Introduction to emerging biodiversity markets: An evolving guide for sustainability leaders

Introduction to emerging biodiversity markets: An evolving guide for sustainability leaders

There is no net zero without nature. The destruction of species accelerates climate change by disrupting entire ecosystems. Biodiversity markets are emerging as a critical part of the solution, helping to put a value on critical nature-based assets and unlock new sources of finance. This is an introductory guide to this quickly evolving topic.

Introduction to emerging biodiversity markets: An evolving guide for sustainability leaders

There is no net zero without nature

We cannot limit global warming to 1.5 degrees if we do not reverse biodiversity loss. This is the very clear message from the Intergovernmental Panel on Climate Change.

Biodiversity is a common term for biological diversity, or the variety and variability of life on Earth. It includes all living things, such as plants, bacteria, animals and humans. With each of these species of organisms working together in finely balanced ecosystems to maintain life.

And the destruction of species accelerates climate change by disrupting entire ecosystems.  

So now, at a critical point in our fight to protect the planet, governments, regulators, and private entities are stepping in. There is now a growing number of nature-related reporting standards and a rising demand for scalable economic solutions that deliver positive biodiversity impact.

Biodiversity markets are emerging as a critical part of the solution. These systems help direct public and private funds to support conservation efforts, while enabling continued economic growth.

While they are not a silver bullet – and all forms of investment in conservation must continue – biodiversity markets are expected to unlock new finance through various market incentives.

To help corporate sustainability teams get up-to-speed we created this introductory guide to this quickly evolving topic. The guide will be continually updated as the biodiversity landscape evolves.

Keep reading the guide to learn about:

  • Our current challenge and state of nature investment
  • Drivers supporting the growth of biodiversity markets
  • Evolving biodiversity frameworks
  • How credits are created and valued

Our biodiversity challenge and the state of nature investment

In the context of climate, the objective is clear, albeit not easy.

We are all united in our collective goal to limit global warming to 1.5 degrees. The volume of greenhouse gases (GHG) in the atmosphere - with the most prevalent in the form of carbon dioxide (CO2) - being a measure of our progress.

In nature and biodiversity, there are many more variables, and the landscape is more complex.

The global biodiversity target of Nature Positive by 2030 is defined by four related goals and 23 targets captured in the Kunming-Montreal Global Biodiversity Framework (GBF).

Adopted in 2022 at the United Nations Biodiversity Conference (COP15), the aim of the framework is to halt biodiversity loss and reverse it to 2020 baselines.

So how big is the biodiversity challenge in front of us?

According to the 2019 Global Biodiversity Assessment, the current annual rate of global biodiversity loss is estimated to be between 1% and 3%. This means that we are losing between 100,000 and 300,000 species per year, a rate of extinction that is unprecedented in human history.

While the climate and nature impact cannot be underestimated, the financial impact is also significant. The World Bank estimates that if don't act to protect and restore nature, global GDP will fall by US$2.7 trillion from projected annual levels in this decade alone.

And the path forward can also be expressed in financial terms. We need an estimated US$1 trillion in nature investment per annum by 2030 to maintain ecosystem integrity – up from US$166B being invested today.

In economic terms this investment can be seen as a cost-saving strategy to mitigate the larger potential cost of a failing ecosystem.

Biodiversity markets are an essential tool to help funnel this investment into high-impact projects, many run by local communities who can also directly benefit.

Like our currently maturing carbon markets, biodiversity markets will help the world put a value on our critical nature-based assets and to unlock new sources of finance. They will also help ensure we are financially (not just morally) incentivised to protect them.

What’s driving the growth in biodiversity markets and how are jurisdictions responding

Biodiversity markets are schemes designed to incentivise entities to invest in projects that drive additional and measurable positive biodiversity outcomes.

These systems are very early in their development and build on the market design of the rapidly advancing broader compliance and voluntary environmental markets mechanisms.

Drivers supporting the growth of biodiversity markets

The growth in interest and participation in biodiversity markets has been supported by the following factors:

1. Regulatory compliance

Aligned with the Global Biodiversity Framework, a growing number of countries are passing legislation that holds companies accountable for the impact they have on nature’s ecosystems.

