Pricing, funding and financial flows

So far Article 4 has offered an overview of the system to enable value transfer between nature and the digital world looking specifically at the principles, function and design of both the supply (4A and 4B) and demand (4C) sides. In this final section for Article 4 I explore the movement of money through the system, by looking into pricing, funding and financial flows.

Let’s follow the money!

Pricing

To consider pricing in biodiversity credit markets, it’s essential to first understand the state and structure of the current market as this offers important context for how prices are being determined.

The first component to consider is that biodiversity credits operate in a voluntary space. As a result, demand for credits is low and the market is currently small. In their recent review on the State of Voluntary Biodiversity Credit Markets Pollination identified the approximate total value of credits sold to date was in the range of US$325,000 to US$1,870,000, representing between approximately 26,000 and 125,000 hectares of positive biodiversity outcomes.

Given the nascency of the market, and questionable demand from the corporate sector, it is not surprising that most biodiversity credit schemes are commencing with **cost-based **pricing incorporating a small margin. Costs to be covered with this approach include on-the-ground conservation efforts, land management, monitoring, administrative expenses, and sometimes the opportunity costs of land use (e.g. forgone agricultural income). The idea is that by covering these costs, suppliers are financially compensated for the work they’ve done to preserve or enhance biodiversity.

Cost-based pricing stands in contrast to value-based pricing which considers the broader ecological, social and economic benefits of conservation efforts, rather than just covering project costs. Value-based pricing is a more desirable approach, offering an opportunity to command higher prices from buyers and representing an aspirational progression as markets mature. The benefit of higher prices and sustained demand is that it further stimulates the supply side of the market which then drives an expansion of the area under management and restoration. Despite being a predominantly cost-based market at present, Pollination found that most suppliers were trying to incorporate multiple factors into their pricing scheme, including more value-based pricing considerations based on the buyers’ willingness to pay.

The second component to consider is that biodiversity credits are emerging in the shadow of the well-established carbon credit market, which often sets an anchoring price point for nature-based credits. As a result, the carbon market may be setting a baseline for buyers, who often expect biodiversity credits to be priced similarly to carbon credits, despite their broader scope. In addition, price anchoring may be occurring because of biodiversity outcomes being stacked, stapled and bundled with carbon generating projects. A requirement to now unbundle the concept of biodiversity co-benefits from carbon offset projects into stand alone, and non-offsetting biodiversity credits further inhibits pricing clarity, potentially reducing the opportunity for effective pricing in the market.

All of this reflects in the vast price variation being achieved in the market, with Pollination identifying that the price being achieved for one-hectare standardised biodiversity credits ranges from between US$2 and US$60,000. Despite this range, most credits that have been sold were priced at US$25 per credit or less.

The Impact of Cost-Based Pricing

While cost-based pricing may seem logical, its impact on supply-side incentives can be complex, influencing the behaviour of market participants in both positive and negative ways.

Cost-based pricing ensures the sustainability of biodiversity conservation projects by guaranteeing that they can at least cover their expenses, making them financially viable in the long term. This assurance provides landowners and organisations engaged in these projects with a baseline incentive to continue or expand their conservation efforts.

Additionally, by directly linking the price of credits to the costs of producing them, this pricing model promotes transparency, allowing buyers to see that their investments are tied to specific conservation outcomes and reflect tangible efforts on the ground. Furthermore, cost-based pricing can encourage smaller or community-driven biodiversity projects by ensuring that their unique conservation efforts receive the necessary support, which can help diversify the supply side of the market and attract a broader range of participants.

One major issue with cost-based pricing, however, is its disconnection from market demand and the perceived value of biodiversity outcomes. In a voluntary market with low demand, pricing credits solely based on costs may lead to prices that exceed what buyers are willing to pay, limiting the uptake of credits and reducing financial incentives for project developers.

Additionally, if cost-based pricing fails to account for true opportunity costs or undervalues the risks and long-term efforts required to maintain biodiversity, it may lead to under-investment in projects (Figure 1). Those with high up-front costs, long timelines, or uncertain returns may struggle to secure adequate compensation, deterring participation and limiting the scale of biodiversity protection efforts. Suppliers are also more likely to select lower-cost projects with predictable outcomes to ensure they cover expenses, which can skew conservation efforts toward cheaper, short-term activities, ultimately limiting the market’s ecological impact. Furthermore, and not necessarily undesirable, cost-based pricing is likely to incentivise protection and stewardship projects over restoration projects that typically have higher cost requirements.

Further preferential selection of biodiversity credit projects is likely to be influenced by economies of scale, which tend to favour larger projects over smaller, community-driven initiatives. Larger projects can often achieve lower costs per unit of biodiversity outcome, making them more attractive under a cost-based pricing model. This could result in smaller projects, which may have valuable localised ecological or social benefits, being overlooked due to their higher per-unit costs.

Additionally, the availability of land plays a critical role in determining which projects go ahead, as land scarcity or competing land uses can restrict opportunities for biodiversity conservation, particularly in densely populated or agriculturally intensive areas. Other factors, such as the regulatory environment, accessibility to financing, and technical capacity for monitoring and verifying outcomes, can further influence which projects are pursued. Collectively these constraints may cause a bias toward projects in regions with favourable land conditions, larger financial backing, or established conservation infrastructure, potentially leaving high-need areas or innovative conservation methods underfunded.

Finally, cost-based pricing may inhibit innovation, as it provides little motivation for suppliers to explore more effective or impactful conservation methods. Without the incentive to innovate, the adoption of new technologies or more ambitious biodiversity projects that offer higher returns on ecological investment could be significantly slowed.

Implementing a hybrid approach for pricing

Given that value-based pricing is a more desirable approach, a preferred strategy would be to incorporate it into the biodiversity credit system through a hybrid model that blends cost recovery with market-driven factors. This model would ensure that conservation projects can recover their costs while also reflecting the broader ecological, social, and economic value that biodiversity outcomes provide. By incorporating both the actual costs of conservation and buyers’ willingness to pay, this hybrid approach would bridge the gap between financial sustainability for project developers and the market demand for biodiversity credits. Such a system would also incentivise investment in high-impact, long-term conservation efforts while ensuring that credits are priced in a way that aligns with the market’s perceived value of biodiversity, making the market more robust and attractive to both suppliers and buyers.

In Article 4A I identified that two stages of finance are required to get the biodiversity credit market up and running on the supply; an ex-ante implementation payment (covering stakeholder engagement, planning and design, baseline measurement and on ground management activities), and an ex-post credit purchase (which incorporates the expense for monitoring, verification, governance and reporting). In addition to this in Article 4C I identified that the demand side offers an opportunity to engage with consumers through the process of tokenisation, fractionalisation and a nature-backed rewards scheme. Structurally I believe that this segmentation offers an opportunity to implement both cost-based and value-based approaches for pricing, and subsequent funding, in the system.

Regenesis Fund

Commencing on the supply side of the system there is a requirement to establish an initiation fund that provides up front capital to community groups seeking to protect and restore biodiversity. Within the system I term this fund the Regenesis Fund.

The purpose of the Regenesis Fund is to enable the ex-ante implementation payment to allow community groups to commence with project planning and management and facilitate the initial implementation of on ground management activities that will ultimately result in a measurable improvement in biodiversity over time. Rather than being an investment fund, the Regenesis Fund is structured to provide capital without expectation of financial return or claim on any future biodiversity credits created. This structure is preferred as it allows the manager of the Regenesis Fund (typically an organisation with conservation objectives) to prioritise maximising ecological and social outcomes without being constrained by financial returns or cost minimisation pressures. It also avoids preferential selection of short-term, lower-cost projects that may not have the same long-term ecological impact as more ambitious, higher-cost initiatives.

Investments seeking financial returns are also more likely to exacerbate eco-colonialism structures by reinforcing imbalanced power dynamics, particularly in regions rich in biodiversity but vulnerable to exploitation. By financing conservation projects with an expectation of future returns, investment funds are more likely to prioritise the interests of investors — often from wealthier nations or regions — over the needs and rights of local communities who depend on the land and ecosystems for their livelihoods. Although certifications and standards attached to crediting projects can help avoid these outcomes, the presence of an underlying financial driver brings influence over decision-making processes and introduces an underlying tension to how biodiversity is managed.

Moreover, the focus on financial returns can pressure conservation efforts to align with profit-driven goals, which might prioritise marketable biodiversity credits over meaningful, context-specific conservation practices that benefit local ecosystems and communities. This approach risks commodifying nature in a way that overlooks the cultural, social, and ecological significance of biodiversity for indigenous and local peoples, deepening historical patterns of exploitation and control.

To establish and perpetuate sustainable funding (i.e. non-government and non-philanthropic) of the Regenesis Fund there is an opportunity to leverage impact-driven business models, which are reflective of a class of enterprise that combine commercial outcomes with a built-in mechanism for social good. Well know examples of this type of business include TOMS, Warby Parker and thankyou. However, rather than focusing on producing material goods a more fitting solution for a digitally native infrastructure built for biodiversity markets is to focus on building an impact-driven business for digital assets and media and entertainment IP. The benefit of this approach is that the assets can be created with minimal physical footprint on nature and are highly scalable — once created, they can be distributed globally to vast audiences with minimal additional cost or environmental impact. The vehicle I have created to enable this is NovelEco.

