Assigning economic value to biodiversity: the promise and perils of biodiversity credits

Lead Research Organisation: University of Nottingham
Department Name: Sch of Geography


Current and recent legislation in the UK, EU and elsewhere in the world is introducing greater requirements for organisations of many types to report about the effects of their activities on both carbon and nature. There is also rapidly increasing interest in the private sector in nature conservation as part of corporate social responsibility (CSR), positive publicity and generally 'doing the right thing'. These trends, along with various natural capital impact assessment schemes being developed, are almost certain to create a large demand for biodiversity credits within the next two years. Biodiversity credits, as with carbon credits, assign investable and tradeable economic value to biodiversity, for example allowing a landowner to raise finance (based on forecast biodiversity improvement) to fund nature conservation on her land. The 2021 Conservation Finance report of the Coalition for Private Investment in Conservation shows a very rapid growth in private sector funding: from US$2 billion in 2016 to $18 billion in 2020. Remarkably, this report concludes that the rate of growth could be considerably higher, but is being held back by the lack of appropriate methods for quantifying biodiversity. This crucial, rapidly developing topic that is fundamental to the economics of biodiversity has, to our knowledge, not yet been the subject of an attempt at synthesis. Our overarching aim is therefore to provide a synthesis of existing methods to quantify biodiversity for potential use in biodiversity valuation and trading.

We have co-designed the proposed research with a group of stakeholders (led by the project's Consultant) that is currently developing a biodiversity credit standard. Our stakeholder group has met in a series of online workshops, with another scheduled later in 2021. They have identified an urgent need for a comprehensive and rigorous review of methods to quantify biodiversity for potential use in biodiversity valuation and trading; this currently does not exist. Our main aim is to fill this gap, in a timely manner, via a thorough synthesis of the literature, and other materials to communicate the key findings to relevant audiences (beyond journal readership). The review will include how impacts of human activities on biodiversity are currently being quantified, and the role of tradeable biodiversity credits in achieving biodiversity net gain around the world. Thus, we propose to produce rigorous academic underpinning to enable a sound methodology for quantifying biodiversity gain or loss, for use by people who are not biodiversity scientists but are working with, and certifying, biodiversity credits (e.g. investors, regulators, economists).

On the flip side, we have found strong reticence among biodiversity experts to engage with the concept of biodiversity credits. Yet, as outlined above, such credit schemes are already being developed. We argue that there is an urgent need for more biodiversity scientists to engage with economists to develop biodiversity credit schemes, to ensure they are fit for purpose. To stimulate this, we will provide an assessment of the merits and potential dangers of biodiversity credit schemes, targeting a readership of biodiversity scientists. This will be in the form of a short, punchy opinion or perspective-style piece in a high-profile journal.

To achieve these aims, we will employ a research assistant for 3 months, to do systematic, repeatable searches of academic and 'grey' literature, to compile our evidence base and help with our synthesis. The project team will meet online (no cost) with key players in our stakeholder group at the start of the project, to introduce the research assistant to them, share details on the latest developments and finalise the details of the literature searching process. The project will conclude with a virtual workshop to feed the results back to the stakeholder group.


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Description The aim was to produce two synthesis papers. These are not yet published, but are summarised here:
Paper 1: biodiversity measurement methods for biodiversity credits
Rationale: Private investment in biodiversity conservation is being hindered by lack of an agreed way of measuring biodiversity that is appropriate for this purpose. Responding to a need clearly and consistently articulated by a wide range of stakeholders, we focus this paper on (i) evaluating existing methods against a set of criteria that are important for operationalising biodiversity credits and related activities, and (ii) introducing a novel approach that is informed by this synthesis.

