The planet faces a triple crisis – biodiversity loss, pollution and climate change – that are interconnected and mutually reinforcing. Biodiversity, which underpins a wide range of services that support economies, food systems and human health, is declining at an unprecedented rate. In the next 20 years, global warming will reach or exceed 1.5°C, already causing widespread disruption to nature. There is an urgent need to mobilise significant funding to reverse this trend. There is a significant funding gap between current investments in biodiversity and estimated needs: in 2024, annual biodiversity funding was estimated at US$208 billion, while more than US$1.15 trillion is required annually by 2030. This article focuses on the role of market mechanisms, such as voluntary carbon markets (VCMs) and emerging biodiversity credit markets (BCMs), in bridging this gap.

Voluntary carbon market (VCM) and its benefits for biodiversity

Carbon credits are tradable financial instruments that represent the reduction or removal of one metric ton of carbon dioxide equivalent (CO2e) from the atmosphere. VCM, as “a system and associated schemes or standards that enable the generation, purchase and sale of carbon credits on a voluntary basis”, is characterised by its voluntary nature and the involvement of non-state actors. VCM can have a positive, neutral or negative impact on biodiversity, particularly in projects such as afforestation, wetland restoration or sustainable agriculture. Carbon credits linked to biodiversity are a subset of carbon credits that either include conservation measures to preserve biodiversity (so-called biodiversity neutral credits) or additional actions related to the protection and restoration of biodiversity (so-called biodiversity positive credits). Although all carbon credits can have a positive impact on biodiversity by reducing climate change, there is a risk of their having a negative impact, for example through the construction of wind farms on migratory bird species or the planting of non-native species.

Demand for biodiversity-positive carbon credits is driven by growing interest among buyers in positive biodiversity outcomes. Half of the buyers surveyed for this study said they were willing to pay more than 30% more for biodiversity-positive carbon credits. In total, approximately 100% of the carbon credits generated in 2023 were $550 million for biodiversity-positive purposes.

Despite this potential, there are significant shortcomings in VCM. Review of carbon credit programs using High Integrity Biodiversity Requirements (HIBRs), developed by this study, revealed varying levels of compliance. None of the selected programs met all of the HIBRs. Among strengths included requirements for stakeholder consultations and basic protective measuresHowever, there were significant gaps in key areas such as biodiversity impact management, pollution management, climate change and disaster risk, and Involvement of indigenous peoples and local communities (IP&LC) to equitable benefit sharing. Detailed and scientifically sound requirements for measuring biodiversity outcomes, monitoring, reporting and verification (MRV), baseline setting, additionality and sustainability were also lacking.

Emerging Biodiversity Credit Markets (BCMs)

Interest in biodiversity credits as a potential mechanism to increase financing for biodiversity conservation and restoration is growing rapidly, with more than 50 standards and methodologies currently in existence. Biodiversity credits are defined as “a certificate that represents a measurable and evidence-based unit of positive biodiversity outcome that is permanent and additional to what would otherwise occur.” They may include losses prevented (protection), maintenance (preservation) or improvement (restoration).

Unlike carbon credits, there is no single global market for biodiversity credits, but rather a series of emerging local marketsAlthough the supply of biodiversity credits is growing, demand for them is still low. Among main buyers include corporations, the financial sector, governments, philanthropic organizations and individuals. Demand is driven by a growing understanding of the extent of biodiversity loss and the associated risks to nature, as well as organizational values, market differentiation, risk management in supply chains and compliance with regulatory frameworks (e.g. GBF, TNFD, CSRD).

Potentially use cases for biodiversity credits include:

• Contribution to "nature-positive" commitments.
• Risk mitigation and resilient sourcing (insetting) in supply chains.
• Diversification and new products.
• Increasing the value of carbon credits.
• Communication and PR.

A controversial use case is use of biodiversity credits for offsettingWhile some groups support this under strict conditions (e.g. “local-to-local” and “like-for-like”), others (including the European Commission) disagree, stressing that it should be considered a last resort after application mitigation hierarchy (avoid, minimize, restore) and not as a substitute for reducing negative impacts.

Main challenges for BCM include:

• Inconsistent definitions and the units used, making it difficult to compare credits.
• Insufficient IP&LC integration into the design, implementation and management of projects, with a lack of transparency and fair distribution of revenues.
• Additionality: requirements are diverse and often defined more broadly than in the VCM, which may allow for financing of areas that are excluded for the VCM (e.g. countries with high forest cover and low deforestation – HFLD).
• Durability/Resistance: approaches vary, with projects seeking to ensure sustainability through different time periods and mechanisms.
• Leakage: insufficient and cost-effective methods for measuring impacts on biodiversity.
• Measurement and MRV of biodiversity outcomes: lack of globally accepted scientific and standardized methods, leading to inconsistency in indicators and metrics.
• Stacking and bundling Benefits: While this can increase revenue, it also brings the risk of double-counting and complications.
• Demand uncertainty and price transparency: insufficient price information and high cost variability hinder buyer confidence and market scaling.

