Protecting biodiversity, and the need to reduce demand for natural resources while strengthening the supply of natural capital, has become a high priority for asset managers, with many new funds coming to market to address demand for investment in this space.
According to the 2021 Dasgupta review on the economics of biodiversity, construction, road building and agriculture are among the myriad human activities that degrade natural habitats. Current conservation efforts, he argues, are not sufficient and there is an urgent need for new policy tools in biodiversity conservation to stop the continued decrease in habitats and the abundance of species due to land use.
One such tool is biodiversity offsetting, which requires developers responsible for habitat degradation to compensate for the unavoidable biodiversity losses with equal environmental gains following a ‘mitigation hierarchy’, as defined by the UN Environment Programme and the World Conservation Monitoring Centre. That is to say; avoid, minimise, restore-on-site, and finally, offset.
Like carbon offsetting, however, biodiversity offsets are not without their critics. Environmental campaigning group, Friends Of The Earth, has long argued that biodiversity offset schemes often proceed without proper attempts to follow the mitigation hierarchy required by governments and the International Union for Conservation of Nature, and are being used to legitimise and justify the continuation of business as usual.
Meanwhile, earlier this year at the European Parliament’s Beyond Growth conference, director and co-founder of the Green Finance Observatory, Frederic Hache, noted that biodiversity offsets are “plagued with environmental integrity issues”, and pointed to research suggesting that around two-thirds of projects currently fail.
“What is truly needed is tighter regulatory… no new markets for nature are required, even if some private finance is required,” asserted Hache.
‘A new mechanism for nature restoration’
Despite this, the Environment Bank has become one of the latest to offer a new asset class to help corporates invest in nature restoration through biodiversity credits. Crucially, it said these credits aim to restructure the valuation, pricing and market risk of nature investments globally, while creating a new transparent blueprint for the creation of biodiversity.
“What we are offering is a new mechanism for nature restoration, different to any credit that already exists,” said James Cross, CEO of Environment Bank.
“Our technical specialists work with local stakeholders, authorities and landowners to co-design and deliver a new plan for the planet. In the UK, we have developed a unique network of habitat creation and restoration projects that showcases our track record of delivery, and we are excited to begin to roll that out on a global level.
“While the governance and funding structures are consistently replicated across the portfolio, every project is ecologically bespoke and tailored to meet local nature recovery objectives, maximise natural capital benefits and ensure compatibility with the needs of the local community. All projects are subject to long-term monitoring, independent verification and robust compliance.”
The new biodiversity credit has already attracted interest, Cross said. From his perspective, it is clear that corporates and investors are looking for low-risk, high-impact investments, and the Environment Bank is already in advanced conversations with names across the financial sector, as well as the agriculture, energy and food and drinks industries.
Speaking after the launch, Jon Wallace, investment manager at Jupiter Green Investment Trust, noted that, as attention begins to include a greater focus on climate resilience alongside climate mitigation, “nature credits such as this one that promote things like wetland restoration can potentially generate value on multiple fronts: climate mitigation, adaptation and wider natural capital restoration”.
Additionally, with the publication of the Taskforce for Nature-related Financial Disclosures framework, Cross asserted that the demand from the private sector for robust schemes that align with these existing frameworks has accelerated. With nature being core to net-zero targets across the globe, but also integral to each and every industry’s future, he expects to continue to see this appetite grow.
Holistic approach
But there are still those that remain cautious. Stephanie Kelly, head of Greenwheel and thematic sustainability research at Redwheel, says that clarity on measurement, and a holistic approach, are important components for credibility for biodiversity credits.
“Unlike with carbon where a tonne of CO2 is a tonne of CO2, biodiversity is locally defined and harder to compare from place to place so clarity on additionality is important,” she said.
“Also it is important that the human component of biodiversity, like local community inclusion, is incorporated clearly and robustly to ensure human rights are respected and opportunities shared with those individuals on the ground.”
