing the actions internally in the value chain, and it doesn’t necessarily have to be unitised.”
However, companies have less incentive to unitise nature activities in their value chain through insetting than offsetting, she said.
“When is it worth having a unit that shows how much of something was restored or improved? That’s a question we still haven’t really answered,” Bullen said.
She would rather see more capital going toward nature restoration than to the monitoring, reporting, and verification (MRV) required for unitisation.
“Personally, I want to be efficient with the dollars we get into environmental management, conservation, and social projects. I’m very cautious around putting MRV ahead of outcomes.”
MEASURE BUT DO NOT CREDIT
However, Tim Coles, CEO of UK-based biodiversity credit developer RePlanet, argued corporations measuring actions to improve nature in their value chains would enable them to benefit from their conservation outcomes.
RePlanet supports insetting by offering a service for quantifying biodiversity based on the methodology of its sister non-profit Wallacea Trust.
Although biodiversity credit projects use this methodology to measure uplift, companies are also using it to show nature uplift through insetting without creating credits.
Quantifying biodiversity gain units, rather than generating biodiversity credits, is the “biggest area of activity at the moment” in nature markets, and an area that is likely to have the longest lasting impacts, Coles said.
Companies can report the biodiversity data as part of their ESG disclosures, demonstrating how they are contributing to biodiversity targets, Coles said. Furthermore, organisations generating carbon credits from conservation initiatives can increase prices using the biodiversity gain units to show co-benefits.
“Among employees there will be much more interest and support for an improvement in wildlife than for the carbon storage elements,” he said.
HOUSING DEVELOPERS
The UK’s biodiversity net gain (BNG) compliance requirements for housing developers to improve nature by 10% already incentivises insetting, said Tom Butterworth, nature director of the UK, India, Middle East, and Africa at consultancy Arup.
The BNG requirements has set out six actions in order of priority for developments, putting on-site mitigation first.
“It’s far easier and cheaper to avoid that nice grassland and make it better, than destroy it and try and create something else,” Butterworth said.
“Absolutely, there is some incentive for insetting for larger developments within the UK, [where] because this is going to be market driven we’re seeing lots of different models crop up.”
For example, in South West England a local authority has introduced a nature park to protect species next to a development. In Plymouth, an organisation has committed to delivering enhancing some areas forever, beyond the 30-year BNG requirement, he said.
Although the UK’s BNG market already incentivises insetting, on the global stage questions around definitions and measurement need to be answered to enable more companies to embrace the practice.
By Thomas Cox – t.cox@carbon-pulse.com
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