New framework shows the challenges involved with establishing a biodiversity credit market

We can't avoid all impacts of human activity on nature, so we need to be able to compensate for the damage that we cause to nature. Our review demonstrates how challenging it is to do this via a tradeable ‘unit of nature’ and provides guidance on how to ensure biodiversity credits are appropriately designed and used, so that they can support genuine biodiversity recovery.

Study senior author Professor EJ Milner-Gulland (Department of Biology, University of Oxford)

The world's governments have agreed to halt and reverse biodiversity loss by 2030, however nature conservation currently faces an estimated $700 billion annual funding gap to reach this goal. Consequently, there is an urgent need to engage businesses and the financial sector in funding nature recovery.

This has sparked interest in developing a ‘biodiversity credit market’, where companies could purchase nature credits to compensate for their biodiversity impacts. There has been an explosion in the number of actors who are beginning to develop or sell biodiversity credits, however up to now it has been unclear how they are defining what ‘one unit of nature’ actually means, or how they are making standardised, generalisable measurements of biodiversity.

In a new review published this week in Proceedings of the Royal Society B, researchers have introduced a framework that defines how companies are quantifying biodiversity, detecting positive outcomes, and linking actions to investment. The analysis was co-led by researchers at Oxford University and the University of Edinburgh, and is the first in a new series commemorating the work of Professor Dame Georgina Mace, who made foundational contributions to the field of biodiversity measurement to support international conservation policy.

Professor EJ Milner-Gulland. Image credit: John Cairns.

The second approach classifies sites according to a binary condition- whether the ecosystem is healthy or not. For instance, the health of the forest could be measured by the presence or absence of indicator species, such as the jaguar.

Credits then measure whether sites have been conserved or restored – either demonstrating that the site has not changed (in the case of conservation), for instance, by showing that an indicator species is still present, or demonstrating that the site has improved (in the case of restoration), for instance, by measuring changes in the numeric value. Finally, credit operators adjust the number of credits they issue based on uncertainties (for example, not selling 20% of measured credits) to act as a buffer.

The researchers use this framework to highlight the various challenges that are faced in trying to represent biodiversity by a single unit. For example, biodiversity can be valuable for various reasons, many of which are unmeasurable, and some of which conflict with each other (for example the cultural value of a tree species for local people and its financial value as a timber product). Even for aspects that can be measured, it is difficult to do so accurately, and to aggregate metrics in sensible ways – leaving lots of room for uncertainties or gaming to produce misleading outcomes.

Markets can only ever be one part of the solution for delivering effective and equitable conservation. There will remain an important role for direct investment in nature by the public and private sectors, as well as for regulation to reduce impacts on nature.

Professor EJ Milner-Gulland (Department of Biology, University of Oxford)

According to the researchers, perhaps the biggest challenge is demonstrating that conservation or restoration outcomes happen as a direct result of investment, rather than some other reason, and ensuring that threats to biodiversity haven’t simply been displaced elsewhere.

Because of these challenges, the researchers caution against using biodiversity credits to offset a company's impacts on the environment, particularly to support "Nature Positive" claims. Instead, companies should prioritise avoiding and reducing impacts on nature as much as possible. Credits are best used as a way for companies to demonstrate that they are making measurable, positive, contributions towards nature recovery, when they cannot do this directly (for instance, by restoring biodiversity on land they own).

Study senior author Professor EJ Milner-Gulland (Department of Biology, University of Oxford) said: ‘There may be a role for biodiversity markets in leveraging funding for nature that would otherwise be unreachable, but markets can only ever be one part of the solution for delivering effective and equitable conservation. There will remain an important role for direct investment in nature by the public and private sectors, as well as for regulation to reduce impacts on nature.’

The study ‘What is a unit of nature? Measurement challenges in the emerging biodiversity credit market’ has been published in Proceedings of the Royal Society B.