Growth Fund

Once measured and certified improvements in biodiversity have been achieved and converted into a credit, a second fund, the Growth Fund, will be established to purchase these from the community. Initial funding for the Growth Fund will be facilitated through NovelEco with the proceeds being preferentially distributed to the Regenesis Fund to commence on-ground actions, and in consideration of the time available before credits are ready for purchase. The purchase price for credits through the Growth Fund will be cost-based, with the resultant funds being circulated back into group operations to assist with continuing biodiversity management activities that will ultimately create future credits — see Figure 2 and further information below.

All credits purchased through the Growth Fund are converted into Eco+ tokens (i.e. registered on the blockchain) and held in a pool which continues to grow over time. Given that credits will be purchased across a range of prices (reflective of the cost-base for various conservation, protection and stewardship projects across a range of ecosystems with a range of threatening processes) there is an opportunity to target cost averaging within the larger pool. This approach spreads the financial risk by balancing high-cost credits with lower-cost ones, ensuring that the overall cost of the credits is smoothed out over time. It also enables higher-cost conservation projects to be pursued by distributing the financial impact across the entire pool. Ultimately this approach will encourage a more diverse range of conservation activities to be pursued, supporting broader and more significant ecological outcomes.

The conversion of the credits into digital rewards offers an opportunity to introduce value-based pricing into the system, with the pricing of the reward reflecting both the origin of the credit and the utility of the reward point in the reward scheme. Access to the Eco+ token pool is enabled through a smart contract (the Ecobit contract) which allows partnering Digital Asset Creators (Creators) to set a ‘burn rate’ (i.e. the number of Eco+ tokens taken from the pool) on digital asset purchases (also known as ‘minting’) or secondary sales. Each mint or secondary sale triggers Eco+ tokens to be pulled from the pool and then fractionalised into Ecobits (cost averaging of the tokens would be automated). The rate at which Eco+ tokens are fractionalised into Ecobits is calculated per token and based on the cost to area ratio of the underlying credit. The fractionalised Ecobits are transferred to the Consumer, an equivalent number of Status points are created and transferred to the Creators, and the parent Eco+ token is retired.

The processes triggered via the Ecobits contract result in money being returned to the Growth Fund, most typically at the scale of a micro-payment, in exchange for releasing and retiring the Eco+ tokens. This money originates from a proportion of the revenue received from mint and secondary sales as set by the Creator via the ‘burn rate’ in the Ecobits contract.

The Consumer can redeem the Ecobits for goods, services, discounts and experiences offered by the partner network. Redeeming Ecobits involves retiring them in a process that returns Status points to the Consumer, which when accumulated offer the Consumer access to exclusive terms within the network. Importantly, all Ecobits and Status points maintain referential integrity with the parent Eco+ token location and biodiversity data so both the Consumer and the Creator can see what biodiversity improvement projects they have contributed to.

An overview of the system is given in Figure 2 below.

Further financial flows and investment opportunities

Given that the Growth Fund is achieving a premium on the cost basis of the credits by converting them into a reward there is an opportunity to bake in a return for investors supporting the fund. This could be achieved by capturing the rate of return in the margin between the credit cost and the reward conversion rate.

Once the token pool grows over time and has been shown to achieve a premium over the cost base there is an opportunity to activate the combined asset base of the pool for securitisation or other financial instruments. For example, structured financial products like biodiversity credit-backed securities could be developed, allowing investors to gain exposure to the appreciation of these tokens. The pool could also be leveraged to create biodiversity credit funds or green bonds tied to the future performance of the token pool. The pool of Eco+ tokens could also be used as collateral for borrowing under favourable rates from social impact funds, providing money that could then be used to support kickstarting more projects under the Regenesis Fund and purchasing more credits via the Growth Fund.

Additionally, there is also an opportunity for corporate philanthropic donations to be incorporated into the system via either direct contributions to the Regenesis Fund or through collaborations with NovelEco on digital art releases. These art releases are anticipated to coincide with the onboarding of new community groups, with the art being digital, generative and linked to baseline biodiversity data derived from the project.

Congratulations! You’ve made it through the last part of Article 4 of the Biodiversity in the Digital Age series.

The next article will close out the series by exploring the downside of relying on digital infrastructure and assets to build a system for protecting biodiversity and conclude by outlining how any potential negative impacts and outcomes can be avoided.

Mint this article as an NFT!

The first EcoMeme was launched over a year ago. I know that because I did it. I also know this because a record of its launch is recorded on the blockchain forever. It reads 24th July 2023 at 8.27am.

The first EcoMeme token launched was the Genesis Token (below) and its release was the first transaction recorded on a smart contract that I had created to launch the collection. At the time of writing (30th October 2024) that was 464 days ago. There are, and always will be, no more than 33 of these.

Details of this token can be found here. If you look for the description of this token you’ll find that it says this:

That makes it sound like a beginning. And that’s because it is.

So, what are the EcoMemes and why did I bother to launch them? NFTs are dead right!

What this article does is walk through the various components that constitute the EcoMemes, to give a bit more context and reasoning behind the collection. I’m doing this because I know that for the most part people think that they are just pictures. Of course, what they actually are extends beyond that.

Let’s start from the top.

The Mission

The easiest thing to understand about the EcoMemes is that they are mission driven.

The EcoMemes Collection is focused on the fight to build the world’s best biodiversity credit market, one that recognises the true value of nature, results in an equitable distribution of benefits and empowers local communities along the way.

The world’s best biodiversity credit market — sounds complicated right. And it is. To achieve this requires a mix of science and ecology, traditional owners and local communities and, somewhat controversially, valuation and finance. But to add to this complication I also believe that the right solution involves blockchain and digital assets too. Of course, no-one knows what that is, so when you throw that in the mix too there is a lot of complexity to convey.

The simplest way to do this is to go back to first principles, mix in a bit of systems thinking and use this to define some guiding aspects for the structure and aspiration of a solution. For me that resulted in a series of themes that I thought were important to consider. I then outlined these in a document called the EcoMemefesto which became the second token. As per the contract there can only ever be a maximum of 900 of these.

The Medium

It was Marshall McLuhan who said that “the medium is the message”, and I think that stands true for the EcoMemes. There are a few layers to this.

The first is that the collection is using art to convey a message, and what’s more that art is digital. For clarity digital art is created using digital tools like computers or tablets, allowing artists to produce images, animations, or interactive pieces. Unlike traditional art forms that rely on physical materials such as paint or clay, digital art exists in a virtual format, allowing for easy editing, manipulation, and reproduction.

The second is that the art is focused on memes. Memes are humorous(?!) or culturally significant images, videos, or text that spread rapidly online. Often involving relatable or funny content, they convey ideas or social commentary in a quick, shareable format. Memes evolve through user adaptation and remixing, making them a dynamic part of internet culture. Memes probably come off as ephemeral and disposable, spreading quickly, capturing attention for a short time and being frequently replaced by new trends. As a category though I suspect that we are going to be hearing more about memes in the coming years. And without going into too much detail about why (iykyk) I’ll just leave you with this….

The third is that the EcoMemes are CC0, or “Creative Commons Zero”. CC0 is a public domain dedication tool that allows creators to waive all their copyright and related rights to a work. By using CC0, a creator effectively releases their work into the public domain, allowing anyone to use, modify, and distribute it without any restrictions or need for attribution. This fosters creative freedom and collaboration, as works under CC0 can be used by anyone for any purpose.

The fourth is that the EcoMemes are Non-Fungible Tokens (NFTs) that are registered on the Ethereum Blockchain. NFTs enable the proliferation of CC0 art by providing a system for verified ownership while maintaining the open, unrestricted nature of CC0 works. Even though creators release their rights through CC0, blockchain technology allows them to mint their art as NFTs, establishing a transparent, immutable record of who originally created or owned the piece (remember the details of the Genesis token above). This verified provenance adds value and recognition to CC0 art, allowing creators to gain visibility, while still permitting anyone to use, remix, or distribute the work freely.

So as far as “medium” goes in the EcoMemes it ends up looking something like this (although you could argue that it should be the other way around).

So what of NFTs?

As outlined NFTs are fundamentally about provenance and ownership, offering a digital solution for verifying the authenticity and history of assets on the blockchain. Each NFT is tied to a unique identifier that records its creation, ownership transfers, and other key details in an immutable ledger.

So why are provenance and ownership relevant? Let’s go with provenance first.

Provenance

The fact that NFTs are recorded on the blockchain means that we now have these “digital museums” which provide an immutable record of ownership and origin for digital assets. As a result, blockchains not only offer an insight into societal trends and the cultural zeitgeist they can also serve as a historical record of the evolution of ideas over time.

Let’s go back to the description that was placed in the first token created on the EcoMemes contract:

Now I’m not claiming that this is the first record of “nature positive” on the blockchain, and indeed there are many interesting nature philanthropic, art/data and funding concepts that have preceded it. But what I can say is that it is a clear statement of the beginning of the concept for bringing biodiversity tokens created by local communities onto the blockchain through a process that I have outlined across a series of articles (which are also available as NFTs — the medium is the message right😊).

What’s also interesting about the provenance component is that is that not only relates to the token as an entity, but also what information is captured within that token. As an example, let’s look at the data recorded on one of the EcoMemes, Touch Grass released during Season 3. As per all standard EcoMeme releases there will always be a maximum of 330 of these.

