Biodiversity credits are an economic instrument that can finance actions that result in positive, measurable biodiversity-related outcomes. The credits are “verifiable, quantifiable and tradeable units of restored or preserved biodiversity over a fixed period” that “offer a potentially robust and scalable mechanism for increasing nature positive investment” (World Economic Forum, 2023, p. 4). The voluntary biodiversity credits markets represent a significant opportunity for private sector finance to contribute to the protection and recovery of nature by supporting measurable and verifiable biodiversity outcomes.
The credits function as tradeable units that can be exchanged in a market space to incentivize investments in biodiversity. The approach begins with the measurement of anticipated outcomes, which can include protection, regeneration, stewardship, and adaptation to climate change impacts. An agreed methodology is used to translate the benefits into credits, and investors transfer capital to beneficiaries against an expected return. The final stage includes third-party verification and a specific agreed value of the biodiversity credit issued to the implementor/beneficiaries, which can include Indigenous groups, local communities, landowners, and governments. The credits can then be bought by the private sector, governments, development partners, and philanthropies.
While no emerging schemes in 2023 had adaptation explicitly as an intended outcome, “it is likely credits with this intended outcome will emerge in the future” (Pollination, 2023, p. 14). Biodiversity underpins climate change adaptation by regulating climate and protecting natural systems from the impacts of climate change, which can improve the resilience of these systems and human communities. Therefore, actions to enhance and conserve biodiversity, if designed in a way that allows ecosystems themselves to adapt, can also help people adapt to climate change. Ecosystem-based adaptation provides a framework to help developers of biodiversity credit programs consider approaches that reduce communities’ vulnerability to climate change.
Current or potential adaptation-relevant sector applications:
- ecological services and management – forest management (including afforestation and reforestation); wetlands; ecosystem and biodiversity protection, conservation, and enhancement; fire management.
Additional insights:
- This is an emerging instrument at a very early stage of development. The first biodiversity credit transaction took place in 2023 when a Swedish bank bought credits from a forest cooperative.
- At least 30 programs, with a concentration in Australia and Europe, were underway in 2023 to design biodiversity credits and test the fast-emerging market for these credits, including the development of guidance and methodologies for project developers and buyers.
Considerations for using biodiversity credits:
- Strong governance is critical in the design of credits and market architecture, which requires transparent and standardized information. The instrument’s success is dependent on the integrity of the credits and the markets.
- Biodiversity credits require standard metrics for trading, including robust methodologies to set consistent values for resilience and to measure success. Developers need to show that investment in biodiversity credits leads to the desired results and that investors can have confidence in the credits.
- A range of participants will need to be engaged to scale up biodiversity credits, including private sector actors, government, investors, development partners, and civil society groups.
Adapted from the following sources:
Biodiversity and Climate Change Adaptation Expert Group under the Nairobi Work Programme on Impacts, Vulnerability and Adaptation to climate change & Least Developed Countries Expert Group. (2023). Promoting synergies between climate change adaptation and biodiversity through the National Adaptation Plan and national biodiversity strategy and action plan processes [Technical brief]. https://unfccc.int/sites/default/files/resource/UNFCCC-NWP_synergies_NAP-NBSAP_technical-brief.pdf
Pollination. (2023). Voluntary biodiversity credit markets: A review of biodiversity credit schemes. https://pollinationgroup.com/wp-content/uploads/2023/10/Global-Review-of-Biodiversity-Credit-Schemes-Pollination-October-2023.pdf
Sarmiento, M., & Morgan, S. (2023, February 20). Biodiversity credits: An opportunity to create a new financing framework (commentary). Mongabay. https://news.mongabay.com/2023/02/biodiversity-credits-an-opportunity-to-create-a-new-crediting-framework-commentary/#ref5
Terton, A., & Greenwalt, J. (2020). Building resilience with nature: Ecosystem-based adaptation in National Adaptation Plan processes: An analysis. NAP Global Network. http://napglobalnetwork.org/wp-content/uploads/2020/11/napgn-en-2020-ecosystem-based-adaptation-in-naps.pdf
World Economic Forum. (2023). Biodiversity credits: Unlocking financial markets for nature-positive outcomes [Briefing paper]. https://www3.weforum.org/docs/WEF_Biodiversity_Credit_Market_2022.pdf