The Bosque de Niebla cloud forest in the High Andes of Colombia is a biodiversity hotspot, home to hundreds of plant and animal species like the yellow-eared parrot, spectacled bear and crested eagle. It houses dozens of species that don’t exist anywhere else in the world. It serves as a valuable wildlife corridor connecting the region’s fragmented habitats. And it provides critical ecosystem services for nearby communities, like supplying fresh water to six aqueducts and storing large amounts of carbon.

Yet despite its importance, much of this area has been logged for cattle grazing since the 1980s. The forest’s health is now degraded, endangering at least 20 species and threatening nearby communities that rely on it for fresh water and other benefits. But there’s a scheme in place to protect what remains.

In 2020, ClimateTrade and Terrasos, two companies specializing in climate- and ecosystem-based investing, launched a project to conserve 340 hectares of the Bosque de Niebla by selling “biodiversity credits” to private companies. For each credit purchased at a cost of about $35 (as of Feb. 26, 2024), the initiative works with local landowners to conserve or restore an area of 10 square meters for 30 years. 

This kind of arrangement is an example of a nascent but growing field. Biodiversity credits have been gaining interest globally in recent years amid a surge of efforts to scale financing for nature.

Creating a Market for Biodiversity

Biodiversity remains severely underfunded, with recent research showing upwards of a $700 billion gap between current annual funding and what’s needed by 2030 to maintain ecosystem integrity. To address this shortfall, 196 countries adopted the Kunming-Montreal Global Biodiversity Framework in 2022, committing to halt and reverse biodiversity loss by 2030. They agreed to redirect $500 billion of harmful subsidies toward biodiversity and mobilize an additional $200 billion per year for conservation and restoration. 

Governments have contributed the lion’s share — 83% — of global nature finance to date. But constrained public budgets and differing national priorities mean that public funds most likely won’t be enough to fill the significant remaining gap.

That’s why civil society, policymakers, philanthropists and even some businesses are increasingly calling on the private sector to play a bigger role in financing nature-positive projects. There are economic incentives and public pressure to do so, too. For one, companies are facing increased expectations to report on their nature-related risks and dependencies. Funding nature protection and restoration can also help companies manage ecosystem-related risks to their operations and profits, such as supply chain disruptions, forest and plantation damage, compliance with evolving nature-related policies and more.

Some organizations and governments see biodiversity credits and other market-based initiatives as a promising way to scale up private finance for nature. Others see them as risky. They worry that these tools could distract from the need to engage more important actors, like governments, for effective mobilization of biodiversity finance.

As this emerging market continues to develop, here’s what to know.

Cattle graze near the town of Salento outside Colombia’s Bosque de Niebla cloud forest
Cattle graze near the town of Salento outside Colombia’s Bosque de Niebla cloud forest. Much of the cloud forest has been cleared for pasture in recent decades, but a new biodiversity credit program aims to protect the area and its unique wildlife. Photo by RAWFILE REDUX 2/iStock 

What Are Biodiversity Credits and How Do They Work?

Biodiversity credits are an economic instrument that allow private companies to finance activities, such as forest conservation or restoration, that deliver net positive biodiversity gains.   

It works like this: Non-profit organizations, governments, landowners or companies that have a primary goal to conserve or restore land generate a supply of credits, or “certificates.” One credit might be equal to a certain amount of land conserved or restored over a specific period of time. Terrasos’s project in Colombia, for example, sets the value of one biodiversity credit at 10 square meters of land conserved or restored over 30 years.

Private companies can then purchase these credits to meet their own biodiversity- or nature-based commitments, much like how companies purchase carbon credits toward achieving their emissions-reduction goals. However, there is an important distinction when it comes to biodiversity credit markets. Biodiversity credits are intended to have a net-positive impact on nature and biodiversity, whereas biodiversity offsets, a different market-based tool, are intended to compensate for companies’ negative and unavoidable impacts on nature.

Take the Tondwa Game Management Area in Zambia. The game reserve is situated within a Key Biodiversity Area which, because of a lack of government funding and law enforcement capacity, has seen its wildlife populations decline. This area will soon host one of the world’s biggest biodiversity credit projects. The local community in Zambia, along with an environmental non-profit called Conserve Global, gained biodiversity management rights and will work with project developer ValueNature to supply credits to private sector buyers. This project defines one biodiversity credit, or what it calls a “Nature Investment Certificate” (NIC), as a 10-year agreement to conserve or restore 1 hectare of land within the Tondwa reserve. 

Most biodiversity credit projects like the one in Tondwa are still in their infancy. To ensure they deliver on their promises, market activities will likely eventually be governed by third-party organizations that can help verify the credibility and integrity of biodiversity credits. These organizations would set project performance standards, as well as standards related to monitoring and measurement of biodiversity outcomes, safeguards to protect and ensure local communities’ rights, and more. 

How Do Biodiversity Credits Fit into Corporate Commitments to Biodiversity?

Biodiversity market mechanisms are often structured around the “mitigation hierarchy.” This establishes that companies should: 1) avoid creating negative environmental impacts as far as possible; 2) reduce the extent of environmental impacts that cannot be avoided; and 3) only when every attempt has been made to do these two steps, rely on other tools to like market-based credits to offset their impact or see a net gain.