So, the description attached to this token is this:

“In an age of increasing disconnection from nature, spending time outdoors is more important than ever.

Studies have shown that interacting with the natural world reduces stress, boosts mood, and enhances creativity, while also promoting physical health through exercise and improved immune function.

Research also highlights how time in nature fosters a deeper connection with the environment, encouraging mindfulness and strengthening the desire to protect and preserve.”

If you then look at the series of traits that have been captured for this EcoMeme they look like this.

If we look across all the EcoMemes we see that there is a larger list of traits for the entire collection which cover a range of different attributes for all tokens at the contract level.

What is interesting is that the Touch Grass token contains only a subset of traits from this complete list meaning that the other tokens in the collection have different and unique datasets. Of course, these data attributes appear somewhat arbitrary (or are they?) but imagine if they were recording unique biodiversity values, species records, management activities and a reference to the traditional owners and/or community group who created them.

Interestingly if you look a bit deeper and directly at the information for the Touch Grass token you’ll notice that a hidden category of data has been embedded. It says this:

When you click on that link you end up with this:

I wonder how many other EcoMeme tokens have something similar 😉

Ownership

Being an owner of an EcoMeme token not only represents a verified connection to the mission of the collection, it also links the owner’s wallet to the story, history and provenance of creating nature positive digital assets on the blockchain. Although the total holder count for EcoMemes is humble, I think it is a great that just under half of them are new wallets that were encouraged to set-up and receive their first NFT (btw, feel free to follow up with me if you want a hand with this and to receive your first EcoMeme). Some of these wallets may have had fungible tokens in the past but it is wonderful that their first NFT will be associated with our infrastructure to use digital assets to protect the natural environment (Hmm, I wonder if this is something that we can use to distribute rewards in the future…).

While NFTs enable singular ownership of a digital asset, this ownership is inherently connected to a broader community. This community can be extensive considering that multiple editions of multiple tokens can be attached to a contract, and that multiple contracts can be created by a deployer (the entity that creates the contract). Therefore, each NFT exists within a broader ecosystem where its value is influenced by interactions, collaborations, and relationships among users. This interconnectedness means that owning an NFT extends beyond individual possession; it reflects participation in a shared experience and a collective identity. To this end the holder becomes a part owner in the value of the network, with that networked value accruing to the asset itself.

Network Effects

With NFTs being inherently networked assets there are unique opportunities for leveraging the power of the community to build network effects. Network effects refer to the phenomenon where the value of a product, service, or platform increases as more users engage with it. Network effects are powerful because they create a self-reinforcing cycle where growth attracts even more users, making the network harder to replicate and increasing user loyalty, innovation, and market dominance.

What is interesting with Web3 is that tokens represent the network effects inherent within a given network, with ownership of the token allowing holders to own a stake in the network itself. As a result, users are not just passive consumers; they are active stakeholders in the value generated by the network.

The potential of a Web3 network can be evaluated based on metrics like the number of wallets, transactions, and active developers. However, it’s important to note that simply having more users does not automatically equate to greater value or stronger network effects. The quality and engagement of the users play a crucial role in determining the true value of the network.

Network effects are therefore related to the social relationships in the community and the strength of connections between owners. A great example of this is the social network analysis of The Memes NFT collection by Punk 6529 given below, which at that point in time included 26,000 nodes and 230,000 connections.

A social network analysis of The Memes NFT Collection by Punk 6529 by Soheil Ahmadi

I did something similar for the EcoMemes a while ago. As you can see it’s a start, but obviously still a long way to go!

A social network analysis of the EcoMemes NFT Collection

Nevertheless, the network process is underway and the basis of a community for the EcoMemes exists. As an indication of this I’ve pasted some EcoMeme love below — many thanks to these wonderful supporters, you are amazing!

So, as you can see, we’re underway. We have tokens released, wallets holding tokens and the start of a community forming. Maybe what I should be doing next is using some novel mechanics to leverage the networked value of the EcoMeme tokens, further engaging with the community and helping it to grow.

Mechanics

Which brings me to final thing to highlight about the EcoMemes — possibilities for the future. While NFTs are often viewed as immutable and static, they hold dynamic potential, offering a myriad of opportunities for future evolution and creative engagement. This includes of number of mechanics which can be linked to ownership of an NFT. Examples of these are listed below.

Airdrops — distributing free NFTs or tokens to holders of specific NFTs or members of certain communities

Burn-To- Redeem — “burning” (destroying) an NFT to unlock a reward, such as exclusive content, a physical item, or another digital asset

Staking Rewards — locking up NFTs in exchange for rewards such as tokens, governance rights, or additional NFTs

Merging or Upgrading — Combining two or more NFTs into a new, more valuable NFT

**Access Control **— using the NFT as a digital key to unlock exclusive access to content, events, or services.

Of course, this is just a list of the typical stuff that is currently done with NFTs. I have no doubt that in the future there will be a whole lot more that can be done.

Wrapping up

So, there you have it, a quick run through on the what and why of the Ecomemes. Hopefully I’ve helped convey that the EcoMemes are not just collectibles. They are networked and evolving assets within a broader digital ecosystem. For what I am doing on the blockchain this is just the start with a number of components that I plan to link in with the EcoMemes in various ways.

Although the EcoMemes won’t go on forever, it is nice to know that those that have been created will last forever. Of course, that is not entirely true because *nothing* lasts forever. What I can though is that they will last for as long as the Ethereum Virtual Machine is running.

I’m also quite proud that the EcoMemes originated in the class of 2023, which for the record was a time at which NFTs were very, very much dead. Although that might still be the case, I’m not sure that it will be the case forever. But I suppose we’ll have to wait for the future to see whether that is true.

Until then, long live the EcoMemes!

This is how we buidl

Biodiversity in the Digital age Part 4C

Principles of the demand side of the system

In articles 4A and 4B I provided an overview of the system and outlined key principles behind the function and design of the supply side. In this article I offer a similar outline for the demand side of the system looking at the principles and mechanics for delivering and consuming digital biodiversity credits in the digital economy.

Let’s go!

Digital, Digital, Digital!

A key principle of the demand side of the system is that it operates entirely within natively digital rails, from the enabling infrastructure through to the basis of the market. The reason for this is captured well by Punk 6529 in the quote below.

Source: https://x.com/punk6529

However, whilst the system itself is natively digital it is important to reconcile this with an understanding that nature itself is inherently non-digital and cares little for the digital world. The source of this contradiction stems from the activity and agency of humans in both the digital and natural realms.

The digital realm is a creation of humans to enhance communication, access information, and solve complex problems. From early computing machines to the creation of the internet, humans have been the principal agents shaping this realm (although AI says watch this space), using technology to transcend physical limitations and amplify capabilities. Humans are also the principal agents impacting nature, shaping ecosystems through activities like agriculture, urbanisation, industrialisation, and deforestation. Human actions have significantly altered the environment, leading to biodiversity loss, climate change, and habitat destruction. Humans, as both the creators of the digital world and the primary agents impacting nature, are therefore the bridge between these two realms.

Successfully bringing these two realms requires belief in the potential for a symbiotic relationship between digital tools and natural ecosystems. Functionally it requires design of a system that considers the broader social, ecological and ethical implications of tech-enabled biodiversity protection. None of these things are easy and the potential for being dismissed as ‘solutioneering’ is high. Nevertheless, I do believe that there is significant value in this approach with the ideological conflict forcing a greater requirement for rigour in the design. To this end Article 5 will focus on the downside of adopting a wholly digital solution in this space, offering an opportunity to explore the potential negative impacts through the lens of effectiveness, acceptance and user uptake.

But for now, the assumption is that it is digital all the way.

From credit to token

The supply side of the system ends with the creation of a measured and evidence-based unit of positive biodiversity outcome, a digital biodiversity credit, that is ready for delivery into the digital economy.

Blockchain serves as the delivery rails for digital assets, providing the foundational infrastructure that enables the secure, transparent, and decentralised transfer of value across the digital economy. By utilising distributed ledger technology, blockchain ensures that digital assets can be owned, transferred, traded, and managed without the need for intermediaries.

Tokens are the foundational building blocks in blockchain ecosystems enabling decentralised ownership, governance and participation. These primitives represent various forms of value or utility and come in different types, such as cryptocurrencies, utility tokens, security tokens, and non-fungible tokens (NFTs).

Real World Assets (RWAs) are a class of tokens representing physical or tangible assets that have been recreated as a digital representation on the blockchain. RWAs can be represented as either fungible tokens or NFTs, depending on whether the underlying asset is divisible and interchangeable (fungible) or unique and indivisible (non-fungible).

A digital biodiversity credit is a distinct, non-interchangeable (i.e. non-fungible) conservation effort and biodiversity outcome representing a tangible (measurable) value that is manifest in the real world. When a digital representation of this outcome is transferred onto the blockchain it changes from a credit into a RWA token.

Tokens, and in particular NFTs, are extremely versatile tools, enabling a wide range of applications and functionalities. An NFT can be used to capture an exceptionally broad range of value across a diversity of data structures and represented through a variety of metadata and attributes.

Their programmability through smart contracts, which are self-executing programs on the blockchain, further amplifies their potential, allowing for automated and sophisticated functionalities and behaviours. One example of this is the integration of governance features where voting rights are attached to ownership of the token and applied to decisions affecting an associated platform or protocol.