We searched the literature for biodiversity quantification methods that already exist and are being used for nature conservation planning or practice, and may be candidates for a biodiversity credit standard, and biodiversity valuation and trading more generally. In this paper, we critically assess the most pertinent of these methods with respect to the following criteria - the extent to which they:
• Quantify a unit of biodiversity to allow biodiversity accounting within ESG reports
• Are able to capture changes in biodiversity at any given site over a time period of the order of 5 years
• Apply across all the world's 1300 ecoregions (or other biogeographic regionalization types)
• Allow independent validation and verification (important for certification bodies)
• Enable biodiversity credits that use the same architecture as carbon credits

Our manuscript focuses mostly on the following methods:
• Biodiversity Intactness Index (BII)
• Species Threat Abatement and Restoration (STAR)
• Business and Biodiversity Offsets Program (BBOP)
• Climate, Community and Biodiversity standard (CCB)
• Global Biodiversity Standard (GBS)
• National schemes (e.g. DEFRA Metric, Australia's Significant Environmental Benefit scheme)
• ValueNature Score (used by ValueNature Biodiversity Credit - VNBC)
• Tokens (rewilding tokens, charismatic animal tokens)
• Biodiversity credit score (Plan Vivo / Wallacea Trust method, informed by our synthesis)
• (Terrasos B-Lab method - likely to be added to current manuscript)

We find that all but one of the methods listed above suffer from one or more of the following problems:
• Too static, and thus unable to measure change in biodiversity over time frames of ~5 years. This is the case, for example, for methods that do not involve on-site data collection but instead cross-reference site location against global threat databases (e.g. STAR). Such methods can be very useful for prioritising sites to measure, but not for actually measuring the biodiversity at the chosen sites.
• Too limited in their applicability. This applies to national schemes (e.g. DEFRA metric) that are designed for measuring value of sites relative to others in the same country, and not for comparison internationally.
• Too coarse in their spatial scale to measure site-level biodiversity or changes thereof. For example, the Biodiversity Intactness Index is currently only calculated at national level.
• Too reliant on assumptions that high-level assessments will reflect the biodiversity on site. For example, the STAR metric only measures the potential for threatened animals to be at a site, not whether such animals are actually found at a site. The DEFRA metric assumes that good quality habitat (vegetation or water) will contain biodiversity accordingly, but this may not be the case, for example if herbicides, fungicides and pesticides are applied.

Other considerations include:
• Many approaches only consider one aspect of biodiversity (e.g. measuring only the vegetation, or only the vertebrate animals), under the assumption that it will be a good proxy for other aspects. The scientific literature suggests this is often unlikely to hold true and, for example, the DEFRA metric's user guide acknowledges this issue in the 'Limitations' section.
• Many approaches only consider species lists - i.e. whether any given species is considered present or absent at a site - and not relative abundances. Yet the abundance of target species matters, whether this is because of their rarity (e.g. having 20 breeding pairs of turtle doves at a UK site is better than having only one) or their importance for biodiversity (e.g. the abundance of soil and above-ground invertebrates matters over and above their species richness because of their roles as pollinators, food for vertebrates, engineers of soil, etc).

In comparison, the novel 'biodiversity credit score', which is being developed by Plan Vivo and the Wallacea Trust in consultation with our team, fulfils all criteria. It requires a range of on-site biodiversity measures (minimum of 5) and defines how to put these measures together into a score that is sensitive enough to measure meaningful change in biodiversity over ~5 years. The 'basket of metrics' approach allows metrics to be chosen according to what matters at the site in question (as judged by a panel of independent experts), thus allowing comparability between, say, a coral reef site and a UK ex-farmland site (this is somewhat analogous to using a 'basket of goods' to allow comparison of inflation between different economies, where people routinely buy very different things). The method is also specifically designed to fit seamlessly into systems developed for carbon credits.

The fact that we have not been able to find another method that is fit for the purpose of use in biodiversity credits gives added urgency for the 'biodiversity credit score' method to be tested in the field and with end-users, and implemented. Part of that involves use of technology for measuring biodiversity metrics, both to allow scaling up in the absence of enough insect taxonomists in the world (for example) and to improve auditability and transparency. Hence the other paper from this project reviews technological advances with respect to their appropriateness for use in quantifying biodiversity for the purposes reviewed herein.

