Many companies rely on the world’s natural capital – its stock of soil, water and living things – to provide critical ecosystem services that they depend on. These benefits include food, clean air, flood control, water filtration and erosion prevention. Biodiversity is central to the health of these services, and biodiversity credits could help businesses fund improvements that improve nature outcomes in areas where they operate. These credits could also allow companies to demonstrate their commitment to global frameworks like the Kunming-Montreal GBF, meet regulatory requirements or maintain their social license to operate.

The carbon credit market has been a valuable learning experience for the nascent biodiversity credit market. However, there are key differences that need to be addressed in order to avoid the pitfalls of the carbon market and ensure the sustainability and legitimacy of the emerging biodiversity markets.

For one, whereas the carbon credit market operates with a standardized metric of carbon – a “tonne is a tonne” approach – the biodiversity credit market needs to prioritise developing robust methodologies that accurately capture ecological impacts and ensure that investments are actually funding conservation. This will be difficult given the inherent complexity of measuring biodiversity, but it’s essential for ensuring credibility and that projects are having real impact.

Another difference is that carbon is a molecule that can be traded globally, whereas biodiversity is unique to a habitat or location. Applying a carbon-like metric to biodiversity will undermine the very ecosystems that are needed for long-term carbon sequestration and may cause negative impacts on local communities and economies. This is already being seen in carbon markets that prioritize maximizing carbon and ignore biodiversity, such as planting non-native trees in native grasslands or incentivizing fast-growing tree monocultures over multi-species forests.

Finally, the carbon market has been criticized for failing to verify whether credits are truly additional (whether they would have happened without the incentive provided by the sale of carbon offsets). This issue will certainly be present in the biodiversity credit market, and it’s important that the market be transparent so that there is an opportunity to assess the environmental and social integrity of transactions.

In short, the nascent biodiversity market has great potential to drive action on climate and biodiversity targets and deliver on the Paris Agreement. But if it is to succeed, companies must take the lead and act now to identify where biodiversity-based solutions can fit with their current strategy, develop new partnerships and build the expertise needed to drive this innovative approach forward.

In doing so, they can distinguish themselves in the nascent carbon market as early adopters and leaders, build institutional knowledge, solidify their reputation for leadership and build crucial relationships. They can also help shape this critical instrument for improving nature outcomes and create an opportunity to raise ambition for their sectors as a whole. To get started, companies can review their current climate-related goals and targets, consider how to incorporate biodiversity into their carbon strategies and begin discussions with credit suppliers.