18 January 2023

Crediting nature

Verra's director of sustainable development innovation Sinclair Vincent discusses a new nature crediting framework that the standards-setting body is developing

This new framework presents a critical innovation for driving investment toward nature and can support the recently adopted Kunming-Montreal Global Biodiversity Framework (GBF) goals and targets, Vincent tells Environmental Finance.

Environmental Finance: Why is Verra developing a nature crediting framework?

Sinclair VincentSinclair Vincent: We know that there are many high-quality conservation efforts that lack adequate funding. Nature-based carbon projects play an important role in addressing climate change and also deliver development benefits, including nature restoration and conservation. Yet, many of the services that landscapes provide beyond sequestering carbon have no clear direct monetisation pathway.

In addition, there are some land-based conservation activities that are not additional when it comes to carbon but desperately need finance to restore or maintain nature and biodiversity.

On the demand side, financial institutions, companies, and investors don't have a structured or auditable way to invest in nature.

By creating a globally scalable nature crediting framework, we can address both of those challenges. The nature crediting framework will drive finance towards critical nature conservation and restoration activities. It will include methods for verifiably quantifying benefits to nature or biodiversity achieved by projects using the framework. This will then generate nature credits that companies and investors on the demand side can buy.

Verra uses the term "nature credit" rather than "biodiversity credit" because biodiversity is just one component of nature, and our framework will not exclusively focus on biodiversity.

EF: How is biodiversity developing as an asset class as opposed to being claimed as a development benefit?

SV: Carbon credits – quantified in tonnes of CO2e – do not fully account for nature, so it is important to have a new asset class. Nature credits will allow projects to verify the nature or biodiversity benefits of their activities in addition to, or separate from, carbon. A separate asset class could also make it easier for companies to invest in nature-positive projects that relate more closely to their supply chains.

EF: How do you distinguish between a biodiversity offset and a nature credit?

SV: With biodiversity offsets, companies invest in like-for-like outcomes to compensate for negative biodiversity impacts. Since biodiversity is not fungible globally, offsetting schemes tend to be local.

Nature credits are not meant to be used to compensate for negative impact. Instead, they can be used to invest in nature-positive outcomes. A company's footprint should still be considered when investing in nature credits. For example, a mining company likely wants to invest in ecosystems where negative impacts might occur due to their operation.

We recognise that nature is not fungible. However, nature credits need to be defined in a way that makes them fungible enough for the market to function.

The GBF text includes both biodiversity offsets and biodiversity credits as examples of innovative financing schemes that could help implement national biodiversity strategies and action plans. Clear guidance on what claims can be made about nature credits will be essential.

EF: What market infrastructure needs to develop for investors or companies to make nature-positive investments using nature credits?

SV: The business case and claims that can be made upon the purchase and retirement of nature credits must be clearly defined and linked to the metrics outlined by the Taskforce on Nature-related Financial Disclosures (TNFD) and the Science Based Targets Network (SBTN).

This will allow companies to understand how these investments fit into their biodiversity risks, impacts, dependencies, and nature-positive commitments.

We also need reliable and transparent tracking systems, such as the registry that Verra already maintains. It is critical to ensure that the proceeds from the sale of these credits make it back to the communities implementing or impacted by the projects. Draft protocols are already calling for 60% of proceeds from each transaction to go to the communities in project areas. That could mean using new tools on top of rigorous monitoring requirements and an existing registry infrastructure.

Another important component will be minimising the cost of project development and operation. One solution is to utilise innovations in monitoring systems. For example, biodiversity data firm NatureMetrics has developed an easy-to-use and accessible e-DNA monitoring tool that enables local communities to gather samples from water and soil to identify which species live in a given area.

EF: How will this work propel the GBF targets forward?

SV: Nature crediting would help achieve the '30 by 30' target by scaling up finance for nature-positive activities globally and helping countries meet their biodiversity goals and targets. Credits could also help signal which landscapes or components of biodiversity might be more valuable or critical to protect.

Target 15 encourages large companies and financial institutions to assess and disclose risks, dependencies, and impacts on biodiversity. Nature credits can help companies go beyond mitigating negative impacts and investing in nature-positive outcomes.

Target 19 calls for a substantial increase in public and private financial resources to fund national biodiversity initiatives, including through innovative schemes such as biodiversity offsets and credits.

EF: How are the supply and demand sides poised to take action on nature crediting?

SV: The supply side is gearing up quickly. Many project developers have expressed interest in piloting the nature crediting framework – a huge supply-side signal. Also, a number of data and tech providers are ramping up and working with early-stage projects.

On the demand side, there is heavy interest from the financial sector and investors. We're also seeing companies getting involved in project development, especially in sectors that strongly depend on land and natural resources.

We and others involved in this space will need to educate companies on how nature-positive investments can help secure long-term benefits rather than just mitigating negative impacts in the short term.

EF: How can the market move toward these targets at the speed required with scalable standards and market credibility in mind?

SV: It is exciting to see the interest, and we will need momentum as we dig into the technical questions. But we also need to follow proper standard and methodology development processes, including broad stakeholder engagement with local communities, companies, reporting agencies, and governments.

The inclusion of indigenous peoples and local communities in both the development and implementation of a credit mechanism like this is crucial as they maintain many lands that will be eligible for these credits. It won't work without equity and inclusion.

Public consultations, piloting, and testing of the methodologies that we develop are also critical.

Other questions to resolve include what claims companies can make on the back of purchasing credits, as well as how we define a credit and address additionality.

Verra, along with several leading conservation organisations, will address all these aspects in the development of the nature crediting framework, the first version of which we expect to release at the end of 2023.

EF: What can you learn from Verra's Verified Carbon Standard Program (VCS) when developing a nature crediting framework?

SV: There are a few things that we need to get right early on. But, just as with the VCS Program, we will also need to learn by doing and iterating. Technology will evolve, data will improve, and we will learn from pilot and early-stage projects.

We are also cautious not to let 'perfect' be the enemy of good. We need to innovate and finance these activities as quickly as possible.

Verra is an experienced standards-setter for climate action and sustainable development. We know who we need to engage with and the level of rigour required. We just need to make that happen in a short timeframe. The energy is there, and Verra is well-positioned to do this.

For more information, see: verra.org

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