The Role of Biodiversity Credits
To close the biodiversity financing gap, private capital is needed. As an emerging financial instrument, biodiversity credits can help play a role in bridging this gap. For the purposes of this article, biodiversity credits are defined within the context of the voluntary biodiversity credits (VBCs) market. VBCs are certificates representing measurable, evidence-based positive biodiversity outcomes from activities such as ecological restoration or conservation.
They are designed to be durable and additional, achieving benefits beyond what would otherwise occur. Positive outcome is assessed by comparing conditions before and after project implementation to evaluate biodiversity improvements, mitigate threats, or prevent anticipated declines in biodiversity metrics. Durability refers to the long-term persistence of biodiversity outcomes, ensuring they remain effective and sustainable over time. Stakeholders, including the World Economic Forum (WEF) and Kunming-Montral Global Biodiversity Framework, have advocated for their use.
It is important not to confuse biodiversity credits with biodiversity offsets, which are compliance-/regulatory-driven and considered a last-resort approach when addressing mitigation. Nonetheless, more than 100 countries have established policies on biodiversity offsetting to compensate for equivalent ecosystem degradation (e.g., the UK Biodiversity Net Gain requiring new developments to provide a positive net gain to their impact). Offsets account for much of the USD 11.5 billion in private capital directed toward ecosystem restoration and conservation.
Unlike biodiversity offsets, VBCs are not intended to compensate for residual environmental damage elsewhere but instead serve as a mechanism to mobilize private funding directly for biodiversity conservation and restoration initiatives. They offer a way for corporations to mobilize private capital for biodiversity/nature. Further, VBCs support the Kunming-Montreal Global Biodiversity Framework, which is intended to encourage private sector investment in biodiversity with social safeguards. However, there are several challenges surrounding biodiversity credits, including the need for standardized metrics, a robust framework, and a functional market for VBCs.
Prominent stakeholders, such as the World Economic Forum, Biodiversity Credit Alliance (BCA), and International Advisory Panel on Biodiversity Credits, are advocating for the establishment of a VBC market. They emphasize that a high-integrity market with quality credits, supported by robust monitoring and verification, is essential for scaling VBC use. A VBC market requires clear guidelines for credit issuance, claims, and governance, alongside grievance mechanisms and data sovereignty.
Within this space, BCA emphasizes the development of high-integrity methodologies, transparency, and inclusivity in defining, managing, and verifying biodiversity credits. BCA emphasizes additionality, durability, and ecological integrity while ensuring Indigenous rights and livelihoods. Clear metrics and governance aim to avoid pitfalls and foster biodiversity outcomes that benefit nature, communities, and buyers. While a range of biodiversity credit markets are emerging globally, their full potential has not yet been reached.
The Metrics Dilemma: Why a one-size-fits-all approach is problematic
Up to now, there is no consensus on biodiversity metrics, but this is vital for driving demand in nature-positive financing. While metrics are tailored to specific circumstances, businesses need standardized methods for their vast operations, making metric alignment challenging. Biodiversity metrics must be local context-specific, reflecting the prevailing conditions because biodiversity loss in one area cannot be offset across regions, such as with CO2 emissions, nor should it. This is an important differentiating factor for the biodiversity credits market, as they cannot be used/traded as offsets. As a result, metrics need to be science-based, have replicable data, include stakeholders, and align with disclosure frameworks to enhance corporate adoption.
At first glance, the voluntary carbon credits market seems to offer a learning opportunity. However, establishing a one-metric-fits-all (or set of metrics) for VBCs is more challenging than for carbon markets using eCO2 (equivalent CO2) because the metrics need to be locally specific. This is especially important because voluntary carbon markets have not yet adequately resolved concerns about greenwashing allegations, the adequacy of CO2 removal, or their overall effectiveness. Learning from the voluntary carbon markets means redirecting the focus toward establishing a rigorous framework by which VBCs are developed and issued to build a reliable market with such attributes.
