This article is written by Mikkel Larsen, Executive Director of the CIX Board.
What role do Nature-based Solutions (NbS) Carbon Credits and Biodiversity Credits play in nature- related disclosures and target setting?
Specifically, how do these credits fit within frameworks such as the Science-Based Targets Network (SBTN) that help corporates set targets for nature, Taskforce on Nature-related Financial Disclosures (TNFD) and the Nature Positive Initiative (NPI)? These are three influential global initiatives that have the potential to shape the use of NbS credits.
I have gone looking for clues and guidance for this article. But my search has been inconclusive. While there are indications that NbS credits have a role to play, explicit guidance remains insufficient. This uncertainty risks stifling investment into projects high on biodiversity but outside the value chain of corporates. Clarity – regardless of direction – would be good for the NbS credit market.
I am continuing to search for more and clearer guidance, and would welcome any insights or opinions.
Executive Summary
- The SBTN, TNFD and NPI are all potential significant drivers of demand for NbS credits. However, none of them seem to have issued explicit guidance on the role of NbS credits, which is ultimately unhelpful as it stifles decision-making for projects that generate these credits.
- TNFD and SBTN can both reasonably be read to support some role of NbS credits in terms of acting on biodiversity impact (TNFD) and meeting the related targets (SBTN), but the guidance is far from clear both in terms of whether they can be included and the role they can play. Officially, TNFD has no stated position on the use of NbS credits, and NPI has provided no guidance on the topic.
- Encouragingly, strong public endorsements for biodiversity credits from the EU and the Japanese government signal potential growth.
- Under the EU’s new sustainable finance taxonomy—another driver of potential demand for NbS credits—investment in forestry projects (regardless of whether they generate carbon credits) would qualify. However, investments in the carbon credits generated from the same projects may not qualify, which is perplexing as the two are closely related. Without investors and off-takers for these credits, no projects would be developed. On a positive note, the EU seem to have gone a different direction with biodiversity credits by allowing these to be included in its sustainable finance taxonomy.
- Reporting under TNFD and target-setting are still nascent, so current reports offer limited insight. Some corporates do already disclose their investments in projects that generate NbS credits.
- To generate demand for NbS credits, both SBTN and NPI should allow credits to play a meaningful role in helping companies meet science-based targets for nature and becoming “Nature Positive” as a company and at a transactional level.
- Safeguards must be in place to avoid misuse of credits. For biodiversity credits, the role “offsets” is problematic and seems broadly rejected by standards developers.
- The SBTN already promotes a hierarchy (Avoid, Reduce, Restore and Regenerate) that is sensible. What is interesting about the order is that it favours avoiding deforestation (and biodiversity loss) over trying to restore it. This recommendation is based on science that shows how very difficult it is to restore a species or ecosystem once depleted. What is sad is that in the carbon markets, we have not seem to grasp this same realisation, continuing to favour Afforestation and Reforestation (ARR) over Avoided Deforestation. This is manifested in both carbon credit pricing and the guidance from the Science Based Targets initiative (SBTi).
- From my conversations with global corporations and financial institutions, mitigating biodiversity loss is often seen as even more challenging than reducing greenhouse gas emissions. Smaller companies, in particular, face greater challenges, lacking the expertise or resources to analyse and counter their impacts.
- My hope is that SBTN, TNFD and NPI will take a pragmatic approach and allow all credible solutions—including high-quality NbS credits—to give corporations and financial institutions the best possible chance to help solve the biodiversity challenges so evidentially upon us.
Indications of the role of NbS credits
Whilst there are several indications that NbS credits have a role in disclosures and meeting targets, the SBTN, TNFD and NPI all seem to have refrained from making explicit statements on the role. Opinions have been more forthcoming from market participants, some of which naturally have a vested interest. Below are key insights gathered:
- SBTN offers some guidance in its FAQs that suggest NbS credits have a role in the “Act” step of its framework. It states, “When designed correctly, NbS have the potential to deliver key benefits for both people and nature. They are key strategies for companies to consider delivering on their nature and climate goals in unison, and hence they can be part of a suite of potential response options that companies can take to achieve their SBTs for nature (in Act: Step 4 of SBTN’s 5-step framework). As NBS address multiple issues at once, they can help deliver progress on multiple targets (i.e., land, water, biodiversity, etc.) at the same time”. This guidance, whilst directly helpful, is ambiguous on whether credits can be used only for direct work within a corporate’s value chain (“insetting”) or also outside the value chain (voluntary carbon and biodiversity markets).
