Summary
The paper takes a market review and survey approach to investigate the sources and motivation for both mandatory and voluntary biodiversity credit market.
Result
- The paper summarizes credit potential buyers into 3 groups: business, financial institutions, and governments, and philanthropic. Additionally, the paper draws on survey result to present the reasons that potential buyers cares the most about biodiversity credits.
Business
- Voluntary footprint compensation driven by shareholder and stakeholder pressure
- Through the development of supportive guidelines and frameworks, such as the Taskforce on Nature-related Financial Disclosures (TNFD) and Science-based Targets for Nature from the Science Based Targets Network (SBTN), corporate boards, shareholders, and stakeholders are generating pressure on businesses in many sectors to address their direct and value chain biodiversity and ecosystem impacts, known as their “biodiversity footprint”.
- Businesses seeking credit market experience in anticipation of regulatory requirements
- Examples include the UK’s recent regulations on “biodiversity net gain”, and the EU Corporate Sustainability Reporting Directive
- Businesses seeking to comply with supra-national or national regulatory requirements
- For example, in response to nature-related financial disclosures required by financial regulatory authorities, buyers may seek to purchase biodiversity credits based on internal insights or to reduce reputational risks related to assessing biodiversity impacts and dependencies.
- Businesses seeking to mitigate systemic business risk emanating from nature dependencies
- Retail and individual consumer-facing companies and brands providing value for consumers
- Philanthropists, including foundations
- Quality and integrity; Supra-national and national financial regulations related to disclosures; Supra-national and national environmental regulations related to footprint compensation
- FI
- Financial institutions and markets seeking nature positive investments
- Government
- Government agencies implementing policies, regulatory measures, or ODA
- governments could use biodiversity credits as a tool to replace subsidies or implement existing nature positive government policies. Governments could redirect harmful subsidies from the agricultural sector to protect areas linked to the well-being of their own supply chains, provided that biodiversity credit projects align with local and national conservation priorities
- Government agencies implementing policies, regulatory measures, or ODA
- Survey result
- Accordingly the reasons for potential buying are: shareholder and stakeholder pressure; anticipation of tightened regulation; compliance with existing requirements; operational risk mitigation; new investment opportunities;
- Method
- Market & literature review and potential buyer survey
- Limitation
- These drivers of demand may be explain demand well, but also may have discrepancies with reality; while businesses may be interested in biodiversity credit as an risk avoidance or opportunity; chances are they are encouraged to mitigate their biodiversity pressure through avoidance, reduce and restore first, before being encourcaged to use offset method.
Relevance: for both regulated and voluntary biodiversity credits
Definition of BC: “The current working definition of a biodiversity credit is a certificate that represents a measured and evidence-based unit of positive biodiversity outcome that is durable and additional to what otherwise would have occurred.”