Companies could procure biodiversity credits, or other instruments, as part of their nature strategies, the World Economic Forum (WEF) said in a report published Monday.

Biodiversity credits, or other financing mechanisms such as payments for ecosystem services, green bonds, or nature-linked loans, could be one of four steps in corporate nature strategies, WEF said.

Nature finance action plans should have four steps:

• Define actions that offer both financial and nature benefits
• Select robust and fit-for-purpose metrics to measure the outcomes
• Establish procurement principles for biodiversity credits, before identifying credits, if chosen as a course of action
• Ensure transparent communication in relation to biodiversity credit claims

“With these steps, businesses can make meaningful progress in advancing their nature positive agendas and transitions, ensuring their economic prosperity while contributing to closing the nature financing gap,” WEF said.

Biodiversity credits can be one way to direct much-needed capital towards nature restoration to help lose the financing gap, it said.

“This roadmap uses the term ‘biodiversity credit’ to refer to credits that cover actions that result in positive impacts on both nature and biodiversity.”

PROCURING CREDITS

There are three main categories of risks associated with buying biodiversity credits: strategic, operational, and reputational risks, WEF said.

In addition to choosing the appropriate types of credits, businesses must prioritise ensuring the environmental and social integrity of the projects and their credit suppliers. WEF launched a draft set of integrity and governance principles for the market last December.

Buyers need to consider their options for how to procure credits, without a centralised marketplace. Transactions can happen at various stages of the project lifecycle, it said.

“While the most intuitive approach may be to purchase credits post-issuance, entering into offtake agreements at earlier stages, in particular with Indigenous Peoples and local communities, can help project developers and buyers reduce risk by guaranteeing demand at given volumes and prices.”

“In some instances, buyers might benefit from a discounted price for credits pre-issuance, as they would be providing funds early in the project’s lifetime and share part of the project risk.”

Companies must ensure that guardrails are in place when forward-buying credits, it said. Several organisations including UNESCO and RePlanet have said they intend to forward-sell biodiversity credits.

Multistakeholder alignment is needed on use cases and acceptable claims for biodiversity credits, many of which are still debated, the report said.

Last year, WEF said demand for biodiversity credits could reach $180 billion annually by 2050 if a radical transformation in valuing nature happens.

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

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