- TNFD has on its website a dashboard developed by the National University of Singapore (NUS) that can estimate how much carbon a given area can sequester and what return on investment that will provide. The website includes a heading that reads: “How this new mapping tool can support the search for high-quality nature-based carbon credits”. This would give a reasonable indication that NbS credits have a role under TNFD, but again it is far from conclusive. Notably though, Ed Pragnell of CreditNature mentioned in a May 2024 interview that “he has had no luck connecting with members of the [TNFD] team to discuss where the TNFD approach can align with CreditNature’s system, and the organisation also declined to be interviewed for this article—though it does recommend that companies disclose the “value of total biodiversity offsets purchased and sold” after applying the mitigation hierarchy.” Officially though, I understand TNFD has no stated position on the use of NbS credits.
- NBI seems to have avoided given any guidance on whether NbS credits can be used to become Nature Positive at the corporate or transactional level.
Several market participants have provided perspectives on the role of NbS credits:
- World Economic Forum (WEF) when specifically speaking about TNFD, advocates that “Although not the complete solution to financing nature, biodiversity credits are a crucial tool that can enable financial decision makers to put nature-positive actions which benefit people and planet on their balance sheets, while providing the stewards of biodiversity access to much-needed finance”.
- The Biodiversity Council (BC) suggests some role for biodiversity credits in four situations, two of which are relevant in this context. First, as a contribution to “nature-positive” initiatives, though this term is not directly linked to NPI. Second, in “addressing potential, but hard-to-specify impacts”. BC is careful not to term the latter “offsetting”, stating that “biodiversity credits can be used where the credits are supporting conservation of the same types of biodiversity that a company is having a negative impact on”.
- Claire Smith, environment and planning partner at Clayton Utz, in an interview advocates that “the launch [of TNFD} was a “significant step” towards the development of a nature credit market in Australia” and that “The disclosure and risk management data it enables will be a vital foundation upon which a high-integrity nature credit market can grow in Australia, and a critical tool for companies to reduce their nature risk”
- SouthPole when asked also stated that: “Clear recognition of [NbS] credits within such frameworks is vital for mobilising private sector action, enabling businesses to achieve nature-focused targets, and for fostering long-term ecological and economic resilience globally. This recognition will not only incentivise investment in innovative biodiversity projects, but also maximise its positive impact, helping to deliver broad-scale environmental benefits and sustainable solutions that extend well beyond corporate value chains.”
Governmental Support
Given the lacklustre guidance from TNFD, SBTN and NPI, it is encouraging to see support from the EU, where the president of the European Commission Ursula von der Leyen said, “We can create a market for restoring our planet. It almost sounds too good to be true. But we know that, with the right standards, it can work, because we did it before. Here in Europe, we already have an incredibly effective market for carbon…..The same should apply to nature credits. We need to channel vital revenues towards all those who are providing ecosystem services”.
In Japan, the Ministry of Environment launched a system in 2023 to certify areas where biodiversity conservation is being promoted through private initiatives as “nature symbiosis sites”. The certificates won’t be tradeable but will be designed in a manner that companies can include them in reporting under TNFD and other standards.
EU Sustainable Finance Taxonomy
Tangential to the discussion above, the EU’s new sustainable finance taxonomy (as well as similar taxonomies around the world) could also be a potential demand driver for NbS credits. The taxonomy classifies economic activities along a set of six green objectives, with the principle that they should make a “substantial contribution” to at least one and harms none of them. Investments that wish to classify as “green” must be 85% aligned with the EU’s green taxonomy as a minimum.
It is my understanding that investment in forestry projects (regardless of whether they generate carbon credits) would qualify. However, investments in the carbon credits generated from the same projects may not qualify, which is perplexing as the two are closely related. Without investors and off-takers for these credits, no projects would be developed. The EU seems to have gone a different direction with biodiversity credits by allowing these to be included in its sustainable finance taxonomy (link and link).
