Don’t repeat the mistakes of the carbon credits market, says Marc Palahi, CEO, Circular Bioeconomy Alliance.
The linear fossil-based economy of the industrial era has reached its limits.
As the COP16 biodiversity conference brought sharply into view, our planet is rapidly losing the variety of living things inhabiting it, from species and habitats to genetic variability.
This is mainly due to the way we use and transform land – and seascapes – but climate change, overexploitation and our current global development model, with such a focus on economic growth, all make a significant contribution to this decline too.
Transitioning from an extractive fossil-based economy to a regenerative economy powered by and prospering in harmony with nature is the defining challenge of our time – one that requires business buy-in and the deployment of financial capital to realise.
The explosion of carbon credits over the last ten years as an economic tool, offering companies an appealing, convenient answer to offset their carbon emissions, offers a salutary lesson in how not to do this.
In reality, the mechanism has systemic flaws and in the worst cases facilitate greenwashing. Poor transparency, double counting and lack of quality control (including misleading claims from the companies running these schemes), has meant that carbon credit schemes can significantly overestimate their impact, on reversing deforestation and other claims.
Notably, of a potential 89 million credits – only 6% were linked to additional cuts in carbon emissions created by preserved trees – the entire basis on which credits are sold.
As with carbon credits, biodiversity credits are now being touted as the next big fix. This emerging ‘nature market’ promises to mobilise funding to address the global biodiversity crisis, offering private companies the opportunity to invest in biodiversity conservation, restoration, and development to deliver net positive biodiversity gains, such as habitat protection or pest reduction.
According to the Circular Bioeconomy Alliance’s new paper – Biodiversity Credits Under the Microscope – as of a year ago, 34 such schemes have been identified globally as in development, being piloted or already fully operational.
In some aspects, this is hugely encouraging. There is considerable stakeholder enthusiasm around the establishment of a biodiversity incentive and financing tool, especially one that is data driven, which deploys technology to define change metrics for trading and which considers indigenous people and local communities in terms of benefit sharing.
However, it’s also true to say the mistakes of the carbon credits market haven’t been learned from. Many of the new biodiversity credit schemes, still in their infancy, lack independent verification and any external oversight, transparency in how baselines are set and any form of impact evaluation. There is a real risk of a new wild west, where credits are abused as compliance ‘offsets on the cheap’.
Ultimately, we must address the systemic, root causes of the problem if we are to prevent irreversible biodiversity loss. That means industries investing in and working in symbiosis with nature to transform and rethink their value chains rather than simply offsetting for its failures.
For example, the CBA is working on the ground with the fashion industry, creating scalable ‘proof of concept’ renewable value chains in Italy, India and Chad that blend science, technology and indigenous knowledge to holistically regenerate landscape and support communities.
Whilst this transformation should be the central focus, high-integrity nature markets that enable private investment in nature conservation and restoration can be an important complement.
To do this – and given EU legislation like the Corporate Sustainability Reporting Directive (CSRD) and new nature disclosure frameworks – a biodiversity credit will only sell if it provides a well-defined and recognised business-relevant benefit. At the same time, these schemes must demonstrate environmental effectiveness, while respecting human rights and improving the welfare of people in landscapes receiving investments.
There is definite potential for the use of biodiversity credits as a tool to assist the transition to a nature-based economy. Only by learning the lessons of carbon credits, and requiring much more robust baselines, standards and governance safeguarding ecological outcomes in the design, implementation and impact evaluation of biodiversity credits – as outlined through ten principles set out in our paper – can we ensure their wings are not clipped before they’ve had a chance to fly.
Article first published in Reuters.
