The growing market for biodiversity

Biodiversity offsetting is an approach used to mitigate the environmental impacts of a development project. The developer—who may be a private or public stakeholder—compensates for the loss of biodiversity caused by the project by increasing biodiversity elsewhere.

Biodiversity offsetting emerged in the 1980s in the United States, intending to use the free market to complement environmental laws and policies.

The size of the offsetting market

Biodiversity offsetting policies are used in over 33 countries and have contributed to restoring and protecting approximately 8.3 million hectares of ecosystems Bennett et al., 2017.

Based on 2017-2019 OECD data, the global biodiversity budget, including governments and the private sector, is between USD 78 and 90 billion per year.

How does it work?

It is important to mention that biodiversity offsetting must be seen as a last resort that should only be used when the developer makes every effort to avoid and reduce the environmental impact.

When these two measures are not enough, the developer can turn to offsetting to erase the biodiversity loss with an equivalent gain generated at another site. Biodiversity credits are generated on these offset sites by protecting existing environments, restoring degraded ecosystems and creating new ones.

For example, the development and protection model set up by Viridis Terra, through the TreesOfLives Impact Fund, helps to improve the biodiversity of the intervention territory. This improvement results in an increase in the Quality (Q) of the ecosystems. Quality is calculated by comparing the characteristics of the ecosystems evaluated with those of a natural forest.

Natural capital

Natural capital represents the stock of ecosystems present in a given territory. Like finance capital, it generates interest. The interest generated by natural capital is called ecological services; that is, the benefits generated by restored ecosystems and natural forests. Ecological services are numerous and include tangible benefits such as wood, food and medicinal extracts.

Other ecological services are less visible, such as reduced greenhouse gases, water purification, flood reduction, landscape aesthetics, etc. You can calculate the monetary value of natural capital by adding up the value of all the ecological services provided by an ecosystem. By managing productive ecosystems and protecting natural forests, Viridis Terra's projects increase ecosystems' natural capital value.

Benefits of increased biodiversity

This increase in biodiversity goes hand in hand with greater resilience, making developed sites resistant to hazards such as extreme weather events due to climate change. Apart from benefiting local populations, potential investors will also appreciate this resilience by reducing their risks.

Case Study: Sinchi Roca project, Peru

The Sinchi Roca project in the Peruvian Amazon covers 5100 hectares, divided into five types of intervention:

  • Agroforestry systems (AFS)
  • Silvopastoral systems (SPS)
  • Forest plantations (FP)
  • Assisted regeneration (ANR)
  • Forest protection

The first four types of management estimate that the Viridis Terra project will generate a Quality gain of 10% to 20% over 30 years. Each type of intervention is broken down in Table 1.

Table 1: An estimated increase in ecosystem Quality for each type of intervention over 30 years

Type of intervention Quality Gain
AFS 20%
SPS 20%
FP 20%
ANR 10%
Protection 0%

Table 2 presents estimates of the increase in natural capital value for the different types of intervention. For each hectare managed, Viridis Terra commits to protecting one hectare of natural forest. No Quality gain is expected in these protected forests. However, there would be a gradual degradation without this protection, given that the Amazon forest is disappearing at a sustained rate. For this reason, it is estimated that over 30 years, nearly half a hectare (0.44 ha) of the forest will be gained for each hectare protected. This is what is known as "avoided loss."

Table 2: An estimated increase in the value of natural capital for each type of intervention over 30 years (all values are in USD 2020/ha)

Type of intervention Pre-project value Estimated value at year 30 Natural capital gain
AFS 52,000 281,906 229,906
SPS 50,000 82,463 32,463
FP 52,000 109,305 57,305
ANR 130,000 140,010 10,010
Protection 200,000 200,000 0
Avoided loss 0 88,800 88,800

Biodiversity gains are calculated using the Quality Hectares or QH indicator, representing the number of hectares multiplied by the Quality. In Sinchi Roca, a gain of 1200 QH of Amazon forest is estimated over 30 years (Table 3). This includes the avoided loss of 746 QH. One of the Sinchi Roca project's expected results is the improvement of the habitat of the jaguar, a declining species, which would result in a gain of over 1000 QH.

These gains in Amazon forest and jaguar habitat could be sold to compensate for habitat loss caused by an industrial project in the Amazon, as required by Peruvian law and the Equator Principles. In fact, these environmental requirements stipulate that zero net loss of biodiversity be achieved. This means that the losses generated by such developments must be compensated by gains like those that Viridis Terra believes will be achieved in Sinchi Roca.

It is estimated that the natural capital gain over 30 years will amount to USD 444 million for the entire project. Table 3 presents the expected gains for each type of intervention in USD (2020). The greatest gains come from agroforestry developments and the avoided loss of natural forest.

Table 3: Estimates of 30-year gains in the tropical forest, jaguar habitat and natural capital in the Sinchi Roca project, Peru

Type of intervention Area (ha) Tropical forest gain (QH) Jaguar habitat gain (QH) Natural capital gain (millions USD)
AFS 840 167 100 193
SPS 630 103 41 20
FP 630 111 78 36
ANR 900 91 73 9
Protection 2100 0 0 0
Avoided loss - 746 746 186
Total 5100 1219 1039 444

At a societal level, this increase in natural capital means that the local population will enjoy greater security, better health, and richer social capital. People living along the Ucayali River will benefit from improved water quality and less flood risk.

Lastly, for the world's population, this means a reduction in climate change risks. Viridis Terra will have helped achieve the Sustainable Development Goals adopted by the United Nations: 17 Goals to Transform Our World.

This data comes from a technical report prepared by Benoit Limoges, international consultant in biodiversity and ecosystem services.