Why Do Some See Biodiversity Credits As Risky?

As interest in biodiversity crediting increases, many have looked to the well-established carbon credit market for comparisons and learnings. The two are closely related, with both targeting sustainability-focused corporations as their predominant buyers. In some cases, they even overlap: While carbon credits are chiefly aimed at reducing or offsetting CO2 emissions, rather than protecting biodiversity, they are increasingly leveraging nature-based solutions to achieve this goal, which harness the power of healthy ecosystems to remove and store carbon. Some projects are now valuing the positive biodiversity outcomes that can result from these nature-based carbon projects to create higher-valued carbon credits.

Considering these crossovers, biodiversity markets will likely face many of the same headwinds that carbon markets have. Companies are beginning to view their participation in carbon markets as an easy target for accusations of “greenwashing,” due to growing concerns around the integrity of carbon credits from nature-based solutions projects. Project developers are struggling to maintain transparency and effective monitoring mechanisms to ensure emissions reductions while managing complexity and costs. Some critics also argue that nature-related carbon offset projects often fail to adequately consider the rights of Indigenous peoples and local communities, on whose land many carbon credit projects are implemented. Establishing effective monitoring, reporting and verification (MRV) mechanisms; ensuring credibility; and safeguarding and strengthening the rights and livelihoods of local communities will all be challenges for biodiversity credit markets. 

These markets arguably have an added complexity compared to carbon markets: There is no simple equivalent to the “tonne is a tonne” premise on which the carbon market is built.  While a tonne of carbon is the same everywhere, biodiversity is, by its nature, diverse, and arguably lacking a “common currency” that can be consistently measured, tracked and traded. Different project developers have taken different approaches; for example, ValueNature defines one credit as one hectare of land managed for at least 10 years, while the UK-based Wallacea Trust sets unique baselines and goals for each specific habit, measuring one “biodiversity unit” as a 1% improvement from the median.  The innate complexity of these markets reinforces the need for transparency and accountability, good governance, and social safeguards as the global biodiversity credit market continues to develop.

At the same time, more standardized metrics may be possible. A “tonne is a tonne” is perhaps more of a motto than a practice in carbon markets. Most carbon credit projects do not directly measure carbon atoms, relying instead on indirect measurements, industry averages, models and proxies. While technically there may not a biodiversity equivalent to a tonne of carbon, land is widely viewed and accepted as a commodity and asset, and natural lands and the land use changes most associated with biodiversity losses (such as deforestation) can be directly monitored through modern remote sensing technologies.  The development of a common currency (or currencies) for biodiversity or nature may be closer than it seems.

A local man fishes in Peru’s Amazon rainforest
A local man fishes in the Pacaya-Samiria Nature Reserve in Peru’s Amazon rainforest. Biodiversity credits and other nature-based programs need to involve and benefit local and Indigenous people who live in and rely on these ecosystems. Photo by Patricia Marinelli/iStock 

What’s Next for Biodiversity Credit Markets?

It’s still unclear how biodiversity credits can, or should, play a significant role in meeting global biodiversity finance goals. So far, demand seems limited. While half of the Fortune 500 companies acknowledge biodiversity loss in their sustainability reporting, just 5% have developed quantified biodiversity-related targets. According to the World Economic Forum, even with effective progress and governance of these markets, demand could reach only up to $2 billion per year. That’s just 1% of the total finance required to meet 2030 goals.

What is clear, however, is that the $200 billion per year committed to in the Global Biodiversity Framework needs to be scaled quickly and effectively. With governments looking to the private sector to help achieve this, some are moving to support these markets to help fulfil their commitments.

The UK and France announced a joint initiative to launch a biodiversity credits roadmap that will support companies’ positive contributions for nature. As part of its Environment Act 2021, the UK government is also developing a statutory biodiversity credit scheme. This will serve as a last resort for land developers to meet the country's mandated 10% biodiversity gain in all land development projects. The Australian Federal government introduced a bill called the Commonwealth Nature Repair Market Bill in 2023, which provides a framework for creating tradeable biodiversity certificates. These can be issued to landowners and sold to companies, individuals and governments.

Several coalitions are also developing guidance and governance frameworks to build high-integrity biodiversity credit markets, including the World Economic Forum , the Taskforce on Nature Markets and the Biodiversity Credit Alliance. These coalitions include scientists, academics, conservation practitioners, and policy and market experts, as well as members from Indigenous and local communities. This diversity of stakeholders is meant to ensure that proper mechanisms for free, prior and informed consent and benefit sharing are included in biodiversity credit markets.

While the Best Tools May Not Be Clear, the Need for More Finance Is

The debate over whether and to what extent biodiversity credits should be used, and how effective they will be, is likely to continue. What all can agree on, however, is the urgent need to scale finance for nature and biodiversity. As governments, companies and others work to do so, additional critical attention to biodiversity credit markets and their alternatives is needed and welcomed. This can help build momentum toward the world’s common biodiversity goals and ensure that finance is directed to the instruments best able to achieve them.