Investor and advisory firm Pollination has identified a series of areas where the fledgling, but fast-evolving biodiversity credit market needs or is likely to see significant developments in coming years.
The Sydney-headquartered firm on Friday released a first global review of biodiversity schemes under the title “State of Voluntary Biodiversity Credit Markets”.
“As part of the response to the changing relationship between business and nature on the pathway to a nature-positive future, activity is underway globally to develop, support, and regulate voluntary biodiversity credit schemes as a means to drive private finance into positive biodiversity outcomes,” the Pollination report said.
“As this nascent market develops, work is needed to ensure it is able to deliver high-integrity outcomes for people and nature, including through the adoption of good governance approaches.”
The company has developed a technical framework to assess biodiversity credit schemes, applying a number considerations along variables such as governance and scheme design, involvement of Indigenous peoples and local communities (IPLCs), scheme architecture, outcome focus, and technical elements.
It used the framework to assess eight existing schemes, and while the report did not identify those schemes, it found that many elements considered important were either not addressed or lacked some robustness.
Source: Pollination
CHANGES ARE COMING
“Voluntary biodiversity credit schemes have been developing at an extraordinary pace over the last two to three years,” said the report.
“Pollination’s review of the state of the market shows that there is significant awareness and support for the development of high integrity and technically rigorous biodiversity credit schemes and products all over the world.”
Even so, it expected material changes to emerge in coming years in how crediting schemes are designed on issues such as the targeted outcomes, metrics focus, crediting approach, and jurisdictional and ecosystem coverage.
In particular, it listed six characteristics of voluntary biodiversity credit schemes where it said significant development will be needed in the years ahead.
The first of those was a lack of schemes targeting coastal, freshwater, and marine ecosystems.
The majority of the programmes that have been launched so far are either specifically designed for terrestrial projects, or the type of ecosystems they intend to serve has not been specified, Pollination found.
That is in spite of oceans and inland freshwater specifically being targeted for 30% protection by 2030, similar to land areas.
“Pollination anticipates that over the next five years existing and emerging biodiversity credit schemes will explicitly target coastal, freshwater, and marine ecosystems,” the report said.
Second, the report found that despite the crucial role of IPLCs in nature preservation and restoration, none of the schemes reviewed has been established by these groups and most of them do not establish comprehensive requirements for obtaining free, prior, and informed consent or co-ownership, partnership, or benefit-sharing models with Indigenous and local communities.
But as the market matures, there will be significant scrutiny on IPLC engagement and increased demand for credits that take those into account, Pollination predicted.
A third area of change, the report tipped, would be the introduction of lengthy or indefinite crediting periods to ensure long-term finance for project proponents.
“Voluntary biodiversity credit markets represent an opportunity to provide long-term finance for the ongoing stewardship of biodiversity. Indefinite crediting approaches can allow for funding of ongoing activities required to maintain biodiversity outcomes,” the report said.
STANDING FORESTS
The advisory firm also pointed out that some principles that might be ideal from an integrity perspective may not be implemented in practice, at least not immediately, in order to encourage supply-side participation to meet demand.
One example might be credits generated in High Forest Cover, Low Deforestation (HFCLD) countries.
Some HFCLDs, including Gabon, has recently issued forestry-based carbon credits in a bid to get compensated for consistently storing vast amounts of carbon and maintaining crucial biodiversity, but have found that voluntary carbon buyers turn their nose up at their efforts because deforestation has never been a threat there.
“Pollination anticipates that voluntary biodiversity markets will take a more flexible approach to additionality than voluntary carbon markets and will not adopt a strict regulatory additionality approach that would exclude areas from being eligible to participate in a scheme based on a pre-existing legal mechanism of protection (only), if the project will deliver additional regeneration, stewardship, or adaptation outcomes,” the report said.
Another change the company expects to emerge are schemes being administered independently rather than by project proponents, which is the case for many credit types currently.
Pollination released its report alongside Australian developer GreenCollar’s announcement that it has issued a first batch of credits under its NaturePlus scheme.
GreenCollar said in its launch that while it is operating the programme for the time being, it expects to hand that over to a third-party in time.
“Independent administration of schemes will be needed to satisfy integrity considerations as the markets mature,” said Pollination.
Last but not least, the report said guidance and clarity needed to emerge around transparency and what sort of claims can be made under the various crediting programmes.
“Most schemes lack clear information on governance arrangements and review processes. Most schemes also do not provide guidance on appropriate use cases and claims for their credits,” it said.
“As demand for biodiversity credits builds, Pollination anticipates that there will be significant scrutiny of governance processes and the use of credits from all market stakeholders.”
By Stian Reklev – stian@carbon-pulse.com
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