What do they want? Biodiversity Credits. When do they want it? Soon!

By Ryan Sarsfield, Senior Advisor on Biodiversity Markets

The full Biodiversity Credit Alliance paper can be found here. 

Investing in nature with biodiversity credits is an excellent way to help wild populations of animals, plants, and other organisms flourish. But what is motivating biocredit buyers at this early stage as the market is in development? Why would corporate buyers and other entities be interested in investing in migratory songbird or salmon credits? What’s in it for them?

Today the Biodiversity Credit Alliance released a new issue paper, “Demand-side Sources and Motivation for Biodiversity Credits'' that untangles some of these incentives and rationales. Developed by the BCA’s Demand Working Group, led by EPIC’s Executive Director Tim Male, the brief overview reveals a range of reasons why biocredits are increasingly attractive options.

Where is demand coming from? A mix of carrots and sticks.

Stakeholder pressure, and opportunities: Just as corporates continue to wrestle with the implications of their GHG emissions footprint, there is a parallel growth in the pressure and wherewithal to measure their biodiversity “footprints.” Through reporting initiatives like the Taskforce on Nature-Related Financial Disclosures (TNFD) and Science-Based Targets for Nature (SBTN) and stakeholder pressure on multiple fronts, corporates are seeking ways to compensate those impacts - in formal “offset” terms or otherwise. On the positive side of the ledger, corporates see the value in directly funding nature beyond their current support of civil society-led initiatives, tree planting (for carbon sequestration), or other efforts. The powerful marketing potential of corporates willing to invest in iconic species can make biodiversity credit investments an excellent value beyond simply balancing the books of nature impacts and benefits. Meanwhile, financial institutions may find biocredits a compelling addition to their portfolios beyond simply speculation, both to hedge against their own nature impact but also to kickstart the trade in credits as demand grows.

Regulation on the horizon, or already in place: While the voluntary market for credits is first on the agenda in the U.S., savvy businesses are planning for the future, and in many cases are working with regulations already in place in other countries where they may also operate. Getting out ahead of a future regulatory structure means getting familiar with what credits are, what makes for high quality and low risk in a credit purchase, and how the cost of credits will influence a business’s operations. Even early-stage pilot projects can provide valuable experience to ambitious corporate leaders. Elsewhere, national or supra-national regulation has already made “nature positive” a business prerogative rather than a policy mantra still-in-development. England’s implementation of its world-leading Biodiversity Net Gain policy has been delayed to 2024, but businesses operating there are gearing up to comply. In the EU, mandatory financial disclosure such as the Corporate Sustainability Reporting Directive (CSRD) sends a clear message that a much more holistic accounting approach will be the new norm - and biodiversity credits that can be added to a balance sheet hold great promise for “balancing the books”.

Risky business: Beyond the risk management tactics of getting ahead of regulation and stakeholder or shareholder pressure, awareness of nature dependencies is growing, just as the impacts of climate change are increasingly seen as operational risks for companies. Agriculture, forestry, and water dependent industries understand that the ecosystem services their businesses depend on are themselves management priorities - and the purchase of credits from experienced restoration and conservation operatives should be part of the equation.

The issue paper delves into all of these perspectives in great depth, and considers government and philanthropy as additional drivers of demand, credit attributes that may influence demand (geography, liability, etc.) and more. Read it here, and for more of EPIC’s work on environmental markets, take a look here.