The application of HIBRs to biodiversity credits has shown that, while these requirements are relevant, biodiversity credit schemes do not fully meet them, particularly in the area of conservation measures. However, there is potential for strengthening integrity.

The role of government policies and recommendations

Governments play a key role in shaping these markets. Lessons from REDD+ VCM projects have shown that government engagement, robust national frameworks, strong safeguards, transparency and third-party verification are key to project integrity.

Only a few governments around the world have made progress in developing policies for BCM. Examples include Australia’s Nature Repair Act 2023, the UK’s Nature Markets Framework, and initiatives in New Zealand and France. Niue has developed a national Ocean Conservation Certificate (OCC) scheme, but it is not tradable and not intended for offsetting.

The basic prerequisites for high-integrity markets include:

1. Broader financial reforms to address negative financial flows.
2. Balancing market mechanisms with other approaches.
3. Commitment to transformative change across industries.
4. Recognition of the central role and rights of IP&LC.
5. Recognizing the link between climate and biodiversity.
6. Applying the precautionary principle, especially in offsetting and measuring results.

Key recommendations for policymakers include:

• Strengthening the VCM: Improve the coordination of climate and biodiversity policies, support detailed requirements for high integrity within carbon markets (including robust safeguards and the involvement of IP&LC), support standardised monitoring of biodiversity outcomes, establish independent monitoring mechanisms and ensure transparency and clear entitlements to carbon credits.
• BCM support: Promote broad adoption of integrity principles (e.g. HIBRs, BCA, IAPB and WEF frameworks), agree definitions and use cases for biodiversity credits, strengthen regulatory incentives, clarify land tenure rights, translate principles into detailed requirements through standardisation bodies, develop guidance for measurement and verification, establish independent registration systems and increase market transparency.

Overall, biodiversity credits can diversify revenue streams and strengthen the integrity of existing mechanisms by providing measurable and quantifiable outcomes. However, more research, testing and pilot projects are needed to understand their full potential and ensure their high integrity and fairness. Government interventions and international coordination are key to overcoming current challenges and ensuring that these market mechanisms truly contribute to biodiversity conservation and restoration. Spring

Full text of the study: The link between climate and biodiversity

European Commission europe.eu

Glossary of key terms

• Biodiversity credits: Measurable and evidence-based units of positive biodiversity outcomes. There are currently several definitions, with the BCA definition gaining popularity but not yet universally agreed upon by governments.
• Biodiversity Credit Markets (BCM): Systems and related schemes or programs (standards) that allow the generation, purchase and sale of individual biodiversity credits on a voluntary or mandatory basis.
• Bundling: Combining multiple benefits or credits produced by a project and selling them as a single product to a single buyer. An example might be a wetland unit that provides benefits for carbon, biodiversity, and water quality.
• Carbon credits: A tradable financial instrument issued by a carbon credit program that represents a reduction in greenhouse gas emissions or removal from the atmosphere equal to one metric ton of carbon dioxide equivalent (CO2e).
• Indigenous Peoples and Local Communities (IPs and LCs): Distinct social and cultural groups with collective ancestral ties to land and natural resources. IPs have international rights recognized by the UN, while LCs (such as smallholder farmers, rural producers, and fishing communities) have a significant role in conserving biodiversity through their land management practices, traditional knowledge, and customs.
• Metrics: A measurement system or standard used to quantify biodiversity outcomes (e.g. species, ecosystem or ecosystem services).
• Mitigation hierarchy: A sequence of actions to anticipate and avoid impacts, and where avoidance is not possible, minimisation and, when impacts occur, restoration. If significant residual impacts remain, compensatory measures should be taken for biodiversity-related impacts.
• Nature-based solutions (NbS): Actions to protect, conserve, restore, sustainably use and manage natural or modified terrestrial, freshwater, coastal and marine ecosystems that address social, economic and environmental challenges.
• Nature: The natural world, with an emphasis on the diversity of living organisms (including humans) and their interactions with each other and with their environment.
• Durability/Durability: The requirement that the biodiversity outcomes of the project are long-term, ideally beyond the project lifetime or crediting period, and are consistent with the target timeframes of international biodiversity conventions.
• Stacking: Carbon and biodiversity (and other) credits are produced from the same project and sold separately to different buyers.
• Standardization organization: Private organizations (e.g. Verra, Plan Vivo, Gold Standard) that develop and manage monitoring, reporting, verification and validation standards and procedures that projects must comply with in order to be issued credits.
• Voluntary Carbon Market (VCM): A market in which carbon credits are bought and sold voluntarily, not under regulatory mandate, primarily to offset carbon emissions.
• High Integrity Biodiversity Requirements (HIBRs): A set of detailed requirements used to evaluate carbon and biodiversity credit programs, ensuring high integrity in biodiversity outcomes, stakeholder engagement and risk management.