What are biodiversity credits and how do they work?

In this article, we explore what biodiversity credits are, how they work, and why they are emerging as a relevant mechanism to channel capital toward nature.

1. Introduction

Why are biodiversity credits emerging?

Biodiversity credits are emerging in response to an increasingly evident reality: biodiversity loss is advancing at an accelerated pace, while the financial resources needed are still not being mobilized at the scale and urgency required to reverse this trend.

Against this backdrop, biodiversity credits are positioning themselves as an innovative tool to mobilize finance by linking investment to verified conservation and nature restoration outcomes.

Global context: biodiversity crisis and the need for financing

The Global Assessment Report on Biodiversity and Ecosystem Services by IPBES (2019) warns that nearly one million species are at risk of extinction, many of them within the coming decades. It also notes that around 75% of terrestrial ecosystems and 66% of marine ecosystems have been significantly altered by human activity, highlighting the scale and speed of change in natural systems.

This diagnosis reflects not only an ecological crisis, but also a profound transformation of the systems that sustain life, human well-being, and the economy.

According to the report 'Financing Nature: Closing the Global Biodiversity Financing Gap' (Deutz et al., 2020) —whose figures were officially endorsed by the Convention on Biological Diversity (CBD) in the Kunming-Montreal Global Biodiversity Framework—the global financing gap to protect nature is estimated at USD 711 billion per year. This figure represents the gap between current conservation spending and the investment needed to reverse biodiversity loss by 2030, in line with the Framework’s targets and its vision of achieving a world living in harmony with nature by 2050.

2. Basic concepts

What are biodiversity credits?

According to the Biodiversity Credit Alliance, biodiversity credits are defined as:“Verifiable units representing measurable positive outcomes for biodiversity, generated through actions such as conservation, restoration, or the sustainable management of ecosystems.”

Another way to understand them is:

“A biodiversity credit is a certificate representing one unit of positive biodiversity outcome, measured and evidence-based, durable over time, and additional to what would have happened anyway.”

Both definitions are complementary: one focuses on the actions that generate impact, while the other highlights the conditions that ensure integrity—measurement, evidence, additionality, and permanence.

In essence, each credit is linked to a concrete outcome on the ground, monitored over time through ecological indicators (such as ecosystem condition, species richness, landscape connectivity, among others).

Their primary objective is to channel financing toward projects that generate positive outcomes for nature.

How do the differ from carbon credits?

The carbon market set an important precedent: it demonstrated that large volumes of capital can be mobilized toward environmental goals through market-based mechanisms.

However, biodiversity introduces a different level of complexity, reflected in several key differences:

• Metrics: Carbon is measured in a standardized unit (tCO₂e), allowing global comparability. Biodiversity, by contrast, is inherently multidimensional and requires multiple indicators (species, habitat, connectivity, among others), making it difficult to simplify into a single metric.

  
  

• Primary use: Carbon credits are mainly used to offset emissions. Biodiversity credits, by contrast, are evolving as contribution mechanisms aimed at financing positive outcomes for nature rather than neutralizing impacts (although this debate is still ongoing).

  
  

• Fungibility: While carbon credits are generally fungible, biodiversity credits are not. Today, one tonne of CO₂ is equivalent whether in Tokyo or the Amazon: it is a global and fungible commodity. Biodiversity, however, is deeply local, specific, and irreplaceable: a Jaguar in Misiones cannot be equated with a Giant Panda in China. Not all impacts are equivalent or interchangeable, reinforcing the need for more place-based and context-specific approaches.

  
  

How are biodiversity gains quantified?

Quantifying biodiversity is one of the main challenges in developing this market, primarily due to its multidimensional nature and its strong dependence on ecological context.

In general terms, existing methodologies combine several key elements:

• Baseline: Defines the initial state of the ecosystem from which changes generated by the project are measured.

• Indicators: These may include metrics such as species diversity, richness and abundance; the condition and structure of habitats and ecosystems; landscape connectivity; ecosystem functions; among others.

• MRV (Measurement, Reporting and Verification): Systems designed to monitor outcomes over time and ensure traceability and credibility.

• Additionality: It must be demonstrated that positive biodiversity outcomes would not have occurred in the absence of the project.

• Durability or permanence: Impacts must be sustained over time in order to be considered valid.

