Biodiversity, nature markets, and why they matter

At Climate Collective, we have spent the last few months conducting research and holding conversations with entrepreneurs, scientists, and analysts to better understand what policy instruments and market mechanisms can move the needle in the nature and biodiversity space. We are particularly interested in tools that can increase the amount of biodiversity funding available and close the estimated annual gap of $598-$824 billion that is needed to protect and restore nature.

To share what we have learned with our wider community, we are posting a three-part series:

• This first post is dedicated to the definition of biodiversity, how it is treated in major international agreements, and decoding the differences and linkages between credits and offsets.

• The second post will dive into the current biodiversity market, the methodologies in place, key players and industries, as well as how policies and customer awareness can facilitate market development.

• The final post will highlight the potential to integrate digital technologies like AI and blockchain, exploring the opportunities for these tools to address challenges within the biodiversity landscape.

What is biodiversity? How is it different from nature?

Biodiversity, as defined by the Convention on Biological Diversity (CBD), describes the variability among living organisms across terrestrial, marine, and other ecosystems. This intricate tapestry includes diversity within and between species and entire ecosystems, sorted into five kingdoms: plants, animals, fungi, bacteria, and protists. In essence, biodiversity includes every living thing on earth. Nature refers more broadly to all life on earth, as well as the inanimate elements of our environment, such as rock formations, bodies of water, and weather patterns.

The “Paris agreement for nature” — or what governs biodiversity?

In 2022, the United Nations Biodiversity Conference of the Parties to the UN Convention on Biological Diversity — also known as the “Biodiversity COP” — was held in Montreal, Canada. This landmark convening resulted in the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF), an international agreement that outlines global ambitions to protect 30% of land and oceans by 2030.

The GBF includes four goals focused on conservation:

• Nature restoration — to halt human-induced species extinction and promote ecosystem recovery;

• Sustainability — to ensure the continuous wellbeing of people and planet by valuing, maintaining, and enhancing ecosystem services;

• Equity — to promote the fair sharing of benefits with Indigenous Peoples and Local Communities (IPLCs) and protect traditional knowledge; and

• Finance — to close the funding gap to protect biodiversity.

Another key effort aiming to articulate conservation targets for nature is the Global Goal for Nature, which seeks to halt and reverse nature loss by 2030. Specifically, it calls for increasing the health, abundance, diversity, and resilience of species, populations, and ecosystems with a similar overall goal of reaching a full recovery of nature by 2050. This goal is championed by the Nature Positive Initiative, which promotes the integrity and implementation of a more nature positive world. The Global Goal is intended to operate alongside the GBF and strengthen the linkages between biodiversity and other international conventions and agreements regarding climate, ocean, and land degradation.

The Global Goal for Nature aims to halt nature loss by 2030, compared to a baseline measured in 2020, and reach full nature recovery by 2050 so ecosystems can continue to support future generations. Source: Nature Positive Initiative.

What will it cost to protect nature and biodiversity?

To measure the scale of global funding currently directed towards nature and biodiversity is a difficult task and varies widely depending on which financing flows are included. To estimate future capital needs that will reverse and restore nature by 2050 is even more challenging. The range of capital currently directed towards biodiversity conservation is estimated to fall between two commonly quoted figures from the OECD and UNDP. The OECD estimates $78–$91 billion per year is spent on biodiversity and nature, while the UNDP Biodiversity Finance Initiative calculates this figure at $143 billion annually. The latter is supported by the Paulson Institute’s recent report citing $124–143 billion spent per year.

This current range of funding is a fraction of the total bill to protect and reverse nature loss by 2050. The biodiversity financing gap is estimated to fall between $598-$824 billion per year, according to The Nature Conservancy. A 2021 report by the Coalition for Private Investment in Conservation (CPIC) found that this financing gap has doubled since 2014. There is an urgent need for innovative financing mechanisms, such as payments for environmental services (PES), voluntary biodiversity credits, and other compliance-based market mechanisms to bridge this financial disparity and accelerate progress towards our nature conservation goals.

How can we fund the protection of nature and biodiversity? Enter biodiversity credits and offsets.

It is important to note that biodiversity credit and offset conversations should always be anchored in the conservation mitigation hierarchy. The hierarchy suggests to 1) Avoid, 2) Minimize, 3) Restore and lastly, 4) Offset in order to reduce and control any negative effects on the environment.

Biodiversity credits are economic instruments generated and sold to finance actions toward the protection, regeneration, and stewardship of the natural world. Their primary objective is to bridge the financing gap to deliver tangible and measurable positive outcomes for biodiversity, which includes metrics regarding species, ecosystems, and natural habitats. Biodiversity credits are deliberately generated to contribute to nature’s recovery; their acquisition is entirely voluntary, emphasizing and marking a deliberate choice to invest in positive outcomes for nature.

A new generation of biodiversity credits, spearheaded by groups like Terrasos in Colombia, also functions as a tool to democratize access for a wider pool of stakeholders. This includes groups who have not traditionally accessed biodiversity offset funding, like Indigenous Peoples and Local Communities (IPLCs).

In contrast, biodiversity offsets operate as a compliance tool or as a reactive measure taken to counterbalance biodiversity losses, primarily aiming for no-net-loss (NNL) and, ideally, a net gain in biodiversity. At present, there are laws or policies that mandate or allow the implementation of biodiversity offsets in over 100 countries worldwide. Despite their role as a crucial policy tool, a study by Paulson Institute, the Nature Conservancy, and Cornell Atkinson Center for Sustainability revealed that only 20% of 42 surveyed countries showed evidence of their effective enforcement.

Offsets operate under the principle of equivalence, or “like-for-like” comparison, suggesting that harm in one area can be balanced out by positive actions elsewhere. Unfortunately, there is little evidence that the implementation of offset policies guarantee a NNL outcome, even in cases utilizing equivalence.

Adding to this complexity, discussions about NNL in biodiversity offsetting often carry different meanings across various jurisdictional levels. At the project level, NNL is measured relative to a scenario where biodiversity would ordinarily decline, while at the broader country level, it refers to maintaining biodiversity at a certain level compared to a fixed baseline. This relative use of the NNL principle seems misaligned with biodiversity targets that require absolute NNL or net gain. In other words, what is considered a win at the project level may not halt ongoing biodiversity loss at the country level.

Despite these intricacies, there is one point on which many stakeholders do agree: the similar terminology used for these two vastly different tools — credits and offsets — creates confusion and makes it harder to achieve overall biodiversity and conservation goals.

Look out for the next post in our series, where we will dive deeper into the state of the biodiversity credits market, buyers and sellers, and market development.

Alison Filler and Leslie Chao contributed to this piece.