Putting nature on the balance sheet: EU eyes biodiversity credit market

The European Commission envisages nature credits offering new income opportunities for farmers, foresters, fishers, landowners and local communities that restore ecosystems
Putting nature on the balance sheet: EU eyes biodiversity credit market

The commission says there are clear synergies, particularly for carbon farming activities with biodiversity co-benefits.

The European Commission has proposed nature credits, a system whereby private investors can pay landowners who make biodiversity and ecological restoration efforts.

However, it is likely to be many years away. In 2021, the commission proposed a not dissimilar carbon credits system, but its planned adoption for carbon farming is not expected until 2026.

Nature credits would enable investment into nature-positive actions by a company, a financial institution, a public entity or a citizen, who wants cleaner ecosystems, risk reduction, improved reputation and higher social acceptability. For example, a landowner restoring wetlands or extending forest areas could be paid for nature credits, valued and certified by an independent organisation.

The commission says nature and carbon credits are complementary but distinct. Nature credits would help to protect and restore biodiversity and ecosystems, whereas carbon credits focus primarily on carbon sequestration and reducing emissions.

And carbon credits are based on the well-established metric of tonnes of CO₂-equivalent emissions or sequestration, whereas nature credits will need multiple new metrics and indicators to reflect site-specific biodiversity outcomes.

Nevertheless, the commission says there are clear synergies, particularly for carbon farming activities with biodiversity co-benefits.

The commission envisages nature credits offering new income opportunities for farmers, foresters, fishers, landowners and local communities that restore ecosystems. And a wide range of potential buyers and investors is envisaged, from private companies and financial institutions to small investors and public entities.

The commission invited businesses, scientists, governments, and civil society to help shape nature credits with their feedback between now and September 30. Meanwhile, the commission will establish a new nature credits expert group. Also, the EU is piloting nature credit initiatives in France, Estonia, and Peru.

Nature credits could be generated by those who undertake restoration or maintenance actions, for example, a group of farmers or land managers working together to restore or enhance a natural area.

An independent certifier would review their project plan, implementation methods, and intended impacts. If the project complies, it receives a certificate recognising its high quality. This certificate enables verified nature credit tradable units to be sold on to companies, public authorities, or citizens. 

Revenue from the nature credits goes back to the land managers, rewarding them and enabling reinvestment.

For companies, nature credits can make their production processes more nature-friendly, increase creditworthiness, and facilitate access to financing. 

"They can help de-risk their supply chains, reduce insurance premiums, and meet corporate biodiversity goals," according to the commission, which says nature credits are beneficial for financial institutions, for example, because of the core biodiversity financial risks such as reduced yields due to decline in pollination, erosion and loss of soil fertility, increase in pest attacks, floods and droughts, etc.

Nature credit markets are still in their early stages globally. However, global demand for biodiversity credits is predicted by the commission to reach up to €155bn. "If the EU captures some of this demand, it could contribute to closing the estimated €37bn annual biodiversity funding gap in Europe."

The commission says EU countries are already testing or implementing nature credit approaches, with France, Finland, and Ireland having initiated government-led efforts, while in Belgium, Germany, Italy, the Netherlands, Portugal, Spain, Slovakia, and Sweden, pilots are led by civil society, land managers, or financial actors.

Green assist pilots include, for example, experimentation on wetland in France.

Commission president von der Leyen said: "We have to put nature on the balance sheet. That's exactly what nature credits do. When well-designed, they will provide an efficient, market-driven instrument that encourages the private sector to invest and innovate. 

"With investment and innovation, we generate revenue for those who work to protect nature, including our farmers, our landowners, our foresters."

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