The biodiversity credit space in Africa could evolve from a small-scale market to a “nature economy superpower” if clear regulations and fair prices are implemented, as progress in monitoring and transparency prove the continent’s potential, a Switzerland-based non-profit organization said. .

In a report published on Thursday, NatureFinance analyzed around 30 biodiversity credit projects and pilots across Africa carried out by different developers, outlining key findings on the state of affairs, future scenarios and recommendations.

The projects reviewed, located primarily in southern and eastern Africa, include initiatives from the AMES Foundation, Wildlife Conservation Society, Value Nature, African Parks and US-based Savimbo.

According to the non-profit organization, the biodiversity credit market on the continent shows signs of improvement in monitoring, verification and reporting approaches, as well as progress in the ability to track impact and credit integrity over time in a transparent manner.

However, the market is still in its early stages, the report says, as there is still little evidence of committed buyers.

“This is likely because most projects are at pilot levels and require a lot of initial capital (and therefore hybrid financing models, with a heavy reliance on grants) as well as a number of years to demonstrate the impact of their approach,” the report explains. the report said.

“Similarly, at a governance level, there are currently few policy incentives that drive buyers to purchase these products (e.g., a requirement for no net loss/net gain, compliance or compensation). »

In a bid to boost investment, the BIRA coalition announced last week that it was forming a buyers’ club that aims to raise millions of dollars from nature credits generated by large-scale projects in African countries. sub-Saharan.

Source: NatureCredits, “Investing in Africa, investing in nature”

SCENARIOS

As the report notes, there are currently no regulations or legislation specifically covering biodiversity credits at the national or regional level in Africa.

In light of this, NatureFinance has identified three possible scenarios and associated risks for how biodiversity markets are likely to develop in Africa. These include:

• A localized, community-led market development scenario
• A globalized and market-based scenario
• An orchestrated, policy-based scenario

The former, led by local businesses, is associated with the risk of achieving limited scale and poor financial flows, while the globalized scenario carries the risk of predatory trade and harm to local communities.

At the same time, a regulated market is seen as the ideal scenario, as it would enable the continent to become a “nature economy superpower”.

“These policies and regulations, such as no-net-loss and no-net-gain policies, accelerate the development of biodiversity credit markets and other projects that demonstrate biodiversity outcomes,” the report says.

The outlook came after NatureFinance published a separate set of recommendations in May aimed at strengthening biodiversity credit markets in Africa.

Notably, while in May NatureFinance warned against using biodiversity credits for offsetting purposes, this week’s report appears to be more open to compliance mechanisms such as mandatory offsetting, as they are seen as the main driver of business demand.

“While (offsetting) remains an understandably controversial issue, many stakeholders have recognized that in this emerging period we will need both compliance and voluntary approaches and that offsetting remains the dominant market mechanism compliance, as can be seen in the local contexts and international policy examples provided above.

Similar studies into the future of the market have been carried out over the past 12 months, including the framework soon to be presented by the influential International Advisory Group on Biodiversity Credits (IAPB).

NEW RECOMMENDATIONS

NatureFinance also made six recommendations to build market confidence, promote equitable development and ensure what the report calls “fair compensation” in biodiversity credit markets in Africa:

• Ensure the quality of biodiversity credits by improving social benefits and creating an independent monitoring body
• Establish market incentives and disincentives, including no-net-loss or no-net-gain frameworks
• Ensuring fair market access for small start-up biodiversity credit developers
• Ensuring fair prices for both nature-rich countries and nature stewards, local communities and developers, while implementing benefit-sharing strategies.
• Establish regulations for transparency and efficiency of biodiversity-related credit trading
• Include all stakeholders in primary market design

Regarding pricing, NatureFinance highlighted that setting a minimum price floor for biodiversity credits is essential to prevent the undervaluation of biodiversity contributions and ensure financially viable conservation efforts.

“Following Terrasos’ standardized cost-based pricing model requires consideration of conservation costs, opportunity costs and fair compensation for local communities,” the report states.

“A transparent and consistent pricing framework helps establish a minimum level of remuneration for nature guardians. »

As several experts have noted, African biodiversity credit markets have so far suffered from weak demand from the Global North, with European and North American companies appearing more inclined to invest more at the level. local.

However, biodiversity credits are increasingly seen as an opportunity to increase investment in the region.

Jessica Smith, head of nature at the United Nations Environment Program Finance Initiative (UNEP FI), told Carbon Pulse earlier this month that an international voluntary market could help create the Northern transfers. -South necessary for the protection of global biodiversity.

To facilitate market adoption, the African Natural Capital Alliance said it is working to create a comprehensive nature data platform for the continent.

By Giada Ferraglioni – [email protected]

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