This underscores the WEF, BCA, and International Advisory Panel on Biodiversity Credits argument of establishing trust in the product and, in turn, the market through robust, transparent, and provable outcomes. Even with frameworks and metrics resolved, the most crucial question remains unanswered: Why should a business invest in a biodiversity credit?
The business case for VBCs is still unclear and complex to make, with critics often pointing to biodiversity’s non-fungibility, limited short- to medium-term corporate demand, and underestimation of the role of Indigenous Peoples and local communities. While VBCs have been promoted by prominent stakeholders, demand remains low. At present, it is projected to be around USD 1–USD 2 billion by 2030, which, compared to the USD 200 billion annual biodiversity funding gap, is insufficient to make a big contribution to closing this gap.
Furthermore, others suggest that VBCs are redundant because carbon markets already exist, and a biodiversity perspective for those projects could be added. Various reports from The Boston Consulting Group, McKinsey and WEF, and Pollination agree that scaling up a VBC market is not as simple as some suggest due to the significant complexity, time-intensive development, and lack of an immediate reward for businesses that they could leverage, such as for NbS.
As expected, key buyers — multinational corporations, financial institutions, and small- and medium-sized enterprises — are primarily motivated by marketing, brand enhancement, and risk mitigation: the lack of VBCs’ immediate added value creates an obstacle. Biodiversity outcomes are long-term and difficult to measure, and businesses typically prioritize short-term financial returns. Unlike carbon credits, biodiversity credits offer indirect benefits, such as supply chain protection, reputational gains, and risk mitigation, which are harder to quantify and less immediately compelling for investors.
It is difficult to predict whether corporations will fund conservation or restoration through credit purchases. From a business perspective, VBCs are nothing more than philanthropy or non-essential investments due to the weak or nonexistent return on investment. The only chance the VBCs have are the increasing regulatory pressure on corporations that would require them to buy VBCs, blurring the differentiation between offsets and credits. Markets will struggle to gain traction unless regulatory frameworks mandate biodiversity investments and/or corporations see biodiversity credits as critical for their long-term survival. Moving forward, fostering demand will require aligning biodiversity credits with broader sustainability frameworks and creating incentives that address the perceived lack of return on investment.
What Does This Mean for the Biodiversity Credits Market?
By viewing biodiversity credits as a form of corporate philanthropy or voluntary conservation effort, new opportunities emerge for leveraging them innovatively that could help establish and expand a sustainable market.
Making biodiversity credits more feasible could involve integrating VBCs into the existing carbon credits market, creating a combined biodiversity–carbon credit market. EcoAustralia, for example, issues credits by integrating carbon credits with biodiversity conservation. Through the purchase of these credits, buyers contribute directly to Australian conservation initiatives, promoting the protection and restoration of biodiversity.
Unlike conventional offset systems, the EcoAustralia credits are not designed to balance biodiversity losses occurring elsewhere, making them a distinctive tool for conservation efforts. The mechanism consists of two key components: (a) a Gold Standard carbon credit, representing 1 tonne of avoided carbon emissions, and (b) an Australian biodiversity unit, equivalent to 1.5 square metres of permanently protected, publicly certified vegetation within Australia.
Another approach is integrating VBCs into DNSs to broaden initial investment and attract more stakeholders, especially during the early stages of agreements. Traditional DNS models often depend on government and donor funding, limiting scalability. Biodiversity credits enable greater private sector and philanthropic involvement by supporting measurable conservation outcomes from the start. Underwriting early investments or purchasing credits to ensure immediate liquidity by foundations could act as key catalysts during the initial stages.
This diversified approach enhances financial viability. As a result, DNS could be more attractive, accelerating the protection of ecosystems while driving long-term private sector engagement. Amid recent geopolitical shifts, such as reductions in U.S. foreign aid, facilitating investments through channels like VBCs is increasingly vital. VBCs offer a structured, verifiable mechanism to quantify positive environmental impacts, such as habitat restoration and species protection, providing tangible returns for investors seeking environmental and social gains.
