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.
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:
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.
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. As such, they have many similarities- albeit also some important differences - with the more established carbon markets. (More on this below)
The growth in interest and participation in biodiversity markets has been supported by the following factors:
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 initiatives include:
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.
Biodiversity credits share many similarities with other similar tradable environmental market products. For example, they must be:
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.
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.
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:
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
2. Start mapping and gathering relevant data
3. Plan for impact
Introduction to emerging biodiversity markets: An evolving guide for sustainability leaders
Designed for decision-makers with carbon market exposure, the ACCU Market Forecast Report serves as a critical tool for investors, project developers, and sustainability leaders. As new data and insights become available, we incorporate them into our forecast model. See what’s new in the Q3 forecast model.
