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

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.