Written by Frank Hawkins (IUCN), Edit Kiss (Revalue Nature) and Juliette Baralon (South Pole). 

At the recent semi-annual meeting of the Coalition for Private Investment in Conservation (CPIC), members continued to engage on the topic of biodiversity credits, building on previous discussions held in January and March.

The motivation for the panel discussion was to bring inputs to a white paper on biodiversity credits being developed by McKinsey, The Biodiversity Consultancy (TBC), Conservation International, the Conservation Finance Alliance, IUCN and VERRA. During the panel, experts James Allan from McKinsey, Malcolm Starkey from TBC and Sinclair Vincent from VERRA discussed the latest developments and issues around the emergence of biodiversity credits.

Growth in demand

The demand signal from markets for biodiversity has been weak in the past. However, this is now changing, as demonstrated by an increasing number of enquiries on biodiversity credits that standards developers such as VERRA have been receiving. Given the work underway by the Taskforce for Nature-related Financial Disclosures (TNFD) to develop reporting and disclosure standards for biodiversity-related risk, interest from both the corporate and financial sector is growing exponentially. This process follows the considerable momentum generated by the Taskforce for Climate-related Financial Disclosures (TCFD) for the carbon markets. But to ensure that biodiversity credits are a viable tool to achieve tangible conservation outcomes, we need credible and harmonized standards.

Current standard development

Sinclair Vincent explained that VERRA have been considering developing a standard for biodiversity for a long time, and are planning to launch a new methodology within 12 months. VERRA’s Sustainable Development Verified Impact Standard (SD Vista) has been built with the flexibility to add new methodologies, and can therefore accommodate biodiversity credits. Sinclair added that the STAR metric could be used as one component of a crediting mechanism, for addressing species extinction risk, while for other aspects – such as watershed services or habitat and ecosystem conservation and restoration – separate methodologies can be developed. Other organizations are also looking at standards: Plan Vivo for example is working in collaboration with Operation Wallacea and have developed pilots.

Malcolm Starkey of TBC explained that it is critical to ensure that credits have high integrity both on the local scale and on the system scale. He provides more detail on this subject in a supplementary blog post. VERRA agreed that for any new standard, supply and demand guidance in parallel is key. They have followed this approach with their recent Plastic Waste Reduction Standard where credits are generated under a mitigation hierarchy described in their Guidelines for Corporate Plastic Stewardship.

To ensure the high integrity of biodiversity credits, there is a clear role for a dedicated “Taskforce for Nature”, similar to the Integrity Council for the Voluntary Carbon Market (ICVCM).

Navigating biodiversity-related initiatives and metrics

There is broad agreement that we will need more than one metric on biodiversity, given its complex nature, but we can broadly see two areas where current developments focus:

1. Habitat or ecosystem based
2. Species based

While markets such as habitat and mitigation banking in the US and Colombia have been around for a while, they are usually used in a local or regional context. Site level indicators such as the Biodiversity Indicators for Site-based Impact (BISI) developed by UNEP-WCMC offer excellent solutions for site based impact measurement. However, they are not suitable for aggregating to higher levels, across supply chains and corporate balance sheets. Developing ecosystem-based indicators that include integrity and functionality and that can be assessed and compared at global levels remains challenging.

Corporates and investors have expressed their biodiversity impact in hectares, using tools such as the Global Biodiversity Score developed by CDC Biodiversité. However, these tools (and others which use Mean Species Abundance or Potentially Disappeared Fraction) are not based on published methodologies and do not allow developers to set targets or monitor progress, as is essential for biodiversity credit schemes.

The Integrated Biodiversity Assessment Tool (IBAT) has been essential for screening biodiversity risks through the identification of critical habitats for biodiversity, for instance under the IFC Performance Standard 6. The latter requires the no net loss principle on biodiversity and strict compliance with the mitigation hierarchy, the last step of which requires compensation of the residual footprint. However, this can only be done on a like-for-like approach, can only be delivered locally, and offers no opportunity for a more standardized, global market. It will remain an important component of any future developments, but more work is required around the landscape level ecosystem integrity piece.

It will probably be a few years before we have a standardized global ecosystem metrics/scoring system, but IUCN is actively working on a metric based on the Red List of Ecosystems that could bring further developments to the market.

Finding globally comparable and scalable metrics for species has also been challenging. For a long time, the only option has been to rely on expensive and time-consuming local surveys, an approach which is hard to scale. That is why it is so exciting to see new metrics such as STAR, developed by IUCN and partners, which can be used to assess the species extinction risk reduction potential at individual sites – but also how that opportunity or risk is transmitted up value chains or aggregated across company holdings. Site, footprint or country scale metric values can be compared and analyzed across policies and sectors, thereby enabling the creation of an actionable framework for governments, companies and civil society. These individual components can be reported as contributions to SDG15 or for the (eagerly awaited) post-2020 Global Biodiversity Framework. While STAR currently holds data only on terrestrial tetrapods, freshwater and marine species will be added very soon.

There is currently work undergoing on the foot-printing side (negative) as well as piloting for the opportunity side (positive) – both are critical for the development of this new asset class.

From carbon to biodiversity: what can we expect?

While offsetting remains a controversial subject, there is no doubt that creating biodiversity and nature positive assets is key for channeling private finance and reversing the biodiversity extinction crisis. Companies and financial institutions have a long way to go to transform their physical and financial footprint from nature negative to nature positive. Leaders and innovators are not waiting for the CBD COP15 in December to provide a positive policy signal, and already steaming ahead with pilots on the ground, for which the use of upcoming standards and certifications are playing a critical role.

If there’s anything we can learn from the tech start up world, it’s that we need a minimum viable product to go to market – and a flexible learning-by-doing mindset!

A recording of the session is available to CPIC members. Please get in touch with info@cpicfinance.com to gain access.

We are currently setting up a CPIC Biodiversity Credits working group which will aim to shape this upcoming market and share developments. Stay tuned for more information on this subject.