Biodiversity certificates: Risks and opportunities

Executive summary 

Certificates for biodiversity

As reminded by the IPBES reports, urgent action is needed to reverse the decline in biodiversity. The global framework that emerged from COP15 in Kunming-Montreal sets global objectives for this action. To achieve them, we will need to mobilise funding.  This is the content of target 19, which calls for "a significant and progressive increase in financial resources [...] including private resources". It explicitly mentions the promotion of "innovative schemes", including "biodiversity credits". 

Businesses, financial institutions, and public authorities have an important role to play in achieving these objectives. In line with the emergency underlined by the IPBES and the rising expectations of their stakeholders, the issue of biodiversity is becoming increasingly important for these organisations. They are looking for tools to implement their contribution to global objectives, and biodiversity certificates/credits may be part of the solution. They can be used, for example, as part of CSR strategies, for sustainable finance, or for public policies to preserve biodiversity. 

Certificates/credits are therefore associated with major opportunities, both for nature and for organisations. However, various observers, particularly from science and NGOs, are warning of the risks associated with their use. In particular, they point out that it can generate harmful rebound effects for biodiversity, which could jeopardize the overall value of their contribution to global objectives. 

The implementation and informed use of biodiversity certificates/credits requires in-depth knowledge of these two aspects. Risk analysis is essential to avoid perverse effects and to design a mechanism that is genuinely favourable to biodiversity. Analysis of the opportunities is essential to identify the potential and design a mechanism that attracts the interest of the various stakeholders. The aim of this document is to carry out this analysis of the risks and opportunities associated with biodiversity certificates/credits, based on the state of the art of the science and the expertise available. 

Context

To cover all the issues, risks and opportunities, we consider these mechanisms in the general sense: voluntary or regulatory, compensation or contribution, for conservation and/or restoration.  In the following, we prefer the term "certificates" to "credits" because the term "credit" is implicitly associated with an offset mechanism, whereas the term "certificate" is more general. 

We also believe that the aim of a biodiversity certificate mechanism is to make a credible and significant contribution to the global objectives for biodiversity, while being fair in socio-economic terms.

Risk mapping

Nine categories of risk relating to the real value of certificates for biodiversity have been identified:

• For compensation mechanisms; risk of undermining the mitigation hierarchy. Compensation may be detrimental to mitigation efforts, as the possibility of "cancelling" impacts reduces the incentive to avoid and reduce them.
• Risks of "greenwashing": communication about good practice concealing negative impacts generated elsewhere. 
• For voluntary mechanisms; risk of regulatory disruption: that they may disrupt or delay the emergence of environmental regulations that meet the challenges, because the legislator considers that the market "has things under control".
• Risks relating to the evaluation of biodiversity gains: biodiversity is a complex entity that is difficult to capture using a single metric. Risk that there are weaknesses in the evaluation and monitoring of biodiversity gains, linked in particular to i) the characteristics of the evaluation method ii) uncertainty about the reference scenarios iii) double accounting of biodiversity gains. 
• Risks relating to the reliability of control processes, reinforced by conflicts of interest and inherent in the position of certifier. 
• Risk associated with the failure to promote existing good practice and landscape features that are already conducive to biodiversity. 
• Risks associated with the non-permanence ofbiodiversity gains.
• Risks associated with the displacement of impacts outside the certified area (leakage).

Analysis of supply and demand

To achieve its objectives, the mechanism must first guarantee the quality of the certificates. It must then achieve a certain scale, so that its contribution to the overall objectives is "significant". This scale will depend on supply and demand, which were analysed based on interviews and a review of independent publications. 

Five main demand use cases, both regulatory and voluntary, have been identified. They are presented in the diagram below:

Most of the sources consulted consider that demand will be the main limiting factor for the scale of the mechanism. However, the role of supply should not be underestimated.

Drivers of supply

The main determinants of supply are linked to the adaptation of the mechanism to the reality of local stakeholders. In particular: its compatibility with their issues and needs, including taking account of local knowledge and understanding of biodiversity, the involvement of local stakeholders at the various levels of the mechanism, the fair distribution of roles and revenues, and funding capacity and security.

The involvement of intermediaries between local stakeholders and end buyers can catalyse supply and facilitate the link with demand. This is particularly true of project developers, who can provide the technical and financial capabilities that are essential to project development. 

Drivers of demand

The "regulatory" demand will be determined mainly by the characteristics of the regulations from which it is derived. 

“Voluntary" demand will depend mainly on the reference levels defined by the mechanism, its credibility, the simplicity of internal management, the potential for external promotion of the certificates and their price.

Discussion

Regulatory vs. Voluntary 

Only a mandatory regulatory mechanism can truly guarantee a certain level of demand. However, the recent increase in the importance of CSR and biodiversity issues makes voluntary demand a credible option. However, without regulation, this demand will probably remain insignificant compared to the estimated financing needs for the preservation of biodiversity. The question of the link between a voluntary mechanism and regulation will therefore be crucial: it will have to be designed to encourage the emergence of ambitious legislation, and to link up effectively with existing systems. 

Compensation vs. Contribution

The concept of "biodiversity offsetting" raises many criticisms. In addition to those already raised for carbon offsetting, the essentially local nature of biodiversity and the absence of a reference metric make the issue even more delicate for biodiversity. It seems difficult to rigorously define equivalences between "negative impacts" on the one hand, and "positive impacts" generated elsewhere: restoration or conservation projects may generate "biodiversity gains", but it is difficult to demonstrate that they "cancel out" destruction. 

This does not mean that regulatory biodiversity offsetting mechanisms cannot have beneficial effects. In some cases, a certain level of "biodiversity destruction" may be deemed socially desirable to achieve economic and social objectives. If they are well designed, these mechanisms can make it possible to control and limit such destruction, while also imposing restoration obligations.

On the other hand, a "voluntary" offsetting mechanism cannot have a coercive effect on the reduction of negative impacts. It would be more likely to create opportunity effects, where stakeholders would favour the purchase of credits over the reduction of impacts when this would be less costly. Its real value for biodiversity would therefore be subject to significant risks. Moreover, for the same reason, it would probably be the target of criticism, particularly from the scientific world and NGOs, which would weaken the demand. 

It therefore seems preferable, when designing a biodiversity certificate mechanism, not to rely on the principle of voluntary offsetting. This is to guard against the risks mentioned, but also because this contested use case could undermine the credibility of biodiversity certificates in general, which nevertheless offer promising prospects.

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