  
  

Likewise, one of the most critical—and often underestimated—aspects is the social component. Lessons from the carbon market have made it clear that the integrity of these mechanisms depends not only on strong metrics, but also on how Indigenous Peoples and Local Communities (IPLC) are engaged, and how benefits are shared fairly.

The Convention on Biological Diversity, through the Kunming-Montreal Global Biodiversity Framework, explicitly emphasizes the central role of Indigenous Peoples and local communities in conservation, stating that: “Effective implementation of the framework requires recognition and respect for the rights, knowledge and contributions of Indigenous Peoples and local communities.” (CBD, 2022).

Along the same lines, multiple international standards highlight that sustainable positive biodiversity outcomes cannot be achieved without the active involvement of communities in the design, implementation, and monitoring of projects. Their participation not only strengthens the legitimacy and effectiveness of initiatives, but also helps ensure the permanence of outcomes over time while reducing long-term social, operational, and reputational risks.

3. Uses and Demand

What are biodiversity credits used for?

Biodiversity credits can be used to finance a wide range of actions aimed at:

• Ecosystem conservation projects

• Ecological restoration initiatives

• Sustainable land management

• Protection of critical species and habitats, particularly those classified as threatened or endangered on the IUCN Red List

  
  

They function as a mechanism that connects those generating positive outcomes for nature (project developers) with actors willing to finance them, while ensuring that these outcomes are measurable and verifiable.

Who buys these credits?

According to the Biodiversity Credit Alliance, a wide range of stakeholders may be interested in purchasing biodiversity credits, although for different reasons.

These include:

• Private sector companies

• Governments and development banks

• Investors and individuals

• Third sector organizations (foundations and NGOs)

• Donors / philanthropy

According to Pollination, an international firm specialized in advisory and investment solutions related to climate and nature, demand from the private sector is growing not only for reputational reasons, but also for risk management and the pursuit of positive impacts beyond traditional offsetting schemes.

What role do companies play?

An increasing number of companies recognize that their operations depend directly on the health of ecosystems and the ecosystem services they provide. Water, fertile soils, climate regulation, and pollination are all essential services that are currently under pressure.

In fact, according to the Nature Risk Rising by the World Economic Forum, developed in collaboration with PwC in 2020, more than half of global GDP—equivalent to USD 44 trillion in economic value generation—is moderately or highly dependent on nature and its services.

In this context, biodiversity credits are beginning to emerge as a tool to:

• Manage risks

• Strengthen supply chain resilience

• Advance more comprehensive sustainability / ESG strategies

  
  

Frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) and the Science Based Targets Network (SBTN) are changing the rules of the game. Companies are no longer only expected to measure their footprint, but also to understand their dependencies and impacts on nature—and act accordingly. This is creating growing demand for practical solutions that can channel resources toward biodiversity.

This trend is reinforced by an increasingly demanding regulatory environment. In the European Union, the Corporate Sustainability Due Diligence Directive (CSDDD) entered into force on July 25, 2024, with phased implementation over the coming years. It requires large companies to identify, prevent, and mitigate environmental and human rights impacts across global value chains. This aligns with the commitments of the Kunming-Montreal Global Biodiversity Framework, particularly su Target 15, , which encourages companies to monitor, disclose, and reduce their biodiversity-related risks, dependencies, and impacts.

Where is the market heading?

The biodiversity credit market is still at an early stage, characterized by the coexistence of multiple standards, methodologies under development, and pilot initiatives across different regions. This diversity reflects an ecosystem in rapid evolution, but also highlights its current lack of maturity.

Looking ahead, the market is clearly moving toward higher integrity standards. High integrity will cease to be a differentiating factor and become a basic requirement. However, there is still no consensus on several key issues that are fundamental to market development.

For example, important differences remain regarding what should be measured: while some approaches prioritize compositional metrics (such as species richness, abundance, or diversity), others focus on ecosystem condition and functionality, landscape connectivity, and related indicators. Pricing also varies considerably, with recent analyses showing units ranging from approximately USD 7 to more than USD 41,000, depending on the methodology, ecological context, project duration, and other factors (Carbon Pulse). 

In this context, successful pilot cases will be essential. Concrete projects that demonstrate measurable outcomes, genuine additionality, and shared benefits with local communities will be critical to building the validation and trust the market needs in order to mature and scale sustainably.