For example, as stipulated by the UK's Environment Act, all planning permissions granted in England will be required to deliver at least 10% biodiversity net gain from November 2023.

The launch of this compliance measure started a huge influx in demand for biodiversity credits.

2. Voluntary demand

A growing number of voluntary nature and biodiversity schemes and initiatives have emerged in recent years. These have helped organisations to prepare for the expanding compliance requirements and test their implementation plan early.

There are currently three international standards that are paving the way to design a high integrity reporting system for nature impact:

  • Science Based Target Nature (SBTN)
    SBTN is a subset of the Science Based Target initiative and sets guidelines on how to set a nature target and when to use biodiversity offsets or credits.

    The principle is to use the mitigation hierarchy, which consists of four stages: avoid, reduce, restore and regenerate nature, with the final principle to take action beyond the company’s direct value chain.
  • Taskforce for Nature-related Financial Disclosures (TNFD)
    TNFD published a framework that helps businesses understand and manage their nature related impact and risk.

    After scoping your need to assess nature risk, the framework sets the strategy out using the LEAP approach:

    Locate your interface with nature; Evaluate your dependencies and impacts on nature; Assess your nature-related risks and opportunities and; Prepare to respond to nature-related risks and opportunities, and to report on your material nature-related issues.

    In the UK, companies are urging their government to mandate TNFD reporting.  The Australian government has also faced similar pressure and has recently completed testing on TNFD adoption implications across several high impact industries in Australia.
  • Global Reporting Initiative (GRI)
    In January 2024, GRI introduced an updated reporting standard for biodiversity, labelled as GRI 101: Biodiversity 2024, building upon its 2016 predecessor.

    This revision aligns with the UN Kunming-Montreal Global Biodiversity Framework, SBTN, and TNFD.

    The GRI Biodiversity Standard aims to enhance transparency in the supply chain, provide location-specific reporting on impacts, and introduce new disclosures on direct drivers of biodiversity loss. These encompass land use, climate change, overexploitation, pollution, and invasive species.

    Additionally, the standard mandates reporting on societal impacts, including those on communities and Indigenous Peoples.

    The standard is set to be effective from January 1, 2026.

Case study: Australia

As the host country for the first Global Nature Summit happening in October 2024, Australia has shown leadership in being one of the first countries to have an established nature and carbon market. There is an agile governing team in place, working on developing the other components of the market to help ensure clarity, integrity and structure.

Some of the related initiatives include:

  • Australia is currently developing the world’s first Nature Repair Market which is due to launch in 2024. The Nature Repair Act 2023 was approved in late 2023 and has set the first step on building a nation-wide biodiversity market. The intent of market is to reward landholders who restore and protect nature and to provide incentives for business to invest in nature positive projects.

    The market will initially be voluntary in nature, though the expectation is that it will evolve to support nature related legislation. It will operate in parallel with the established carbon market.
  • Australian states have also started building their capabilities. An example of is the New South Wales Biodiversity Offset Scheme. The scheme requires that any residual biodiversity impact from a development must be replaced by a biodiversity gain in another location. This scheme will run separately to the Nature Repair Market.
  • Several private project developers have taken the lead in developing their own biodiversity credits. Examples include: NaturePlus™ Credits by GreenCollar, Cassowary Credits by Terrain NRM, EcoAustralia™ by South Pole and Biological Diversity Units by Wilderlands.
  • The Department of Climate Change, Energy, the Environment and Water (DCCEEW) has launched the Agriculture Biodiversity Stewardship program to test the implementation of the Nature Repair market. This program includes several pilot projects:

    - Carbon + Biodiversity Pilot: a project to test whether attaching biodiversity certificates on an existing Australian Carbon Credit Unit (ACCU) co-benefit would work

    - Enhancing Remnant Vegetation Pilot: a project to test project method protocols.

    - National Stewardship Trading Platform: project planning and marketplace platform to evaluate biodiversity and carbon projects using environmental data sets as well as connecting landholders with private buyers.

    - The Australian Farm Biodiversity Certification Scheme: a scheme to provide accreditation for farmers who have implemented good farming practice and created positive biodiversity outcomes.
  • The Australian government has also been pilot testing the implementation of TNFD reporting for industries with deep value chains. The report from the scheme concludes that there is a need for the Australian government to develop a national reporting standard based on current international principles and to consult with First Nations people throughout the process.

