InTent: What are biodiversity credit markets?
Simon Zadek: Biodiversity credit markets function in a similar way to carbon markets but they trade aspects of nature more broadly. For example, one could talk about water credits between users that perhaps are using too much and want to trade off against too few. Sometimes biodiversity credit markets are more philanthropic: corporations wanting to finance initiatives and getting credits in return. Sometimes they have to do with investing in value supply chain. For example, a food multinational invests in their farmer partners to enhance the quality of nature, which improves the productivity of production that they both perfect.
InTent: Why are these markets gaining traction?
Simon Zadek: There are more and more regulations such as the EU's zero deforestation due diligence requirement, which increase the value of nature to businesses and forces them to use less to trade more. And of course there is more broadly reputational pressure on them, which also encourages businesses, as with carbon, to demonstrate that they are net nature positive. On the public interest side, there is a need to accelerate an increased monetary value of nature. As businesses have to pay more for nature services they will have to buy credits in order to pay for those services.
InTent: What risks do you foresee as these markets grow and accelerate?
Simon Zadek: The risks of biodiversity credit markets is that by financialising nature, our existing economy intrudes further and extracts more from nature without protecting it or investing in it. For example, we see with carbon markets that much of carbon is linked to nature based-assets (editor’s note: think of trees) having the ability to sequester or store carbon. But that doesn't necessarily lead to sufficient investment in nature as it is only buying the carbon part of it, allowing all of the related aspects of biodiversity to deteriorate (editor’s note: think of tree plantation versus native forests).
Furthermore, when we think about nature, equity - social equity and economic equity - is crucial. Think for example, if there are biodiversity credit markets linked to a piece of land. That may lead to people who've been on that land for generations being thrown off the land because it has become more profitable for the owner to sell so-called credits. So figuring out the equity side of these credit markets will be critical.
InTent: You see governance as an enabling framework more than a restrictive framework. Can you tell us why?
Simon Zadek: The right governance of these markets could enable greater transparency not only about the product of the credit, but also about the trader. So, who is buying my credit? Are you a good organisation or a bad organisation? If I'm an indigenous community, do I really want to sell you that credit? And who are you going to sell it to? And actually, the use of blockchain and tokenization as a governance mechanism could ensure that we know who you are and that we govern who you can trade with what we've sold.
So, why is governance an enabler? Because it could lead to more equitable outcomes. It could lead to nature stewards not being dispossessed because nature becomes more valuable and tradable. It could lead to stronger cultural identity of nature stewards.
Davos, January 2023