Another example is the creation of dynamic NFTs, a type of non-fungible token that can change or update their attributes and metadata based on external data or events. The means of doing so is through an oracle, a third-party service that provides smart contracts with external data that is not inherently available on the blockchain. For dynamic NFTs oracles provide the external data needed to trigger changes, while smart contracts enforce the rules and logic for how those changes are applied.

Digital biodiversity credits offer a container for positive biodiversity outcomes that are typically bound by area and representative of a discrete unit of time. This packaging, however, stands in contrast to biodiversity, which through the ongoing processes of ecological change, adaptation, and the impacts of management efforts, operates as a continuum in form and structure across broader spatial and temporal scales.

Dynamic NFTs can capture this change in ecological state when credits have been issued using a consistent spatial framework. For example, where the biodiversity credit is continuously monitored using digital tools, the token can be automatically updated to reflect changes in biodiversity or environmental conditions. Although this process would not look to revise and alter the value of the credit as per the time of issuance, it can help to capture aspects of persistence and durability, which could be linked to smart contract mechanics aimed at promoting and rewarding the outcomes of long-term protection. An example of this is a smart contract trigger where the purchaser of a token linked to an early credit is automatically rewarded with portions of future tokens if the improved state in biodiversity is maintained over a long period of time (i.e. an early adopter reward).

Fractionalisation — pathway to the people

Another powerful feature of tokens is fractionalisation, the process of dividing a token into smaller units. A fractionalised token can maintain referential integrity with the parent token through well-designed smart contracts that enforce relationships, track ownership, and manage metadata. The smart contract responsible for fractionalisation can be designed to ensure that each fraction remains linked to the original parent token by assigning each fraction a unique identifier that ties it back to the parent token. Through smart contract design and on-chain storage, this relationship can be made immutable, ensuring that the provenance and history of the fractionalised asset are transparent and unable to be arbitrarily altered. This ensures that the fractional tokens continue to accurately represent their share of the original asset, preserving the value and functionality of both the parent token and its fractions.

Fractionalisation in tokens enhances liquidity, inclusivity and flexibility in ownership, opening up new opportunities for market expansion. Fractionalisation increases liquidity by allowing fractions of an asset to be traded more easily. It also lowers the barrier to entry for participation, with more people able to buy fractions, broadening the base of the market and potentially increasing demand and driving up value.

These outcomes have parallels with the promises offered through the introduction of secondary trading to a biodiversity credit market. However, unlike secondary trading fractionalisation may offer a safer mechanism for democratising access to biodiversity credits and increasing liquidity in the market.

As discussed in Article 1, secondary trading introduces a disconnect between financial incentives and ecological impact, which could lead to unwanted speculation and price volatility especially if not tightly regulated. In contrast fractionalisation can be undertaken without decoupling the credit from its biodiversity impact, with the blockchain ensuring that even small fractions of tokens continue to represent concrete and measurable biodiversity benefits. Blockchain’s transparent and immutable nature also simplifies the regulatory and reporting process, allowing all stakeholders to verify outcomes easily, regardless of the size of their fractional holdings.

In addition to offering a safer path to the benefits of financialisation, fractional ownership also supports the growth of new digital business models and services based on micropayments. This is enabled through the introduction of programmable, automatic, small-scale transactions on lower transaction cost blockchain solutions, a concept that is explored further in the next article.

Overview of the system — the encapsulation cascade

Having now worked from the supply side through to the demand side of the system via the measurement, creation and distribution of a digital biodiversity credit it is worth capturing a simplified overview of the structure involved. The term I have coined to describe this is the ‘encapsulation cascade’, a linked hierarchy of encapsulating elements that contain the complexity of a system within a simplified structure. For the system I’ve described, the encapsulation cascade combines hierarchical structuring, tokenisation, and fractionalisation to create a robust framework for managing and distributing biodiversity data, while also facilitating market transactions and investment in conservation efforts.

The base unit is the spatial container, a quadtree structure that partitions the spatial data into ecosystem-appropriate quadrants. The next unit is the credit represented by a quantifiable measure of the ecological state, alongside other program level descriptors, all captured within the spatial container. Once recorded, the credit becomes a token in its entirety on the blockchain. Finally, the token undergoes fractionalisation into smaller sub-units. A schematic overview of the encapsulation cascade is given in Figure 1.

Encapsulation is a fundamental concept in object-oriented programming, where the internal state and behaviour of an object are hidden from the outside world, exposing only what is necessary through a well-defined interface. The idea is to bundle data and methods that operate on that data within a single unit (or object), while restricting direct access to some of the object’s components.

Figure 1: Encapsulation cascade of the system

Representing the system as a nested set of encapsulating elements has several benefits. This first is that it makes the system easier to conceptualise and interact with. It also highlights the modularity of the system, giving name and function to the deployable units and offering participants a greater understanding of their role and contribution. Finally, it describes how the credits, tokens and fractions remain spatially referenced and maintain direct linkage to the biodiversity outcomes and program level descriptors, features that can be used to drive consumer interest on the demand side.

A consumer-led market for biodiversity

With significant demand for biodiversity credits from the corporate sector yet to materialise (see Sam Sinclair for reasons why) there is reason to explore potential for a consumer-led market, where direct consumer interest could drive demand, provide funding, and stimulate innovation.

A consumer-led market has several key advantages over an enterprise-led market. It benefits from rapid scalability, as products can achieve exponential growth through word-of-mouth, social media, and network effects. Consumer markets are highly agile and innovative, driven by shifting preferences that push companies to continuously adapt and improve. Products often build strong emotional connections and brand loyalty, making them more appealing and engaging. The focus on individual needs in consumer markets leads to intuitive, user-friendly designs and broader demographic reach, enabling faster market penetration.

Additionally, consumer-led markets are influenced by social trends, allowing products that resonate with current cultural moments to gain popularity quickly. Direct feedback loops in these markets enable companies to respond and iterate on products in real-time, enhancing their relevance and effectiveness. By leveraging these consumer-led market benefits, the adoption of biodiversity credits could scale more quickly, leading to more significant and positive environmental impacts sooner than in a slower, enterprise-led market.

What to consider in a consumer-led market

Creating a successful digital consumer product involves several important factors. Firstly, understanding the market is key, to ensure that a clear value proposition is driving demand, and that the product aligns with consumer behaviour and preferences. User-centric design is also crucial, with the product requiring an intuitive and seamless user experience, with a focus on smooth performance and reliability. A strong marketing strategy is also required to help reach and engage the target audience, while excellent customer support is important to enhance overall user satisfaction.

Tactics like nudges and incentives can also be used to drive user adoption. Nudges gently guide users toward desired behaviours or actions without restricting their freedom of choice, often using behavioural insights to make certain options more appealing or easier. Incentives, on the other hand, offer rewards or benefits that motivate users to engage with a product or service.

In the web3 space, a new manner of incentivising and aligning community participation is emerging as one of the great breakthroughs. Web3 technologies enable innovative incentive structures through mechanisms like token rewards, decentralised governance, and community-driven initiatives. These approaches can foster deeper engagement and alignment by directly rewarding user contributions, promoting active participation, and creating a sense of ownership and value within the community.

Tokens are central to the web3 community model as they act as networked assets, driving value through participation and connectivity. They enable access and membership by granting users entry to exclusive features or services within a platform. Additionally, tokens align economic interests by linking rewards and benefits to the project’s success, fostering deeper engagement and commitment.

Nature-backed rewards

One potential approach for unifying these various components is through the creation of a nature-backed rewards program.

Rewards programs are structured systems designed to incentivise and engage users by offering them tangible benefits or incentives in return for specific actions or behaviours. These programs typically involve earning points, credits, or other forms of currency that can be redeemed for discounts, products, services, or other rewards. By encouraging repeat interactions and loyalty, rewards programs aim to enhance customer satisfaction, drive engagement, and foster long-term relationships between businesses and their users. They leverage various mechanisms, including tiered rewards, personalised offers, and gamification, to motivate continued participation and build brand loyalty.

Web3 technology and tokens offer a means of revolutionising consumer behaviour by integrating nature stewardship into these reward systems. Tokens can represent and reward contributions to nature, making the rewards more impactful.

Unlike traditional loyalty schemes, which tie reward points to utility within the program (like discounts or exclusive offers) with no inherent value beyond their use, nature-backed reward schemes link rewards to real-world assets, such as positive biodiversity outcomes. This gives the points intrinsic value and aligns consumer incentives with both community stewardship and asset-backed value creation.

By using blockchain technology for data provenance, transparency and accountability, web3 enables a more engaging and effective way to motivate consumers. Surfacing data contained within biodiversity tokens — such as information about species, people, and places — presents a unique opportunity to engage consumers and build sub-communities around specific data attributes. By making detailed, transparent data accessible, consumers can connect more deeply with aspects of biodiversity, such as their favourite species or conservation projects tied to their local areas. This connection fosters a sense of ownership and personal relevance, encouraging more active participation and support.

Additionally, these data attributes can be used to create specialised sub-communities, where users with shared interests or geographical connections collaborate, share insights, and drive collective action. This targeted engagement not only enhances the overall impact of biodiversity initiatives but also strengthens community bonds through shared passions and localised efforts.

A digital nature-backed rewards program can be seamlessly integrated into the digital economy by aligning it with the existing consumer market for digital content, assets, and gaming items (Figure 2).

