A Biodiversity Credit Scheme
Photo by Quinn Pocock
In the second half of 2023, a discussion document sponsored by Ministry for the Environment and Department of Conservation circulated for input. The topic was biodiversity credits.
The paper investigated whether “a biodiversity credit system could help to incentivise the protection and restoration of native wildlife” in Aotearoa, and if it could, what such a system might look like. Submissions closed in November. Nothing further has been published yet.
The context with in which the discussion document was prepared is one of increasing loss of our unique wildlife and their habitat. We have approximately 80,000 native species of animals, plants, and fungi in Aotearoa New Zealand. Each has evolved in isolation, and most of them are not found outside of this country. However, 4000 or so of the species are threatened with extinction.
MfE acknowledges a growing willingness for buisness owners to improve our response to the degradation of our biodiversity. That coupled with an international expectation that we will take action to address biodiversity loss means the time may be right for the establishment of a biodiversity credit system.
In 2020 the government published Te Mana o Te Taiao – Aotearoa New Zealand Biodiversity Strategy 2020. It provides the 30-year strategic direction for biodiversity in this country. The vision of the strategy is that “the mauri of nature is vibrant and vigorous”. Five outcomes are expected by 2050.
thriving ecosystems
thriving indigenous species and their habitat
people’s lives are enriched through nature
treaty partners are rangatira and kaitiaki
prosperity, including economic activity, has neutral or beneficial impact on biodiversity
These outcomes will be achieved through a series of objectives each categorised into 3 streams.
getting the system right
empowering action
protecting and restoring market development
In 2022 New Zealand signed the Kunming Montreal Global Biodiversity Framework, a widely supported international agreement that sets out 4 long term goals supporting the resilience of ecosystems and thriving biodiversity. One of the targets expressed is the increase in financial resources to implement biodiversity strategies including through “Stimulating innovative schemes such as …. biodiversity offsets and credits, …”
The New Zealand National Policy Statement on Indigenous Biodiversity published in 2023 has the maintenance of indigenous biodiversity as its first objective.
Is there a market?
In December 2023, the World Economic Forum looked at the demand for such financial products recognising the demand could grow 100-fold in the next ten years. First however, the business case for buying credits needed to be made.
Whilst the market for biodiversity credits throughout the world is at a very early stage of development, the expectation is this will change significantly and that growth in the industry will be exponential. Despite this it seems unlikely that biodiversity credits will generate income directly. Although those who purchase the credits are described as “investors”, the business drivers for buying the credits are about values, and context and doing the right thing rather than direct income. Buyers acquire the right to make a positive claim about their impact on te taiao.
Demand for biodiversity credits is expected to be generated not just from internal expectations (corporate values) but from the development of external factors too. These might include international and domestic regulatory requirements, the demands of a social licence to operate, or access to funding.
In New Zealand the intention is to attract buyers from a range of people and organisations, so the credit purchase system can be used not just by philanthropic funds with significant backing, but by businesses and citizens generally. Investors can choose to invest in credits that impact their own neighbourhood or work environment, or not.
Here are some examples of how the World Economic Forum expects such credits might be used:
“a confectionary company that purchases soft fruits directly from a farmer might purchase biodiversity credits from the local landscape in order to maintain the health of local pollinators essential for the growth of the fruits.”
“a car manufacturer may purchase credits for the restoration of a globally threatened habitat type not closely linked to its operations, to contribute to global biodiversity goals. This can in turn drive business value by supporting global ecosystem services, attract and retain talent and help maintain social licence to operate.”
“a homeware producer might offer a vase at a premium if its purchase contributed to the restoration of a hectare of wildflower meadow.”
It is not hard to imagine how property owners, including developers may offer credits to enhance their land and community - whether to enhance land they will retain or to boost the attractiveness on a sale. Credits could be used to fund work they undertook to:
re-establish wetlands
daylight rivers
restore and protect bush
control wilding pines
Alternatively they may wish to invest in their local community by purchasing credits that funded nearby projects supporting biodiversity.
Biodiversity credits are to be distinguished from biodiversity off-sets. Off-sets will compensate for biodiversity loss caused through activities. The off-sets would be location specific and managed through planning and resource management processes.
Biodiversity credits may go beyond what is needed for compliance with planning requirements. They provide the opportunity for landowners and businesses to fund enhancement projects that extend beyond the bottom line of what is required for planning reasons and simply to support species. An example in New Zealand that currently operates without a market structure is the voluntary registration of QEII Trust covenants.
What would the system look like?
The World Economic Forum report, “Biodiversity Credits: Demand Drivers and Guidance on Early Use” illustrates how buying credits can deliver value to business but also acknowledges that the market is nascent. What is needed to see the market properly established and maintained is “confidence in the quality of credits, the robustness and comparability of claims, and the means of measurement and accounting.” The new market will need to demonstrate “high-integrity supply, assure and secure demand, and establish transparent and standardised information and governance”.
These are precisely the components of a credit system that MfE says we need to ensure are in place.
The MfE proposal anticipates the establishment of a system whereby organisations can exchange credits for funding to undertake projects that restore or preserve or even increase biodiversity. A landowner or project owner will undertake the activity which will be funded by investors. The credit (and resulting payment) may be based on either undertaking an action or on achieving an outcome.
To ensure integrity the system will establish means of measuring, verifying, and reporting on activities, and the keeping of records. Industry experts and intermediaries will have roles in the exchanges, including kaitiaki and government.
Such a system may not be simple or single dimensional. It may involve several methodologies to cater for differing types of nature restoration and different tracking methods. Compatibility with structures established internationally may become important, particularly those established by our close trading partners.
Currently the submissions remain with the authors of the report. The introduction of a biodiversity credit system has not been the subject of either coalition agreement so it is not clear yet what the government’s reaction might be to the proposal and submissions made. Nor is it clear what they consider should be the government’s role in the establishment or supervision of a system of sales and credits.
Department of Conservation. (2020). Te Mana o Te Taiao - Aotearoa New Zealand Biodiversity Strategy 2020. Wellington: Department of Conservation.
Final Text of Kunming-Montreal Global Biodiversity Framework. (2022). Kunming-Montreal
Global Biodiversity Framework. Montreal: Conference of Parties to the UN Convention on Biological Diversity.
Ministry for the Environment. (2023). National Policy Statement for Indigenous Biodiversity.
World Economic Forum. (2023). Biodiversity Credits:Demand Drivers and Guidance on Early Use. World Economic Forum Biodiversity Credits Initiative.
A version of his article first appeared in The Property Lawyer in February 2024 and is published with the consent of the NZ Law Society, Property Law Section.
© Debra Dorrington 2024.