Direct and indirect drivers of biodiversity loss. Source: IPBES, 2019
The Living Planet Report (2022) defines Biodiversity as “the variety of life and interactions between living things at all levels on land, in water and in the sea, and air” (WWF 2022, pg.17). Food, medicines, energy and fibers, are just some of the key services provided by terrestrial, freshwater and marine ecosystems. These ecosystems also provide for physical and psychological experiences, learning and inspiration, while supporting identities and a sense of place. Everything that enables us to live comes from nature (Ibidem).
Over the last 50 years, we have lost 1-2.5% of birds, mammals, amphibians, reptiles and fish, and about one million plants and animal species are at risk of extinction (WWF, 2022). Unsustainable use of land and sea resources, climate change, pollution and invasive alien species are the main drivers of biodiversity loss. In particular, land use change accounts for -25% of biodiversity loss and it is estimated that 32% of the world’s terrestrial area has been affected by it (Winkler et al., 2021). These are exacerbated by indirect drivers of biodiversity depletion, such as overpopulation, unsustainable demand for energy, food, and other materials, use of inefficient technologies, different modalities of managing natural resources, conflicts and epidemics (Ibidem)
Biodiversity Credits are an economic instrument that can be used to finance projects and activities that produce positive and measurable goals for biodiversity (e.g., reintroduction of endangered species, ecosystem restoration and habitat protection, etc.) through the creation and sale of biodiversity units (WEF, 2022). As such, they can be defined as Payment for Ecosystem Services.
Biodiversity credits can help the public and private sector to realize an economic system that generates positive outcomes for the environment, but only if the following conditions apply (WEF, 2022):
- Transparent governance is in place;
- Indigenous people and local communities are involved in the project;
- There is clarity of additionality, robust measuring, reporting and verification (MRV) and solutions to address double counting;
- Permanence and unintended outcomes leaked to nearby geographies are considered to ensure success.
While biodiversity offsets are mandatory costs that a company bears to compensate for any negative impacts on specific local ecosystems; biodiversity credits allow companies – on a voluntary basis – to invest in projects focused on biodiversity conservation and restoration, generating positive impacts way more meaningful than simply compensating for any biodiversity loss.
Biodiversity offsets and credits may indeed have a similar design. What sets them apart is the purpose for which they are purchased. Biodiversity credits are meant to be an investment for biodiversity conservation and restoration, whereas biodiversity offsets are a compensation for damages done to the environment. Moreover, we get to biodiversity offsets once the mitigation hierarchy has been applied to compensate for the residual impacts that couldn’t be avoided, mitigated or restored.
Overall, in our opinion, biodiversity credits should be part of a company’s nature positive journey.
Biodiversity presents both risks and opportunities for businesses. Financial risks are not only limited to supply chains and commercial operations, but also include broad systemic risks associated with the decline and degradation of nature (WEF, 2022). Moving from a business-as-usual path to an economic model that has a positive impact on nature can create over $10.1 trillion in business opportunities (WEF, 2022). By mitigating the systemic risks associated with the decline and degradation of nature, biodiversity credits represent not only an excellent business opportunity, but they are also an innovative tool for financing actions aimed at the conservation, protection, and restoration of biodiversity, while also tackling climate and water targets.
Types of systemic risks associated with the decline and degradation of nature. Source: World Economic Forum, 2022