Figure 2: Demand side mechanics linking biodiversity outcomes to a nature-backed rewards program

By linking rewards to digital purchases, transactions, or engagements — such as buying virtual goods, participating in online communities, or using gaming items — tokens can be earned and redeemed through these interactions. This approach directly ties the value of digital assets to real-world biodiversity improvements, making it easy for gamers and digital consumers to contribute to nature while enjoying their favourite content. The incorporation of nature-backed rewards into gaming not only adds an eco-conscious dimension to the gaming experience but also leverages the extensive market for digital assets to drive engagement and support for nature. As consumers increasingly seek to align their digital activities with personal values, embedding these rewards into the digital economy offers a compelling way to foster nature stewardship and enhance the appeal of digital content and gaming experiences.

In a nature-backed rewards program, the partner network plays a critical role in shaping the program’s value and impact. By collaborating with partners that provide nature-sensitive goods, services, and experiences, the program aligns consumer incentives with environmental stewardship.

These partners help ensure that rewards are not only desirable but also contribute positively to biodiversity stewardship and conservation goals. A carefully curated partner network ensures that each reward redemption promotes responsible products and practices, reinforcing the program’s core mission. Additionally, it builds consumer trust, as participants know their engagement supports businesses committed to nature-friendly values. This synergy between partners and the rewards program maximises both positive impact and consumer satisfaction, making the program more appealing and authentic.

Congratulations on making it to the end of Part 4C of the Biodiversity in the Digital Age series. The next part of this article will explore pricing, funding and financial flows for the system.

In the meantime, if you believe that memes can help us build the world’s best biodiversity market then jump over to the EcoMemes project.

Principles behind credit design for the supply side of the system

Welcome back!

This is the second part of the fourth article in the Biodiversity in the Digital Age series. This section of the article focuses on the principles behind biodiversity credit design for the supply side of the system and should be read in conjunction with an overview of the function for the supply side components provided in Part 4A.

Before recommencing it is worth re-visiting definitions for various concepts in this fourth article, specifically the terms ‘system’, ‘function’ and ‘design’.

· ‘system’ relates to the overarching objective of linking the natural and digital worlds through mutually beneficial transfers of value.

· ‘function’ relates to the mechanics and principles by which the system operates (i.e. foundations of a high integrity market).

· ‘design’ relates to the components and principles by which units of value in the function are constructed (i.e. considerations for creating high integrity and high utility credits in the system).

Within the system, biodiversity credits represent the atomic unit of value on the supply side, capturing measured and evidence based positive biodiversity outcomes. Although commonalities exist in the form and structure of biodiversity credits (see here, here and here) given the nascency and exploratory stage of the market it is not surprising to find a variety of different schemes each with a different approach to describing and capturing value.

Beyond a measure of biodiversity outcomes, however, it is worth considering that a credit (as a unit) can also be a container for additional measures. As mentioned above a credit can offer a representation of the governance and integrity of the system that creates it, whilst also being a record of the participants and management actions involved.

There is also consideration in the system for the end use of the credit, particularly for distinct (i.e. ‘value transfer to the digital world’) versus broad (i.e. ‘delivering credits to the market’) applications. As such, consideration for the utility and versatility of the credit on the demand side should also be incorporated into the design.

The following section outlines a series of principles relating to the design of biodiversity credits to enable high integrity value capture alongside their optimal use in the system.

Standardisation — Consistent yet adaptable

The first principle to consider is that a biodiversity credit needs to be consistent yet adaptable. Consistency is required to ensure that the system it is portable and translatable to many locations whilst adaptability is required to ensure that important site level variability is captured. Many schemes seek to address the consistency component by adopting both a standardised area and standardised time period for credit unitisation. Whilst this is approach offers convenience from a market point of view there are some potential drawbacks.

The first is that different ecosystems exhibit varying relationships with time, particularly as relates to credits generated via ecosystem restoration. For example, an old growth forest may take centuries to reach peak biodiversity and stability, while other ecosystems like grasslands, might respond more rapidly to restoration efforts due to differing succession dynamics, and reproductive and life history traits.

The second is that standardising area has implications for the suitability of applying the same approach to ecosystems of varying complexity, species diversity and heterogeneity. For example, a naturally sparse ecosystem like a rangeland is structurally very different to a denser ecosystem like a tropical rainforest, with the composition of the former being better captured and described at larger rather than finer scales.

On top of this, natural variability between ecosystems is further complicated by the types and degrees of disturbances (across impacts and threatening processes), climate and the types and magnitudes of human interventions and management activities being undertaken. All of these are locally specific.

Beyond technical considerations, credit area standardisation also has implications for the supply side market dynamics with standardisation potentially incentivising the pursuit of more achievable and lower cost outcomes in areas of convenience (i.e. sparser ecosystems) rather than more complex and more costly areas of need. For example, in the Australian context the cost of actively restoring 1ha of rainforest was identified as being five times the cost of actively restoring 1 hectare of grassland.

A risk therefore exists that the market conflates size and time standardisation with a consistent amount of ecological benefit or conservation effort being attained, further driving activities towards commercial rather than ecological outcomes.

One approach to counteract this is to assign grades to credits, indicating the relative importance of a project location to biodiversity contribution. For example, Savimbo use public data on biodiversity density and ecosystem threat to classify their credits into 4 tiers (Platinum, Gold, Silver, Bronze) whilst Greencollar use an Environmental Significance Classification (ESC) based on conservation criteria to define a three tier grading system (Tier 1, Tier 2, Tier 3).

These credit grading systems are geared to incentivise nature restoration and conservation in areas where it is most needed by placing greater recognition on biodiversity credit projects occurring in areas of higher priority. Grades are also likely to offer benefits to market adoption by facilitating greater levels of product standardisation, interoperability and comparability between different biodiversity credit projects.

However, whilst aligning with publicly recognised priorities for biodiversity is desirable it is important to also recognise the constraints that come with incomplete datasets and the coarse scale generalisations within most of these layers. To that end using these as the sole criteria for defining a credit class would more closely align with pursuing modelled outcomes rather than monitored outcomes (a topic I covered in more detail in Article 3). Specifically, there is risk with this type of approach that the market ends up rewarding perceptions of biodiversity (eg. restored koala habitat in areas of potential koala occurrence) instead of the desired goal (i.e. koalas).

Plan Vivo have sought to address this by integrating a rarity-weighed richness value (threatened birds and mammals only) amongst other public data when assigning site-level significance labels for terrestrial sites. They have also aimed to reduce any potential methodology gaming or grading level generalisations by eliminating ranking both within and between their significance label types.

However, a potentially more robust approach is to account for the actual composition of an ecosystem and its biodiversity when considering the overall ‘value’. Savimbo do this by incorporating a measure of Integrity into the calculation of a biodiversity credit, with full integrity being defined as an ecosystem with every ecological niche available to, and occupied by, native species. In other schemes the concept of Integrity is sometimes captured by the similar concept of Condition. Importantly Integrity/Condition in this context is calculated based on measurement as defined by an approved methodology, with changes in integrity over time being used to define the outcome that has been achieved.

This then leads to the final bit of standardisation which is the type of biodiversity being measured. Given the complexity of natural ecosystems it is difficult to measure everything that constitutes biodiversity, so a practical and convenient approach is to focus on specific environmental asset classes. As an example, Accounting for Nature currently identify six distinct asset classes, Vegetation, Soil and Sediment, Fauna, Water, Ecosystem and Microorganism, with expectation that this be expanded upon over time (i.e. inclusion of Marine etc). Each of these asset classes can be described and measured through a range of certified methods, with each method being assigned an expected accuracy for which the asset will be measured (Moderate, High, Very High).

Within this in mind, the structure of a single asset credit expands beyond the previously considered measures of outcome, area and time to include consideration for the asset, method, accuracy and grade (Figure 1).

**Figure 1 **— An expanded structure for a single asset biodiversity credit

However, for any given spatial extent there are bound to be multiple, overlapping environmental assets present. So, although the structure offered in Figure 1 offers a convenience for market adoption, as well as a one biodiversity asset per area safeguard against potential over-crediting, it could be argued that a more representative biodiversity credit contains multiple environmental assets classes. With this in mind Figure 2 offers a potential structure for considering multiple assets within a single credit, with asset outcomes being stacked spatially and aggregated as a group outcome for a given period of time. Based on current approaches to grading for other schemes in the market, it is possible that this consideration be attached to either the asset (Figure 2A) or the location (Figure 2B).

**Figure 2 **— The structure of a multi asset biodiversity credit when graded by asset (A) and by location (B)

Looking at the credit structures given in Figures 1 and 2 it is obvious that despite moves to standardise individual components of a biodiversity credit there will continue to be high degrees of variability based on the combination of variables measured. Therefore, although aspirations to standardise area for all circumstance as a basis of equivalence is understandable, some aspects of the approach, when so many other measures and outcomes within that area are possible, seem questionable.

With this in mind, one of the aspects I am keen to explore in the system is whether it is possible to somewhat normalise the outcome of a biodiversity credit by allowing for variability in size. This could be done through use of a hierarchical geospatial data structure like a quadtree to encapsulate biodiversity data at different levels of spatial resolution and with multiple levels of detail.

A quadtree is a hierarchical data structure that recursively subdivides a two-dimensional space into progressively smaller quadrants or cells. Each cell can then be further divided into smaller quadrants if necessary, forming a nested hierarchy of spatial partitions. The result is a standardised parent-child relationship that allows for consistent referencing and efficient querying and indexing.