Creation and valuation of credits in biodiversity markets

Biodiversity credits are certificates that represents a positive biodiversity impact that wouldn’t have occurred without the designated nature enhancement or protection project.

The impact is measured as either an avoided biodiversity loss or real positive net gain. And while greater standardisation is expected in the future, there is currently more than one way to measure this impact (more on this below).

Biodiversity projects can take place in various settings, including land, in-land waterways, and marine and coastal environments.

Evolving valuation methods for biodiversity credits

Biodiversity credits share many similarities with other similar tradable environmental market products. For example, they must be:

  • Quantifiable in terms of their positive impact
  • Fungible, or able to be interchanged or traded with other biodiversity credits
  • Come from approved project methodologies
  • Purchased with an end goal to be retired through an approved registry.

And while the biodiversity market is still very early in its evolution, the ultimate aim is clear: to put a cost on biodiversity loss and drive investment into nature positive solutions.

How Australia and other jurisdictions are evolving

Currently, in Australia, each project can only issue one biodiversity certificate.

This means each certificate can carry varying qualities and impact towards nature. And while the impacts may be tangible and measurable, they currently lack the like-for-like or fungible component needed in a tradable financial product. Further standardisation is therefore required.

It is possible to combine the certificate with an existing Australian Carbon Credit Unit (ACCU) project that is nature based and has relevant biodiversity co-benefits. Doing so will likely introduce another layer of premium pricing on current method specific premiums.

In other jurisdictions, biodiversity credits are designed to each represent a percentage change of nature positive impact enabled by a project, in a defined area, measured over a specified period of time. While this concept creates a more fungible outcome, the metrics that go into the measure of change are different based on each location’s ecosystem characteristics.

How global standards are evolving to help ensure standardisation

Other work is underway to help inform a unified global standard for evaluating the multi-metrics of a biodiversity credit.

Dr. Tim Coles from Operation Wallacea, suggested we use the Consumer Price Index (CPI) concept to summarise this multi-metric valuation into a single unit of measure:

“Why not look at the conservation objectives for an eco-region or a habitat, as a basket of metrics that reflect what you’re trying to achieve? … The same way CPI gives inflation figures, you could compare the uplift between different projects. This is a way of defining a biodiversity unit: it’s a 1% uplift or avoided loss in the median value of a basket of metrics per hectare.”

This biodiversity valuation concept is based on four standardised global metrics, and one or more locally selected measures. The local measures are chosen based on the project or location specific factors.

For example, Plan Vivo, one of the global nature credit accreditation firms, has published its methodology to evaluate biodiversity credits. They believe that each credit valuation must contain the following four foundation pillars:

  • Species richness: number of unique species within a site
  • Species diversity: number of species and distribution of relative abundances of each species
  • Taxonomic dissimilarity: distance in the taxonomic tree between different species detected
  • Habitat conservation or rugosity: capacity to support biodiversity

Key takeaways for sustainability leaders

Nature and biodiversity are now strategic risk management issues. From both physical and transitional risk angles, biodiversity loss is affecting how businesses need to adapt their operational and financial plans.

While many of the frameworks and regulations are still in development, research by TNFD shows that 70% of its members are expected to adopt the new nature reporting standard by FY2025. In less than a year, therefore, there will be a major shift in the demand for nature positive projects.

There are several ways sustainability leaders can start to prepare for the upcoming nature related compliance system:

1. Get informed

  • Start building internal capabilities, by getting across international guidelines: TNFD, SBTN, and GRI.
  • Develop an engagement strategy and talk to stakeholders: investors, clients, suppliers, researchers, First Nations led organisations and local communities.
  • Identify and document key risks and opportunities.

2. Start mapping and gathering relevant data

  • There are many ways to measure corporate biodiversity footprint. Consider your entire supply chain and see how your current operations and decisions are affecting nature.

3. Plan for impact

  • Look into various ways you can start making a positive contribution, starting with minimising your footprint.
  • Get in touch with our team. We can help you understand the upcoming changes in regulation, the commercial risks and opportunities that come with these changes and how to optimise both.

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