For more than 1,000 kilometres, from Kenya in the north to Mozambique in the south, the coastline of eastern Africa is fringed by a vast network of coral reefs. This underwater jungle is among the richest and the most diverse in the world, supporting over 200 varieties of coral and more than 11,000 species of plants and animals.
But the region’s marine environment is under pressure. Rising sea temperatures, caused by global greenhouse gas emissions, are threatening the coral’s survival. Local factors – including marine pollution and over-fishing – are compounding the damage. “Economic incentives are very strongly in favour of depletion, rather than conserving and sustaining stocks,” says David Obura, director of CORDIO East Africa, a research and conservation group.
The coral coast is far from the only important African ecosystem facing growing threats. Across the continent, rapid human population growth and economic development is putting increased pressure on hotspots of biodiversity.
One solution attracting much attention is “biodiversity credits”. The sale of these credits is designed to finance conservation projects, often by providing financial incentives to communities that assist in protecting biodiversity. Around 30 biodiversity credits projects, opens new tab are currently under way in Africa.
“Biodiversity credits have considerable potential to support conservation in Africa,” says Muhtari Aminu-Kano, director of policy and government relations at The Nature Conservancy. These instruments could “serve as a critical funding source for ecosystem preservation and restoration”, he adds, through aligning ecological and financial incentives.
Obura was initially sceptical of biodiversity credits, but says his thinking shifted as he realised their potential. In a coastal ecosystem, for example, he suggests that projects that fund mangrove restoration can sequester carbon while also supporting fish species and helping to protect villages from flooding.
Betsy Hickman, nature lead for the Americas at sustainability consultancy Anthesis, says the challenge now for biodiversity credits is to translate theory into practice. “If it was easy,” she says, “it would have already been done.”
It might be assumed that biodiversity credits are simply a biodiversity equivalent of carbon credits. This assumption, to some extent, informed the initial thinking behind the International Advisory Panel on Biodiversity Credits (IAPB).
The panel was established following the landmark COP15 biodiversity summit two years ago to help spur the growth of the biodiversity credit market. “I think when we all started, we kind of thought this was carbon 2.0,” the IAPB’s co-chair Dame Amelia Fawcett told The Ethical Corporation.
However, it soon became clear to the IAPB that key concepts from the carbon market cannot be copied and pasted into biodiversity credits. Perhaps most crucially, whereas carbon emissions in one part of the world can be “offset” by removing carbon from the atmosphere elsewhere, it is now widely accepted that international offsetting cannot work with biodiversity.
In issuing a framework for biodiversity credits at the COP16 summit in October, the IAPB clarified it does not support international biodiversity offsetting. “It is, to my mind, odd to think that you could create harm in Para state in Brazil, and mitigate that harm by giving to a habitat land bank in Wales,” says Fawcett. “Biodiversity credits are obviously going to be much more locally specific.”
While this stance reflects an emerging consensus, in the absence of international offsetting it is unclear where demand for biodiversity credits in Africa will come from. Indeed, there is still much uncertainty about how biodiversity credits will develop, both in Africa and globally. The approximately 30 projects in Africa are still at an early stage.
Globally, BloombergNEF estimates, opens new tab that credit purchases total less than $1 million.
A key sticking point relates to how projects measure their impacts. Project developers need robust measurement systems to prove credit sales benefit biodiversity.
Fred Teo, CEO of GenZero, climate investment platform for Singapore’s Temasek Holdings, told The Ethical Corporation that biodiversity credits don’t meet the pre-conditions needed to function as market mechanism. Unlike CO2, there is no single metric that investors can track.
“In some cases we don’t have the science to understand the exact impact on biodiversity …. So how are we supposed to price them? We think it’s much better to treat biodiversity as a co-benefit to carbon, and tag on a premium.”
Nevertheless, several initiatives are underway to create simple ways to compare nature outcomes. African Parks, which manages protected areas across the continent, partnered with nature equity company The Landbanking Group earlier this year to launch a new product called Verifiable Nature Units (VNUs). While not labelled as biodiversity credits, they are based on measurable outcomes for biodiversity within a parcel of land over the course of a year.
Martin Stuchtey, founder of the group, said that these “fiduciary-grade” units can be used as the basis for a variety of nature finance mechanisms, such as corporate nature contributions, philanthropy, development assistance, or nature-linked bonds. They will be “bought by long term offtakers for these nature outcomes”.