The value of this approach is that offers a consistent structure that is adaptive to containing and representing spatial data at varying levels of granularity, making it suitable for accommodating the unique biodiversity attributes and structures of different environments.

Although contrary to commentary on the importance of area standardisation for market adoption, aggregating and synthesising biodiversity outcomes into variable sized credits could be more suitable to the ecosystem and structure of ecological benefit that has been attained. Of course, the suitability of using this approach when considering single asset versus multi asset biodiversity credits would need to be explored. Nevertheless, allowing for flexibility and adaptability on the credit area based on ecological conditions is an interesting concept, particularly as relates to variability in another key market factor, price!

Holistic and data rich

As outlined above a biodiversity credit is primarily structured to capture and represent measured and evidence based positive biodiversity outcomes. However, due to the spatial and temporal nature of a credit there is a wealth of additional data and metadata that can also be recorded in a digital biodiversity credit, largely relating to the structure of biodiversity protection and restoration projects being undertaken.

This includes details of the credit archetype (eg. protection, restoration, stewardship, adaptation) and the objectives of the local conservation plans governing and directing the management activities (more details in article 3). It also offers an opportunity at the credit level to categorise the degree of engagement and participation for Indigenous People in the design and implementation of biodiversity credit projects. This can be done by recording whether programs are designed and led by IP and inclusive of IP values for success.

A credit can also contain a record of all on-ground management activities undertaken within the project. Management activities form a critical part of the information set used to evaluate the effectiveness of conservation programs, and from a management perspective are essential in planning the future deployment of effective and efficient activities. Management activities have a spatial footprint associated with them, and from a social perspective a link to the stakeholders involved with implementing them. Both aspects can be encapsulated within the spatial framework of a credit.

Capturing a record of management activities also offers opportunities for considering those circumstances where credit issuance for conservation actions might be appropriate. This includes ecosystems where long duration timeframes for recovery are expected (i.e. deserts, polar etc) or circumstance where a strong evidence-based relationship between intervention and outcome exists yet the upfront expense for intervention is prohibitively high compared to the timeframe for anticipated recovery.

To maintain high levels of integrity in this circumstance it is important to ensure that management activities remain additional to measured outcomes as the base structure of a credit, with a credit at the very least including a record of the baseline condition of the ecosystem.

A credit can also include records of physical conditions of habitat that support biodiversity, particularly where interventions are geared towards the removal of non-biological threats (i.e. reductions in erosion, removal of contamination, improvements in water pH etc). Once again interventions to achieve these outcomes can be costly to implement so mechanisms of credit issuance, whilst balancing against the maintenance of high integrity outcomes for biodiversity, or potentially a separate pool of funding for such activities, need to be considered.

Connected

Connectivity in ecosystems is crucial for maintaining biodiversity, ecosystem stability, and the resilience of natural communities. It allows for the free movement of species, is essential for many species’ life cycles, and supports ecological processes such as pollination, seed dispersal, and nutrient cycling. Well-connected ecosystems are also more resilient, demonstrating a greater ability to withstand and recover from disturbances and natural disasters.

Ecological connectivity is increasingly recognised in global policy as a key element for biodiversity conservation and ecosystem resilience. International frameworks such as the Convention on Biological Diversity (CBD) and the United Nations’ Sustainable Development Goals (SDGs) emphasise the importance of creating and maintaining ecological corridors and networks (for example here, here and here).

Ecological connectivity is therefore a value worth considering within the framework of a biodiversity credit. Connectivity is a key component in ensuring that biodiversity protection and restoration activities are resulting in long-term positive impacts, with failure to account for connectivity potentially misrepresenting the overall value and effectiveness of any given project (note — size and configuration is an important consideration here but that is a whole other topic beyond the scope of this discussion).

Connectivity is commonly recognised across two components. Structural connectivity refers to the physical arrangement and continuity of habitat patches within a landscape. It is concerned with the spatial configuration and the presence of physical links, such as corridors, that connect different habitat areas, allowing for the potential movement of species. Functional connectivity goes beyond physical layout to consider how landscape features facilitate or impede the actual movement and flow of organisms and ecological processes. It focuses on the behavioural responses of species to the landscape structure, including their ability to move, disperse, and interact within the ecosystem.

Whilst not comprehensive to all facets of connectivity there are a range of numerical indices offering quantitative descriptions of the spatial context and connectivity of ecosystems. These include measures like patch density, size distribution, edge density, connectivity index, landscape shape index, core area proportion, habitat diversity index, and effective mesh size.

A key component of our design is to therefore incorporate quantitative measures of connectivity into the design of the credit, not only for the purpose of ensuring high integrity outcomes but also for the opportunity of centering outcomes around nature itself.

Given that the concept of connectivity is deeply embedded in the idea of nature providing value for nature, rather than the anthropogenic view of nature providing value for humans, the incorporation of connectivity offers a means of including nature as a key stakeholder in the credit via measures indicative of its intrinsic right to exist.

It is anticipated that this process will be aided by the adoption of the quadtree structure in the function of the system where the relationship between cells is clearly understood, and the richness of outcomes can be used to define the value of linkages at patch and landscape scales.

Cross-verified and consensus based

Once a measured biodiversity outcome has been achieved there are opportunities to provide verification of that outcome by cross-verifying across a range of data and metadata components within the credit and the project. This includes looking at the intersection of measured outcomes with the spatial footprint of the management activities, comparison with other ecological measures and indicators, and the degree of change recorded at the credit level versus the whole of project level. For some environmental assets there is also an opportunity to adopt a consensus-based approach. This can be done by comparing outcomes recorded at the project and credit levels against external public information sources such as Sentinel satellite data, with a reference to the source data being recorded in the credit.

Third party verification frameworks such as Accounting for Nature framework also require comparisons to be made between the measured outcome and the integrity or condition of a similar ecosystem in a pristine state. Typically, this is done using data from a reference site obtained via the same method used in the project area. With remote sensing data, however, it is possible to aggregate measures of ecosystem condition for multiple reference sites across several locations to provide an additional layer of comparison with the outcome that has been achieved.

By leveraging diverse data inputs to obtain a more comprehensive and accurate assessment of biodiversity outcomes there is an opportunity to reduce some of the bias and uncertainty associated with relying on a single method or data source. Additionally, by incorporating cross-verification checks into the pre-issuance process there is an opportunity to enhance the credibility, reliability and efficiency of credit issuance.

This can be achieved by using data rules to highlight any anomalous outcomes and recording the results of the cross-verification process, including the location of any reference sites and external data sources, in the metadata of the credit.

Over time there is also an opportunity to bring more automation and transparency to credit issuance. This can be done by moving progressively from a pre-issuance flagging approach with a high degree of manual oversight to a more automated process using smart contracts once reliable outcomes have been clearly demonstrated.

Reflexive

The final principle to consider for the design is the use of credit data as a means of dynamic credit benchmarking and as a source of continuous improvement. The concept of reflexive biodiversity credits involves continuously grading the value and integrity of each biodiversity credit by comparing it to the entire pool of historical biodiversity credits generated within the system. This approach creates a dynamic feedback system where current credits are contextualised within the performance and impact metrics of all previous credits. By embedding this comparative grade into the credit’s metadata, stakeholders can gain immediate insights into its relative effectiveness and reliability. This reflexive mechanism also ensures that the evaluation of biodiversity credits remains dynamic rather than static, continually evolving and improving over time based on the set of accumulated data.

At scale, the reflexive approach to biodiversity credits becomes significantly more valuable by leveraging the vast amount of data generated from all biodiversity credits ever issued. As the dataset grows, the system’s ability to discern patterns, identify best practices, and pinpoint areas for improvement becomes increasingly sophisticated. This large-scale data aggregation allows for more nuanced and accurate assessments of biodiversity outcomes, enhancing the overall credibility and utility of the credits. Also, by analysing trends and variations across a broad spectrum of projects, the system can better account for ecological complexities and regional differences, leading to generally better informed and more effective conservation strategies.

Furthermore, growth of an extensive data pool offers an opportunity to enhance trust and transparency in the system. With access to comprehensive historical data, stakeholders can make better-informed decisions, confident in the robustness of the grading system. This transparency also fosters greater accountability, as credits are continuously benchmarked against a growing body of evidence.

Ultimately, a reflexive biodiversity credit system, powered by large-scale data, should facilitate a more responsive and resilient approach to biodiversity conservation, by ensuring that efforts are consistently aligned with the evolving ecological landscape and societal needs, and by promoting a continuous drive towards high integrity outcomes.

Congratulations on making it to the end of Part 4B of the Biodiversity in the Digital Age series. The next part of this article will explore the demand side aspects of the system and focus on how the whole system links together.

In the meantime, if you believe that memes can help us build the world’s best biodiversity market then jump over to the EcoMemes project.

Value Transfer and Function for the Supply Side of the System

Welcome to part four in a series of five articles exploring the place of biodiversity in an increasingly digital society. The aim of this series is to investigate the process of facilitating meaningful transfers of value between nature and communities and the digital world. I outline how a digital biodiversity credit market (DBCM) offers a new instrument for recognising the economic value of nature, offering part of the solution for delivering much needed finance for biodiversity protection and conservation activities

In the first article I wrote about biodiversity credit markets and outlined the key drivers behind the demand side of the market. In the second article I expanded upon this by exploring the role that digital assets and the growing digital economy can play in facilitating high integrity demand. In the third article I focused on some principles of ecology by exploring the foundations for creating digital biodiversity credits. In this article I tie these various components together by outlining a system of mutual value transfer between nature, communities and the digital world.