Disclosure and Target Setting Practice to Date
Reporting under TNFD and target-setting are still nascent, so current reports offer limited insight. What is clear is that some corporates do disclose their investment in projects that generate NbS credits. One such example is Tokio Marine that discloses its investment in a Forestry Fund. Since no quantitative disclosures are made on biodiversity, it cannot be determined if and how the company would include the impact of this investment. Rio Tinto is another example of a corporate that seems to expect to use NbS credits to address both its emissions and impact on nature.
Why we need clarity and why we may not have it
In the same way that Task Force on Climate-related Financial Disclosures (TCFD) and Science-Based Target Initiative (SBTi) both have significantly impacted the demand for carbon (credits) markets, the SBTN, TNFD and NPI all have that same potential for biodiversity markets.
To halt loss of biodiversity and deforestation that happens at an extreme pace, we need to create reasons for the private sector to invest in and use NbS credits. That is needed now not in 3- or 5-years’ time.
From my conversations with global corporations and financial institutions, mitigating biodiversity loss is often seen as even more challenging than reducing greenhouse gas emissions. Smaller companies, in particular, face greater challenges, lacking the expertise or resources to analyse and counter their impacts. To give a sense for just how challenging this is, a study found that even if the University of Oxford eliminated all its biodiversity impacts which were not mission-critical (e.g. flights and meat consumption), the organisation would still need to acquire offsets equivalent to 32% of the University’s biodiversity footprint to achieve a net positive impact on biodiversity.
It may be an exercise in futility to speculate why guidance has not been forthcoming. I can’t help to think that at least two factors could be at play. Firstly, the standards and requirements for biodiversity credits are still being developed and hotly debated. That seems to be a enough reason to be cautious about endorsing biodiversity credits but not NbS credits. The second factor may be the current debacle around whether carbon credits could have a role in addressing scope 3 emissions SBTi. Whilst understandable, I would hope that any of the three frameworks (SBTN, TNFD and NPI) would take a proactive approach to the topic.
What Role would NbS credits Play?
The role of NBS credits at an aggregated level is perhaps obvious: minimise the negative and increase the positive impact on biodiversity. At a more granular level, the role could be different.
Below I have tried to set out my thoughts.
| Role | Carbon Market Equivalent | |
| SBTN | Allow a meaningful role in meeting set targets (in Act: Step 4 of SBTN’s 5-step framework). | VCMI proposal for use in scope 3 targets. |
| TNFD | Allow the purchase of NBS credits to be counted towards the “Prepare” phase of the LEAP framework (link) and count as a positive mitigant of biodiversity loss. | Report use of carbon credits as a mitigant /compensation under TCFD in sustainability reports etc. |
| KPI | Allow the use of NBS credits in an investment and at a corporate level to be considered Nature Positive (1). | NA |
- Note that KPI operates first at a transactional level to determine whether an action or investment can be seen to be “Nature Positive” . However, corporates may also look to become Nature Positive on a corporate level.
Safeguards around use of NbS
A blanket endorsement of NbS credits of all kinds and in all situations by the three frameworks could not be expected nor may it be wise.
The SBTN already promotes a hierarchy (Avoid, Reduce, Restore and Regenerate) that is sensible. What is interesting about the order is that it favours avoiding deforestation (and biodiversity loss) over trying to restore it. This recommendation is based on science that shows how very difficult it is to restore a species or ecosystem once depleted. What is sad is that in the carbon markets, we have not seemed to grasp this same realisation, continuing to favour Afforestation and Reforestation (ARR) over Avoided Deforestation. This is manifested in both carbon credit pricing and SBTi guidance.
In terms of the quality of NbS credits, I would refer to the current arguments being made for the current strengthening of the methodologies for Avoided Deforestation, the role of the Integrity Council for the Voluntary Carbon Market (ICVCM), and the role of Voluntary Carbon Markets Integrity Initiative (VCMI). For Biodiversity Credits, appropriate methodologies are still being developed.
Final thoughts
My hope is that SBTN, TNFD and NPI will take a pragmatic approach and allow all credible solutions—including high-quality NbS credits—to give corporations and financial institutions the best possible chance to help solve the biodiversity challenges so evidentially upon us.
