Biodiversity continues to experience a continuous long-term declineEfforts to reverse this trend are constrained by a significant funding gap, estimated at $700-900 billion per year. In response, appeared Biodiversity credits as a potential mechanism for mobilizing private capitalThese credits are intended to provide compensation for measurable and additional gains in biodiversity, both through its protection (“avoided losses”) and restoration (“enhancement”). Although they are based on the design of carbon credits and biodiversity offsets, biodiversity credits also risk repeating some of their shortcomingsIf past mistakes in market design and implementation are repeated, the credibility and impact of biodiversity credits could be seriously undermined.

Current market status and the difference between credits and offsets: Currently, the emerging market for biodiversity credits is characterized as diverse and uncoordinated area, with the development and promotion of multiple methodologies and indicators. However, the rapidly growing number of approaches and widespread interest may outpace the development of clear concepts, leading to confusion about quality, consistency and impact.

It is important to distinguish between biodiversity credits and biodiversity offsets, although they have the same source of supply – projects aimed at protecting and restoring biodiversityThe difference lies in the motivation of the demand:

• Biodiversity credits are tradable credits that do not compensate for direct lossesAn example is a company that restores a forest independently of its own activities. The intended net impact is positive.
• Biodiversity offsets are compensation for direct losses (non-tradable). An example is a company that clears a forest and replants an equal area elsewhere. The intended net impact is zero, it is compensation.

Critical challenges for biodiversity credits: There are four key challenges that must be addressed to ensure the integrity and effectiveness of biodiversity credits:

• 1. Commensurability: Given the complexity of nature there is no single and universally interchangeable unit of biodiversity, comparable to CO₂ equivalents in the carbon market. A mix of metrics is used, often focusing on key species and habitats, which can provide an incomplete picture or even facilitate manipulation if implementers subsequently “cherry-pick” the indicators.
• 2. Baselines and additionality: Many schemes use unclear or too flexible baselines, which is a key weakness even in voluntary carbon and offset markets. Current indicators often reflect actions or uncertain projections rather than a clear outcome. This can encourage inflated baselines and under-subsequent “hot” credits with low value for money.
• 3. Permanence and leakage: Ensuring long-term biodiversity gains (sustainability) and preventing threats of activity transfer (leakage) remains difficult to monitor and rarely fully achievable. Lessons from carbon markets show the need to assess and address losses over time and space through measures such as compensation funds and targeted actions.
• 4. Governance and integrity: The developing credit market lack of strong standards, transparency and independent oversightThis may allow private certifiers to prioritize volume over quality, while institutional weaknesses may undermine outcomes and social justice concerns. Too cheap credits may encourage a “race to the bottom.”

Recommendations for key actors: To ensure the integrity and impact of biodiversity credits, key actors should take the following measures:

• Politicians: They should help set transparent future minimum standards and support monitoring systems, including social safeguards.
• Corporate decision makers: They should help with adopting high integrity market standards, which are transparent, stable and ecologically robust.
• Donors: They should Systematically invest and co-finance public goods, including de-risking innovative, scalable approaches when other public support is limited.
• Civil society (e.g. NGOs): Can use scientific evidence for environmental advocacy at the negotiating table, promoting both ecological integrity and social safeguards.
• Bankers: They may need overcome future financial gaps and to cushion time lags between initial actions and ex-post, outcome-based credits.
• Project developers: They should adopt robust crediting methodologies and use scientifically based, results-oriented countermeasures with third-party verification.
• Researchers: They can help measure biodiversity, improve credit baselines and conduct thorough impact assessments that will enable adaptive management.

Biodiversity credits represent a promising way to address the critical funding gap for conservation. However, their success and credibility depend on the market's ability to overcome current challenges in terms of comparability, baselines, sustainability, leakage and governance. Cooperation and coordinated efforts of all key actors are essential to develop a robust and effective market for biodiversity credits that can truly contribute to reversing the trend of biodiversity decline. JRi

Contribution European Forestry Institute of August 2025