Because the function and design for a system of value transfer is a large topic I have split this fourth article into 3 parts. The first part looks at value transfer and the function for the supply side components, the second part outlines the principles relating to the design of a digital biodiversity credit, whilst the third part looks at the demand side and the mechanics for linking the system together.

Before getting further into the details, however, it is important to put some definition around the various concepts, specifically the terms ‘system’, ‘function’ and ‘design’:

· ‘system’ relates to the overarching objective of linking the natural and digital worlds through mutually beneficial transfers of value.

· ‘function’ relates to the mechanics and principles by which the system operates (i.e. foundations of a high integrity market).

· ‘design’ relates to the components and principles by which units of value in the function are constructed (i.e. considerations for creating high integrity and high utility credits in the system).

So, with that out of the way let’s explore how we can construct a high integrity digital biodiversity credit market.

Quick re-cap

In the first three articles I presented a series of concepts relating to biodiversity markets, digital assets and ecological monitoring and explored some of the overlap that exists between these domains. To provide context for this article I summarise the following key principles which informed previous articles and which I use in the design of the system.

Biodiversity

· Biodiversity is local

· Biodiversity is heterogenous and diverse

· Managing and protecting biodiversity requires co-design with Indigenous People, consideration of local communities, regional strategic planning and the deployment of on ground actions.

Biodiversity Credit Markets

· Biodiversity credit markets offer an opportunity to facilitate the flow of capital towards nature protection and restoration activities

· The creditable component of biodiversity is the maintenance or improvement of biodiversity

· The structure of a credit is a measure of maintenance or improvement in biodiversity (i.e. an outcome) for a given extent over time.

· Different aspects of biodiversity can be used to represent the maintenance or improvement of biodiversity depending upon environment, location and scale

· Biodiversity credits are not offsets

· The demand side mechanics of a biodiversity credit market should not lead to the degradation of nature

· The greater the flow of capital to the supply side of the market the greater the benefit to biodiversity, assuming that high integrity outcomes are being achieved.

Technology and Biodiversity

· Technology offers a means of recording the maintenance and improvement in biodiversity at scale

· Technology-enabled monitoring of biodiversity is becoming increasingly accessible

· Technology-enabled monitoring of biodiversity is largely natively digital.

Blockchain Infrastructure and the Digital (Token) Economy

· Blockchains offer an infrastructure for verifying and distributing digital assets, which unlocks a new layer of value in digital ownership

· A DBCM is a system that takes digital representations of biodiversity outcomes and delivers them to market via blockchain infrastructure

· Digital representations of biodiversity outcomes (i.e. digital data) can be used to create digital biodiversity credits in the form of Non-Fungible tokens (NFTs)

· The growing digital economy offers a potential source of high integrity demand for biodiversity credits particularly through the creation of nature backed digital assets.

The principles outlined above offer a scaffold by which a system of meaningful interaction between nature and the digital world can be designed. The next section explores the concept of ‘value transfer’ and the structure and mechanics of what this represents.

Value Transfer — Facilitating Biodiversity Improvement and Human / Nature Connection via the Digital World

Addressing the biodiversity crisis involves recognising the value of nature within economic systems, and integrating biodiversity conservation with how people live. A DCBM can enable this by unlocking and directing the finance required to protect biodiversity, fund conservation activities and support the livelihoods of those involved: landholders, Indigenous People, local communities and service providers.

Two stages of financing are required. The first stage is to facilitate the commencement of biodiversity protection and conservation within a project area, covering stakeholder engagement, planning and design through to the implementation of baseline measurement and on ground management activities (fencing, trapping, weeding, planting etc). The first stage also includes monitoring to inform on-going management and measure biodiversity outcomes against baseline values. The second stage of funding is to facilitate the purchase of outcomes that have been achieved, which are captured in the form of a credit. Therefore, for the system to succeed funding pools are required to address two independent components: an ex ante (before the event) implementation payment, and an ex post (after the event) credit purchase.

To integrate biodiversity conservation with how people live there is a requirement to not only deliver biodiversity conservation and restoration to where people are now and will increasingly be in the future (i.e. make it available to them), but also present it to them in a format with which they can and choose to interact. For some people, this interaction will be direct. However, for others, it will be indirect. The digital world is increasingly becoming the future place of being for much of society (i.e. the ‘where’ to deliver biodiversity) whilst blockchain and NFTs offer an infrastructure layer for the transport of biodiversity outcomes in the form of a digital asset (i.e. the ‘how’). Structurally these components represent the mechanics with which value can be transferred from nature towards the digital world.

In addition to being able to deliver measured improvement in biodiversity in the form of a digital asset there is also a requirement for people to be willing to engage and interact with these assets (i.e. the ‘why’). The sustainable consumption movement, driven by personal values, ethical beliefs and mindful decision-making, highlights a growing desire amongst consumers to have their purchases connected with positive outcomes (i.e. “I can consume and do good”). Indicators of this growing trend include increasing consumer focus on the production and lifecycle of products, and at the business level the substantial growth in social enterprises with business models delivering on a social mission.

Broadly, what underlies this movement, in part, is a desire for greater connection to nature and interact with it in ways that are a net positive. With respect to biodiversity this means knowing that our actions are connected to the protection and restoration of nature, and not supporting systems that degrade and extract from nature.

The concept of connection therefore becomes a reciprocating agent in the system (Figure 1), a form of value that, as will be discussed further in Part 4C of this article, has real meaning and can be represented through species, people and place.

Function for the supply side of the system

So, with an understanding of value can transfer from nature and communities to the digital world and back again, lets now look into the function of the supply side of the system. Broadly the supply side of the system is responsible for delivering a connection to nature through a DBCM and in the form of a credit.

The operation of the supply side is almost identical to the function of any biodiversity credit market, however, as the system interacts directly with the digital world, all components on the supply side are natively digital (hence a DBCM). The next section explores contemporary principles for creating high integrity biodiversity credit markets, but with consideration for how this becomes digitally native.

Principles behind the function

In recent years there has been increasing discussion around the framework for creating high integrity biodiversity credit markets, with a number of documents seeking to provide guidance on governance and integrity principles (see WEF, The Biodiversity Consultancy, and Plan Vivo). Despite some variations, these guidance documents have broadly aligned on a set of foundational principles arranged under the themes of social, nature and governance, which form the basis for the function on the supply side of the system.

Social

The key consideration for the social aspect is around equity and inclusion particularly as relates to Indigenous Peoples (IPs) and Local Communities (LCs). Biodiversity credit markets should cause no harm to people.

If designed poorly, there is potential for market driven biodiversity protection and restoration to incentivise the flow of new capital into land markets, further exacerbating the global phenomenon of land grabbing.

Government mandates to implement top-down approaches to satisfy international biodiversity objectives (fortress conservation) or corporate objectives to satisfy a green agenda (green grabs) risk perpetuating existing power imbalances. The results can be increased land aggregation and concentration of ownership amongst wealthy participants, further displacement of IPs and smaller landholders in LCs, and downstream impacts including increased food insecurity, rural poverty, loss of generational renewal and loss of livelihoods.

Not surprisingly this issue is exacerbated in areas of weak governance, where land transfer is facilitated by corrupt practices, or failure by implementing agencies to recognise or protect tenure rights.

A key objective is to therefore build an approach that unlocks participation for smaller landholders, where contributions to biodiversity conservation can be easily recognised and rewarded. Importantly this includes:

· Incorporation of the concept of Other Effective Area-based Conservation Measures (OECMs) into the function, where land uses with primary non-conservation objectives such as traditional farming, cultural and spiritual sites can be included where they deliver biodiversity conservation benefits;

· Overcoming the costs and potential economic inefficiencies associated with implementing non-aggregated biodiversity restoration and conservation projects; and

· Ensuring the availability of cost effective and fit-for-purpose monitoring, reporting and verification tools and infrastructure.

First and foremost, it is essential to uphold the principle of Free, Prior, and Informed Consent (FPIC), which guarantees that IPs and LCs are fully informed about projects affecting their lands and resources and have given their consent without coercion.

Engaging indigenous peoples and local communities actively in the design and implementation of biodiversity credit projects is another key consideration. The traditional knowledge and perspectives of IPs are invaluable for the success of conservation efforts, and their participation ensures that projects are culturally appropriate and more likely to succeed. In their report “Leading for Nature’, Pollination Foundation and partners sought to facilitate the principles of inclusion and co-development in nature credit projects by outlining a framework centred around 5 pillars of activity; Adapt, Explore, Create, Lead, Advocate (Figure 2). Using the pillars, the framework details a series of transparent and inclusive activities, and consultation processes to ensure that project development respects local governance structures and decision-making practices.

In addition to direct participation in design it is also important that equitable benefit-sharing mechanisms are established to ensure that the economic and social benefits derived from biodiversity credits are fairly distributed. Beyond payment for traditional ecological knowledge activities and the delivery of planning and on-ground services, this can include direct financial compensation, support for community development projects, and investments in local infrastructure and services.