Paper 2: technological solutions for biodiversity measurement
Rationale: Our first paper from the Economics of Biodiversity Synthesis project indicates that the only method fit for the purpose of use in biodiversity credits is the 'basket of metrics' approach that we define in that first paper. This 'biodiversity credit score' method urgently needs to be tested in the field and with end-users (tackled by our 'Improve Understanding of the Economics of Biodiversity' project that has just started), and implemented (proposal submitted to the recent 'Integrating finance and biodiversity for a nature positive future' call). A key aspect of implementing the method is use of technology for measuring biodiversity metrics, both to allow scaling up in the absence of enough insect taxonomists in the world (for example) and to improve auditability and transparency. Hence in this second paper we review technological advances with respect to their appropriateness for use in quantifying biodiversity for developing a biodiversity credit standard.

We searched the literature for methods to measure biodiversity metrics that centre on technological solutions. In this paper, we critically assess the most pertinent of these methods with respect to the following criteria - the extent to which they:
• Satisfy 'GRADES' criteria - be Granular (achieve high spatial and taxonomic resolution), Repeatable (allow frequent updated measurements), Auditable, Direct (based on species detections not proxies), Efficient and Simple-to-understand (Ji, Baker et al. 2022, Nature Communications 13: 1555).
• Minimise biases
• Go beyond the capabilities of more traditional monitoring techniques. This 'additionality' can be in the form of collecting data of increased taxonomic resolution, increased spatial extent and temporal cover, or through measures of ecosystem health that are unattainable from more traditional methods.

We argue that technological solutions for biodiversity assessments are generally preferred due to their additionality, ability to be audited, efficiency, repeatability and being on the whole less invasive than traditional techniques. Importantly, they are also scalable to meet the future demands of private sector-funded biodiversity assessments. These techniques do come with costs and so their suitability may depend on the aims of the projects. For example, satellite remote sensing may be favoured for scalability and efficiency over traditional techniques when direct data on species abundance are not a priority for the project - they can give quickly attained information on the health of the ecosystem over large extents. Technological sampling methods are often found to be complementary to more traditional techniques, so combined approaches may be optimal while these technologies and their practices are further developed. These technology-based techniques and the automation of workflows will undoubtedly improve drastically over coming decades, and their use in data collection now could be invaluable to provide the best available data long-term.
Exploitation Route The outcomes have led directly to new projects funded by NERC/ESRC (see Further Funding section). In addition, they have been informing working groups organised by industry, the World Economic Forum and the UNDP, among others.
Sectors Environment,Financial Services, and Management Consultancy

Description The findings, even only in summary form (before publication as papers in journals) have been influencing discussions in working groups and workshops on biodiversity credits and biodiversity finance.
First Year Of Impact 2022
Sector Environment,Financial Services, and Management Consultancy
Impact Types Economic

Description Developing a new co-designed decision support tool for biodiversity credits and investment
Amount £812,583 (GBP)
Funding ID NE/X00208X/1 
Organisation Natural Environment Research Council 
Sector Public
Country United Kingdom
Start 08/2022 
End 08/2025
Description Knowledge Exchange Fellowship to bring biodiversity science expertise to developing the first biodiversity credit standard
Amount £152,631 (GBP)
Funding ID NE/X00158X/1 
Organisation Natural Environment Research Council 
Sector Public
Country United Kingdom
Start 08/2022 
End 08/2025
Description Plan Vivo working groups 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Third sector organisations
Results and Impact This project led directly to my (the PI's) participation in working groups on biodiversity credits and associated methodology development that were led by Plan Vivo, a Scottish charity and standard setter that has been active in the carbon credits market for 25 years. This activity is ongoing because I am now part of Plan Vivo's Technical Advisory Group on project applications for biodiversity credits (or 'nature certificates').
Year(s) Of Engagement Activity 2022,2023