EU told to step up on biodiversity credits
Regulators advised to follow UN and World Economic Forum in push for biodiversity market, but scientists issue warning
The European Commission looks set to become the latest major body to throw its weight behind the development of biodiversity credit markets.
In a report published last week, the group responsible for advising the EU on how it should boost sustainable finance in low- and middle-income countries (LMICs) told the Commission to work on “scaling-up high-integrity carbon and biodiversity credit markets”.
Biodiversity credits are tokens generated by projects that protect species or natural habitats. They can be sold to companies, governments or other entities wanting to fund such projects and take credit for their environmental benefits.
In some cases, the credits can be used to counterbalance damage being done by the buyer’s own economic activities.
“Biodiversity credits have the potential to encourage investments in natural capital, especially in biodiversity-rich LMICs,” wrote the advisors, who include representatives from Tata Power, Siemens Energy Africa, Amundi and the Luxembourg Stock Exchange, as well as academics and campaigners.
“However, the biodiversity credit market is still in its early stages and faces certain challenges, including the need to establish methodologies for internationally recognised biodiversity units, set up pricing mechanisms and adopt regulatory and integrity safeguards, including those related to additionality.”
Even once these issues are resolved, the report continued, “developing a functioning market will require further policy measures, such as setting mandatory disclosure targets and establishing compliance markets”.
The recommendation was one of 10 made by the group, which refers to itself as HLEG, in a formal report commissioned by Jutta Urpilainen, the EU Commissioner for International Partnerships.
HLEG was set up to mirror the High Level Expert Group on Sustainable Finance, whose 2019 recommendations included the development of an EU green taxonomy, Corporate Sustainability Reporting Directive, Sustainable Finance Disclosure Regulation and Green Bond Standard – all of which are now law.
Speaking alongside IMF’s managing director, Kristalina Georgieva, at the report’s launch last week, Urpilainen said the Commission would “study these recommendations closely”.
Sources say the Commission is already in the process of hiring a number of experts in biodiversity credits, to help it develop its thinking in the area.
Broader ramp-up on biodiversity credits
The UN and the World Economic Forum are also ramping up their activities on biodiversity credit markets, recruiting new members to their groups and publishing reports.
The UN Environmental Programme Finance Initiative’s Biodiversity Credit Alliance recently released a paper exploring the challenges around reviewing the quality and integrity of biodiversity credits.
Earlier this year, WEF launched its Frontrunner Coalition in partnership with McKinsey & Company, through which it wants to convene the private sector “to identify and discuss the key entry barriers and drivers of the [biodiversity credit] market”.
Current members include a handful of corporates from across mining, chemicals and energy, including Bayer, Iberdrola, EcoPetrol, Vale and ISA.
“For these businesses, it is a unique opportunity to play an instrumental role in building a new market, to gain lasting reputation for innovation, and to advance their procurement know-how,” said WEF in a document published last month to encourage new recruits.
Warnings from scientists
But scientists warned on Monday that the financialisation of conservation projects – specifically those focused on preserving forests – isn’t effective.
The International Union of Forest Research Organisations, a network of 15,000 scientists from 120 countries, presented research to the UN this week which concluded that market-based mechanisms such as biodiversity credits don’t reduce damage to nature overall.
It highlighted the proliferation of such mechanisms, warning that the private sector was “more often interested in short-term profits than long-term, just, and sustainable forest governance”.
Co-author Maria Brockhaus from the University of Helsinki, told French media outlet AFP: “The evidence does not support the claim of win-wins or triple wins for environment, economy and people”.
“Rather our cases show that poverty and forest loss both are persistent across different regions of the world… where market mechanisms have been the main policy option for decades”.
