Biodiversity credits: key principles and UK strengths

Ben Parker and Rhys Preston-Allen, PhD researchers at Imperial’s Science and Solutions for a Changing Planet Doctoral Training Partnership (SSCP DTP) at the Grantham Institute, discuss the risks and opportunities of biodiversity credit schemes for countering the biodiversity crisis and highlight UK strengths that could make valuable contributions towards their implementation. 

We face a biodiversity crisis. Extinction rates are now 1,000 to 10,000 times higher than natural levels, with at least 1 million animal and plant species threatened with extinction. This is deeply concerning, as biodiversity provides us with a wealth of benefits – in fact, it underpins over half of the world’s market value, worth about $44trn. As such, the biodiversity crisis is already costing the global economy over $5trn annually and could reduce the UK’s market value by 12% by 2030, surpassing the impacts of the 2008 financial crash and the COVID-19 pandemic.

Countering biodiversity loss is therefore essential to establishing a more sustainable, resilient, and prosperous world. Yet, effective biodiversity conservation is hampered by a crippling lack of resources; the annual shortfall exceeds $700bn. Addressing this deficit demands decisive action and leadership.

Encouragingly, the UK contributes significantly to countering biodiversity loss in international contexts. This is exemplified by substantial funding initiatives like the Biodiverse Landscapes Fund and the Blue Planet Fund. Additionally, mechanisms that align financial flows with commitments to nature and climate have led to the UK being recognised as a leading centre for green finance.

On a broader financial front, the recently agreed Kunming-Montreal Global Biodiversity Framework (2022) under the Convention on Biological Diversity seeks to stimulate greater investment in biodiversity from the private sector, including via biodiversity credits. Such credits represent quantifiable biodiversity gains, and their exchange could help channel more finance to areas where it is sorely needed – particularly if they are developed with the principles of high-integrity, inclusivity, and support in mind.

Biodiversity credits: the current landscape

Biodiversity credits are generated via ongoing conservation or restoration activities. They can be attractive to businesses and financial institutions as they support compliance with regulations – such as those that prohibit net loss or require a net gain of biodiversity. Furthermore, they can aid efforts to meet stakeholder expectations concerning biodiversity and mitigate risks associated with biodiversity loss.

The biodiversity credit landscape is diverse. Some credits focus purely on biodiversity and direct investment towards ecosystems valued mainly for ecological importance. Others, known as nature credits, combine biodiversity with carbon storage goals, aiming to enhance biodiversity and climate mitigation (eg, Verra’s nature credit system). There are local and national schemes, such as Australia’s Nature Repair Market and the UK’s Nature Markets Framework, as well as international ones, like those of the Wallacea Trust and Terrasos.

Efforts are underway to establish more unified approaches. The UK, in partnership with France, is leading efforts to establish a global biodiversity credit market. More broadly, interdisciplinary panels like the Taskforce on Nature-related Financial Disclosures, International Advisory Panel on Biodiversity Credits, and Biodiversity Credit Alliance are working to standardise practices.

Biodiversity credit schemes face scientific, economic, and social challenges

Biodiversity credit schemes face significant scientific, economic, and social challenges. Scientifically, the complexity of biodiversity presents a fundamental challenge – developing universal metrics that capture biodiversity gains across diverse ecosystems is difficult (in contrast to carbon credits, which can be more easily equated with CO₂ emissions). Metrics that are too simplistic may result in credits that fail to produce real benefits, while metrics that are overly complex might impose onerous monitoring burdens and undermine fungibility.

Economically, the challenge lies in stimulating sufficient demand and ensuring suitable supply. Without robust regulatory frameworks, these markets may struggle to develop. Socially, efforts may not adequately engage key stakeholders, such as indigenous peoples and local communities, or might not fairly distribute benefits amongst them.

Inadequately addressing such challenges could lead to disappointing results for biodiversity and people, potentially even exacerbating biodiversity loss and leading to broader economic and social problems.

Fundamentals of biodiversity credit schemes: high-integrity, inclusivity, and support

Adhering to certain principles is essential to help biodiversity credit schemes overcome such challenges.

First, the schemes should be high-integrity, meaning that credits should correspond to meaningful biodiversity gains and offer robust biodiversity value for businesses and investors. This demands transparency in credit design and in the methods used to assess and verify biodiversity improvements.

Second, such schemes must be inclusive, engaging key stakeholders – particularly indigenous peoples and local communities – with respect and ensuring that they receive a fair share of benefits.

Third, biodiversity credit schemes should have adequate regulatory support to generate sufficient demand and regulate supply quality, ensuring that these markets contribute to long-term biodiversity gains.

Leveraging UK strengths: technology and finance

Developing and implementing biodiversity credit schemes requires inputs from a wide range of stakeholders, and the UK is well-placed to make valued contributions.

Notably, the UK is home to several universities and institutions that conduct world-class research on biodiversity. Imperial College London, for instance, is well-positioned to make strong contributions towards the advancement of techniques that use remote sensing, advanced data analytics, and machine learning to improve the assessments for biodiversity credits.

Moreover, as a global financial hub and leader in green finance, the UK could take a prominent and proactive role in establishing and regulating biodiversity credit markets.

To maximise impact, the UK government should recognise the urgency of the biodiversity crisis and take decisive steps to further leverage UK strengths to help realise the potential benefits of biodiversity credits. Ideally, this should be part of wider strategies that see the UK taking leading roles in supporting transitions towards more nature-positive and climate-resilient economies and societies.