The first 14,000 VNUs, raising $35 million to maintain four critical landscapes in Africa, were purchased by two European foundations in September. Stutchey said while VNUs could also be used in voluntary carbon markets, carbon markets set up under the Kyoto Protocol were “never designed to absorb institutional capital in the order of magnitude that we need to fix the problem. That’s why we are trying to shift it away from this paradigm of being just a compensation (offsetting) approach towards being an asset investment approach of treating nature as if it was critical infrastructure. Indeed, the IAPB warns that buyers of biodiversity credits can’t claim that purchasing them mitigates their own nature impacts.
Fawcett adds there is “increasing interest” in supply chain insetting. This involves companies making investments to boost nature and make their supply chains more resilient. The IAPB gives the example of a project where farmers are paid to adopt practices that reduce the amount of nutrients entering marine ecosystems and harming coral reefs.
And the IAPB recognises that offsetting can be appropriate at a local level. Regulations requiring companies to offset certain nature impacts have operated in several western countries for decades. Applying a similar model to biodiversity credits could allow a company to offset negative impacts to an African forest by buying credits that rehabilitate a nearby part of the same ecosystem.
Monique Atouguia, nature market programme manager at non-profit group NatureFinance, who is based in Johannesburg, hopes that African governments will adopt regulations to foster credit purchases. “To drive demand at a local level, we are going to need to see some kind of enabling policy environment,” she says.
NatureFinance is also optimistic about linking biodiversity credits to bond issuance. Several sovereign “biodiversity bonds” have already been launched with the support of multilateral development banks, particularly the Inter-American Development Bank. These bonds allow issuers to refinance their sovereign debt at lower rates of interest, in return for committing to increasing finance for conservation.
If demand for credits can take off, the potential benefits for conservation are considerable. The World Economic Forum claims, opens new tab the biodiversity credits market could reach $2 billion by 2030 and $69 billion by 2050.
Yet biodiversity credits face significant opposition from conservation groups. During COP16 in Colombia, a global coalition of NGOs – including dozens from Africa – presented a letter voicing strong concerns.
“Biodiversity offsets and credits build on a top-down, fortress conservation model, which is highly ineffective, costly, has often involved human rights abuses and is the wrong response to address biodiversity loss,” the letter stated. It is “either naive or false to claim biodiversity credits would not be used for offsetting”, it continued, warning any credits not purchased for offsetting reasons “are most likely purchased for greenwashing purposes”.
One of the main criticisms of forest carbon projects is that Indigenous peoples, the traditional stewards of ecosystems, are often bypassed when revenues are delivered.
Atouguia notes that African credit projects have struggled to receive good prices owing to perceived risks. “But when the same credits were bought and then sold by intermediaries in other markets,” she says, “suddenly the price could triple or quadruple, and then the original project developers would not get that money.”
Fawcett insists that the IAPB, in designing principles for biodiversity credits, has deliberately tackled the “issues that have bedevilled the carbon markets”. In particular, she emphasises that the IAPB has worked extensively with Indigenous peoples in designing its principles.
The IAPB is also seeking to differentiate biodiversity credits by clarifying that they cannot be a tradable instrument, at least for the time-being, though some credits could be “stacked”, meaning that a single project could sell both carbon and biodiversity credits separately, or carbon and biodiversity credits could be “bundled” and sold together.
Fawcett argues the IAPB’s principles for biodiversity markets should apply to any carbon credit project that attracts a biodiversity premium. “What we don’t want to do is to have people avoid the high-integrity principles for biodiversity credits by coming in through the back door for a carbon credit.”
She believes that governments and multilateral development banks must work closely with the private sector to get the biodiversity credit market off the ground. However, they are just one of several mechanisms that will be needed to help close the $700 billion gap in finance for nature. “There will be lots of different ways that African conservation project can be financed.”
Stuchtey says he believes Landbanking Group’s approach minimises the risk of land grabs because it doesn’t require proof of ownership, only that land stewards are materially improving the land. We are making sure that they have an ability to bring nature or ecosystem services to market without us having to buy the land.”
Additional reporting by Terry Slavin.
This article is part of The Ethical Corporation Corporation’s latest issue, on the fight to fill the funding gap for nature. You can download the digital pdf of the magazine for free here
