Integrity at the forefront as biodiversity credit markets grow

Voluntary biodiversity credit schemes globally are displaying a commitment to high-integrity market features as buyers demonstrate their willingness to engage, a new report finds.

The State of Voluntary Biodiversity Credit Markets Report, from climate and nature firm Pollination, finds that. despite the nascent state of voluntary biodiversity credit markets and schemes, credits purchased to date are directly linked to the regeneration, protection and stewardship of up to 125,000 hectares of nature.

The report finds that between US$325,000 and US$1.85 million worth of voluntary biodiversity credits have been sold globally, the first time the size of global markets has been revealed.

“Voluntary biodiversity credits are a relatively new type of instrument, but one that shows incredible potential,” Pollination Executive Director, Laura Waterford said. “We are seeing that companies who care about their brand image and care about nature risk exposure have plenty of reason to purchase high-integrity biodiversity credits without any need for an offsetting claim.”

The report is based on an in-depth survey of 16 major suppliers of biodiversity credits – a sample that represents the bulk of international credit supply. It finds biodiversity credit schemes are drawing a clear distinction between voluntary biodiversity credits and biodiversity offsets, with 88% of respondents indicating their schemes are not intended to support the issuance of biodiversity offsets.

“Already we are seeing differences emerge in the shape of future voluntary biodiversity credit markets from what we have seen with carbon markets,” Ms Waterford said. “We are strongly of the view that biodiversity credits will and should remain a separate instrument to offsets. The responses we’ve received from those operating in this market suggest that view is shared.”

The report finds the key drivers of demand are companies wanting positive brand exposure as a result of protecting nature, closely followed by purchasers seeking to mitigate nature-related risks (physical, transition and systemic risks) aligned with voluntary frameworks such as the Taskforce on Nature-Related Financial Disclosures (TNFD).

“There has been a lot of commentary asking what factors might drive voluntary demand for biodiversity credits,” Ms Waterford said. “Now we have some answers, and they are really encouraging.”

Evidence that voluntary biodiversity credits scheme operators view purchasers as being motivated by nature risk mitigation is significant. It demonstrates the speed with which investment in nature has shifted from being seen as a philanthropic endeavour, to one closely connected with the management of nature-related financial risks.

The findings come as Australia prepares to host the first Global Nature Positive Summit in October and ahead of the 2024 United Nations Biodiversity Conference (CBD COP16) to be held in Colombia later this year.

“We are seeing the early stages of emerging biodiversity credit markets in which genuine demand exists and in which providers of credits are focused on delivering a product with transparency and integrity to deliver positive outcomes for nature,” Ms Waterford said.

“Under the Kunming-Montreal Global Biodiversity Framework, nations have pledged to restore 30 per cent of damaged biodiversity by 2030, with a goal of living in harmony with nature by 2050. This report shows that biodiversity credits can play a meaningful role in helping reach those goals.”

The survey results indicate that biodiversity credit schemes are committed to a high integrity approach. All biodiversity credit schemes surveyed said they either have third-party verification in place (69%) or plan for such verification to be adopted in the future (31%).

The report examines the factors driving demand for biodiversity credits, finding:

• Multinational corporations, financial institutions, and SMEs are tied as the perceived top sources of demand.
• ‘Marketing / brand’ is the strongest driver of demand for biodiversity credits observed by the biodiversity credit schemes surveyed, closely followed by risk mitigation (i.e. mitigation of nature-related transition risks, physical risks and/or systemic risks).
• Buyers appear to be more interested in biodiversity credits generated by projects that are geographically close to their operations, investments and supply chains.
• Geographically, European buyers are the greatest perceived source of demand.

In cases where biodiversity credits are generated from lands or waters where Indigenous People (IPs) and/or Local Communities (LCs) have continuing connection 70% of respondents reported such groups were involved in the project, as project leaders, co-owners with an equity stake or in project implementation activities and benefit-sharing arrangements.

Almost 20 per cent of survey respondents reported that buyers were already paying premium prices for projects involving IPs and LCs. Pollination Foundation Co-CEO, Jane Hutchinson, a co-author of the report, said buyers’ valuing of projects that closely engaged Indigenous Peoples and Local Communities was an encouraging sign.

“Given Indigenous Peoples and Local Communities steward the vast majority of the world’s biodiversity, it’s critical that they are at the forefront of the design and implementation of these emerging market opportunities,” she said.

The report also looks at the kinds of activities underpinning the generation of biodiversity credits, dividing activities into four categories: protection, regeneration, stewardship, and adaptation. It finds regeneration to be the most commonly cited focus of biodiversity credit schemes (81% of respondents). A regeneration-focused approach involves activities that deliver an improvement in ecological value over time.

“Our analysis shows that credits are being sold and issued, integrity measures are maturing, and early transactions demonstrate that there is confidence building in these markets,” Ms Waterford said.

“Almost all the activity we’re seeing reported has come in the past 2-3 years. We are excited to see where these markets sit three years from now.”

Download the report for free now