A substantial share of private finance will flow towards biodiversity credits as investors are confident demand for them will surge in coming years, a think tank researcher has said.

Formalised government policies and a reliable monitoring system to ensure local and ecosystem-wide benefits are needed to boost demand for biodiversity credits further, said Shreya Wadhawan, programme associate at New Delhi-based Council on Energy, Environment, and Water (CEEW).

“With the increasing dependency of companies on biodiversity-related resources and enhanced efforts to establish a business case for biodiversity, biodiversity credits will receive a significant portion of private finance,” Wadhawan told Carbon Pulse.

“There is a high confidence among investors that the demand will witness a sharp rise over the years,” especially in the Global South, she said.

However, two major concerns with biodiversity credits need to be addressed to scale demand in the market, she said.

“First, the voluntary nature of investments needs to become more formalised – with policy interventions from the government.”

“Second, a common verifiable monitoring system needs to be established that ensures that the benefits of conservation or protection-related activities are delivered at a local level, with the entire ecosystem benefitting from the solution.”

Wadhawan cited 2023 World Economic Forum research that said biodiversity credits demand could reach $2 billion by 2030 under one scenario.

The impact of the projects behind the credits needs to be monitored to prevent system failures, she said. Last month, nature standard-setter Plan Vivo Foundation said it was developing an initiative for measuring the unintended consequences of activities involved in biodiversity markets.

The Indian government announced its Green Credit Scheme in mid-2023 with plans for crediting across planting trees, water conservation, sustainable agriculture, and mangrove conservation.

NATURE SOLUTION CHALLENGES

Last week, CEEW published a framework to try to drive investments in nature-based solutions in the Global South by measuring their potential benefits.

Next, the think tank will create an open-access toolkit based on its Effective Nature-based Solutions Utilisation and Resource Evaluation (ENSURE) framework, Wadhawan said.

The biggest challenges in scaling nature-based solutions in general can be split into implementation and investment issues, Wadhawan said.

“Implementation-related challenges include a lack of a favourable policy environment for mainstreaming nature-based solutions into national policies of countries, and a poor understanding of existing natural capital available at a local level.”

“Investment-related challenges include the absence of evidence that highlights the economic potential of nature-based solutions and the risks associated with investing.”

A more supportive policy framework and public-private partnerships can help to overcome these challenges, she said.

The private sector invested $35 bln in nature-based solutions in 2022, according to a UN Environment Programme report published last year.

By Thomas Cox – t.cox@carbon-pulse.com

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