Introduction

The report focuses on biodiversity credit markets as mechanisms to mobilise financing for biodiversity protection, regeneration, and stewardship. With an annual financing gap for biodiversity estimated at USD 598–824 billion, these markets can complement existing efforts. Unlike biodiversity offsets, which compensate for development impacts, biodiversity credits aim to generate real, measurable biodiversity gains unlinked to prior damages. This report examines the legal, regulatory, and policy considerations essential for scaling these markets effectively.

The role of law, regulation, and policy

Effective governance frameworks are vital to establish biodiversity credit markets. Current global efforts, including frameworks like the Kunming-Montreal Global Biodiversity Framework, emphasise the need for robust governance structures. Lessons from carbon markets highlight the importance of clear legal frameworks to provide certainty for investors and developers. Governments play a dual role: administering markets and enabling private-sector-led initiatives. Legislative clarity on ownership rights to biodiversity and land is critical for ensuring market integrity.

Why use unit-based biodiversity markets for investment?

Unit-based nature markets encompass schemes addressing various planetary boundaries, including biosphere integrity and freshwater use. Biodiversity credit markets specifically focus on measurable improvements in biodiversity. These markets distinguish between offset units, which aim for neutrality, and credit units, which target net-positive biodiversity outcomes. Emerging biodiversity credit schemes are outcomes-based and utilise a “basket of metrics” to define and measure biodiversity gains.

Compliance and voluntary unit-based biodiversity schemes

Biodiversity credit schemes are primarily voluntary and attract investment for nature-positive outcomes, contrasting with compliance-driven offset schemes. Companies invest in credits to mitigate nature-related risks or to contribute to systemic change. The maturation of these markets necessitates transparent methodologies for tracking biodiversity outcomes and ensuring additionality.

Key lessons from biodiversity offset schemes

Globally, over 12,000 biodiversity offsets exist, driven by regulatory requirements in over 100 countries. However, these schemes often fail to achieve no net loss (NNL) or biodiversity net gain (BNG) due to implementation flaws. Criticisms include weak adherence to mitigation hierarchies and reliance on “averted loss” offsets. For example, Australia’s biodiversity offsets have been critiqued for their limited impact on biodiversity outcomes due to inadequate methodologies and monitoring mechanisms.

Overview of emerging voluntary biodiversity credit markets

Voluntary biodiversity credit markets are developing globally through private and government-led initiatives. Examples include Australia’s Nature Repair Market and Niue’s Ocean Conservation Credits. These initiatives highlight the potential for biodiversity credits to mobilise private capital while addressing local and global conservation priorities.

Legal, regulatory and policy considerations for biodiversity credit markets

Key considerations include:

• Legal rights: Establishing clear ownership rights for biodiversity and associated land or sea resources.
• IPLC safeguards: Ensuring free, prior, and informed consent (FPIC) and benefit-sharing for Indigenous peoples and local communities (IPLCs).
• Integrity of claims: Developing mechanisms to prevent greenwashing and ensure transparent use of biodiversity credits.
• Market regulation: Treating biodiversity credits as financial instruments to mitigate risks of market manipulation and fraud.

Discussion of governance considerations

The absence of a global regulatory framework analogous to the Paris Agreement complicates governance for biodiversity credit markets. Future frameworks under the Global Biodiversity Framework could help address issues like double claiming and ensure alignment with international conservation goals. Effective governance at national and subnational levels is also critical to scaling these markets.

Potential legal enablers for scaling biodiversity credit markets

Proposed legal enablers include:

• Mandatory natural capital accounting: Requiring organisations to report on biodiversity impacts.
• Nature-related risk disclosures: Aligning with frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD).
• Biodiversity taxes: Imposing taxes on activities harmful to biodiversity to fund conservation efforts.

Conclusion and recommendations

Biodiversity credit markets hold significant potential to address the global biodiversity financing gap. However, their success depends on robust governance, clear legal frameworks, and international cooperation. Recommendations include integrating IPLC safeguards, regulating biodiversity credits as financial instruments, and adopting mandatory reporting frameworks. Governments must proactively define their roles, whether as market administrators or enablers, and establish legal certainty for market participants. Stakeholder collaboration is essential to ensure these markets deliver nature-positive, equitable outcomes.