Combining prevention and restoration projects with biodiversity credits creates a powerful mechanism to channel funding into local communities by addressing critical business challenges, such as disaster risk reduction and ecosystem restoration for agriculture. NbS that focus on restoring degraded ecosystems, such as mangrove reforestation, wetland preservation, or soil rehabilitation, can help mitigate natural hazards like floods, droughts, and coastal erosion, which pose significant risks to infrastructure, food production, and supply chains.
By tying biodiversity credits to these projects, local communities can receive funding to engage in restoration activities that conserve biodiversity but generate economic benefits as well through improved agricultural productivity, water security, and disaster resilience. When businesses, particularly those in agriculture and insurance, invest in such projects, they can address their own operational risks while ensuring long-term environmental sustainability.
This dual-purpose approach ensures that biodiversity funding reaches the communities responsible for on-the-ground conservation, fostering local development, creating jobs, and building community resilience. In essence, solving the use case for businesses could help create a market for VBCs if addressed properly.
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Conclusions and Recommendations
VBCs can facilitate regional biodiversity projects, making it easier for businesses, especially small- and medium-sized enterprises, to mobilize capital and participate in conservation efforts. This approach helps overcome the criticism that biodiversity credits are simply another form of offsetting.
As private sector involvement becomes increasingly critical, clear incentives and policy frameworks are essential for attracting investment. Given the current weak business case for VBCs, they should primarily complement more established financing mechanisms, such as DNSs or carbon markets, rather than serving as stand-alone solutions. These mature mechanisms offer greater financial stability and investor confidence, providing a stronger foundation for scaling biodiversity-related investments.
Key Recommendations for Biodiversity Credits
To address the non-fungibility concern, it is crucial to demonstrate clear business value and drive private sector demand for biodiversity credits. Companies require tangible financial benefits, such as avoided costs, where biodiversity credit projects help mitigate financial risks (e.g., regulatory compliance and environmental liabilities). Additionally, biodiversity credits provide added benefits, including improved supply chain resilience and enhanced corporate reputation, both of which contribute to long-term profitability. Clearly quantifying these advantages strengthens the business case and encourages corporate participation. Therefore, a robust framework for assessing both avoided costs and added benefits is essential.
To reinforce this, it is essential to develop scalable and credible case studies that highlight the ecological and financial benefits of biodiversity credit projects. Well-documented projects that are effectively communicated to stakeholders — including policy-makers, businesses, and environmental organizations — will demonstrate practical solutions to key challenges. This, in turn, will build trust, create market momentum, and encourage broader adoption. Case studies can serve as catalysts for convincing stakeholders of viability and long-term impact.
However, until standards and regulatory frameworks are established, advancing biodiversity credit markets will require pilot programs that integrate biodiversity credits into hybrid financial models, such as carbon markets or DNSs. These programs should focus on proving the financial viability of biodiversity credits rather than prematurely refining technical metrics. Additionally, biodiversity credits must be strategically positioned within targeted markets, including voluntary biodiversity and carbon markets, as well as hybrid financing models, to unlock new funding streams for conservation efforts. Expanding into these markets will build investor confidence, enhance market liquidity, and create a solid foundation for the long-term credibility and scalability of biodiversity credits.
To scale biodiversity credit markets, immediate action is required from businesses, investors, and policy-makers. Without a clear business case, financial incentives, and strong market integration, biodiversity credits will fail to attract sustained private sector investment. Stakeholders must collaborate to develop a high-integrity market that not only supports conservation but also delivers measurable financial returns, risk mitigation, and competitive advantages for companies.
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This article was originally published by the International Institute for Sustainable Development (IISD) and is republished here as part of an editorial collaboration with IISD. It was authored by David Kramer.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — In the Cover Photo: A bee on purple petaled flower. Cover Photo Credit: Matt Quinn.