Ensuring appropriate safeguards for the use of culturally significant knowledge and protecting the value associated with IP contributions is also important. With respect to data ownership, stewardship, and privacy, the CARE Principles for Indigenous Data Governance are designed to ensure that data involving indigenous peoples is handled in a way that respects their rights and interests. The principles aim to promote equitable and respectful data management practices that empower indigenous communities by considering Collective Benefit, Authority to Control, Responsibility and Ethics.

Other social issues exist in relation to fair and equitable access to digital data and technologies for monitoring, reporting and verification. Previous studies have identified how a dependence on digital technologies can often marginalise IPs and LCs in conservation programs leading to disempowered and disengaged communities, unethical data collection practices and missed opportunities to meaningfully integrate traditional ecological knowledge.

Technology accessibility and literacy should be considered from the outset and supported by programs of community engagement and capacity building, and the use of user-friendly tools and approaches wherever possible.

Although a DBCM relies upon a foundation of access to digital technologies there are means to facilitate accessibility by abstracting the digital infrastructure from the end user. This includes ensuring appropriate design of monitoring, reporting and verification tools for all users and simplifying the requirements for interaction with the underlying financial infrastructure. More details on approaches to achieve this will be outlined in Part 4c.

Nature

A core tenet of a high integrity biodiversity credit market is that real, robust and verifiable biodiversity benefits are actually being achieved, a principle that relies upon the application of appropriate science. In the third article of this series I outlined a number of aspects to consider when identifying and verifying positive biodiversity outcomes, including consideration of rigorous monitoring and survey designs, the application of appropriate data analysis methods and the use of practical approaches, tools and technologies.

Biodiversity management and ecological restoration are complex and costly endeavours, often hindered by the intricate interrelationships within ecosystems, funding constraints, and environmental variability. Despite these challenges, success can be achieved through local, context-specific strategies, community engagement, and adaptive management. Strategic conservation planning, which involves systematic resource allocation and goal prioritisation, and adherence to established restoration standards are also crucial.

Beyond the scientific complexity there are also layers of operational and social constraint, many of which act in tension with the urgency required to address the crisis. As outlined above there are clear requirements to consider the human component associated with biodiversity protection and restoration, particularly around equity and inclusion for IP and LC communities. In this context, although there is an imperative to progress towards action the importance of not taking shortcuts and ‘working at the speed of trust’ can’t be understated.

In addition there are also operational considerations around the availability of skilled personnel and the development of the supply chain (for example this and this) to support biodiversity protection and restoration activities at scale.

A holistic approach therefore needs to consider solutions where there is an adequate capacity to assist with delivering positive biodiversity outcomes, and that this is broadly accessible and available across society. This comes back to creating and supporting local nodes that align economic incentives with positive outcomes for nature, through support for skills and supply chain development that ultimately recognises meaningful contributions to nature through meaningful pay.

Governance

Good governance and transparency is key to ensuring that biodiversity credit markets are producing high quality biodiversity outcomes and operating in a high integrity manner. This requires safeguards and transparency at the market and project levels.

At the market level there is a requirement to eliminate opportunities for fraudulence by adopting a rigorous structure of oversight and transparency. Best practice governance involves administration by an independent entity, with the rules of the market being clearly defined in the form of a standard. The standard is a document that lays out the rules and requirements for developing projects and methodologies related to the market, as well as validation, registration, monitoring, verification, crediting and issuance process, and governance arrangements.

At the project level there is first a requirement to demonstrate eligibility through additionality, ensuring that biodiversity outcomes would not have occurred without the credit mechanism, and that no deliberate degradation occurred prior to project commencement. Generation of high-quality biodiversity credits then requires clarity in design, measurement and verification to ensure that the outcomes achieved are real and robust. This involves independent review of the science behind the methodologies used to define and quantify changes in biodiversity and/or ecosystem integrity, plus a process of audit and verification for the actual outcomes that have been achieved. Depending upon the approach of the independent group involved, verified methodologies and outcomes then become eligible for approval via an endorsement and/or certification. There are a number of groups undertaking this function with this document providing a summary of the existing and emerging review mechanisms and assessment frameworks.

Once verified credits are released through an issuance process, usually with some provision for leakage, the displacement of negatively impacting activities from one location to another, and permanence or durability, the overall period for which the outcomes will be maintained. Typically, consideration of leakage and permanence results in a deduction to the total number of credits issued, with the deducted allocation being withheld in a buffer account to be called upon in circumstances where the integrity of an outcome is potentially at risk of being compromised. For most schemes the activities of credit generation, transfer and retirement are tracked on ledger called a Credit Registry, which for the most part is administered by an independent third party.

An additional safeguard is needed in the form of rules around the claims that can be made with respect to the purchase of biodiversity credits. These rules need to be in line with high integrity use of biodiversity credits and also in compliance with any applicable legislative prohibitions against misleading or deceptive conduct. Accounting for Nature offers a good outline for the criticality of claims rules in safeguarding against ‘greenwashing’ or preventing any inadvertent harm to nature by aligning with the principles of accuracy, specificity, coherence, relevance and transparency when making claims.

Finally, a lesser considered aspect of integrity is financial transparency. This relates to the disclosure of costs and expenses associated with services and administrative processes related directly to projects, but also profitability for project developers and intermediaries, and assurance that financial benefits are being shared with stakeholders, IPs and LCs where appropriate.

Disclosing financial relationships helps to foster trust and accountability in biodiversity credit markets whilst promoting effective management and openly demonstrating a commitment to ethical practices.

The above highlights that although a biodiversity credit represents a measured and evidence-based unit of positive biodiversity outcome it is also a reflection of the governance and integrity of the system. Not surprisingly, high integrity comes at an additional cost to the planning, on-ground actions and monitoring required to achieve and demonstrate a biodiversity outcome, but opportunities for efficiencies abound when a biodiversity credit market becomes a DBCM.

The first is through integration of governance and integrity measures within the data structure of the credit itself, a concept which will be explored further in Part 4b. The second is to consider streamlined, efficient, and user-friendly administrative processes for governance while simultaneously ensuring high integrity and trust. In this regard blockchain technologies offer a solution, functioning to enhance governance and integrity measures throughout the system.

Through immutability and transparency via a public infrastructure blockchain, technologies offer an opportunity to transform governance by enforcing disclosure, reducing fraudulent activity and ensuring data integrity and accountability.

Whilst not exhaustive Figure 3 provides an overview of blockchain technologies and the areas within DBCMs where they can be applied.

Congratulations on making it to the end of Part 4A of the Biodiversity in the Digital Age series. Part 4B continues the supply side discussion by looking at the principles behind biodiversity credit design.

Or if you just want to look at some memes that explain these concepts in a more light-hearted manner then jump over to the EcoMemes project.

Foundations for Creating Digital Biodiversity Credits

Welcome to part three in a series of five articles exploring the place of biodiversity in an increasingly digital society. The aim of this series is to investigate the process of facilitating meaningful transfers of value between nature and the digital world in order to conserve and restore biodiversity.

In the first article I wrote about biodiversity credit markets and outlined the key drivers behind the demand side of the market. In the second article I expanded upon this by exploring the role that digital assets and the growing digital economy can play in facilitating high integrity demand in biodiversity credit markets. In this article I tackle some principles of ecology while exploring the foundations for creating digital biodiversity credits. Let’s dig in!

The structure of biodiversity credits

To recap, biodiversity credits are units representing some quantity of maintenance or improvement in biodiversity occurring as a result of conservation or restoration activities. The objective of biodiversity credits is to facilitate greater investment in biodiversity conservation and restoration programs and activities. They can do this by operating as financial instruments representing biodiversity gains.

Whilst currently still a nascent space, with standards and structures still under development, a recent global review of biodiversity credit schemes has identified that some key trends for designs and features are starting to emerge.

Principal amongst these is that a majority of the current schemes adopt a similar structure for unitising biodiversity credits as outlined in Figure 1.

Figure 1 — Standard structure of a biodiversity credit (source — Pollination Group)

As identified above a biodiversity credit is comprised of three components: an outcome (measuring outcomes rather than activities is preferred as I explain below), an area and a time. Unsurprisingly this structure mirrors that associated with monitoring environmental outcomes in the context of Environmental Impact Assessment (EIA), as well as guidance for monitoring and evaluating natural assets under environmental and natural resource management programs.

The reason for this is that although a biodiversity credit represents a financial instrument with application in the financial sector, the fundamental requirement of a biodiversity credit is to ensure that capital flows are achieving meaningful and tangible benefits for nature.

To ensure that this is the case the basis of a biodiversity credit needs to be grounded in the principles of biodiversity management and ecological restoration, and specifically the fundamentals of outcomes-based monitoring and management.

Outcomes based monitoring and management in ecology is vital for fostering accountable and adaptive conservation practices. By emphasising measurable ecological outcomes, this approach ensures a more transparent and evidence-driven strategy, fostering adaptive practices that directly contribute to the health and resilience of ecological systems.

Outcomes in conservation are defined by the observable improvements or the preservation of ecological conditions over time, something that is only achievable with knowledge of the commencing condition, also referred to as the baseline state. The baseline state is crucial in outcomes-based monitoring as it serves as a reference point, providing a clear understanding of the initial conditions before implementing conservation or management interventions. Comparing measurements of biodiversity of time to the baseline state enables precise assessment of the effectiveness of strategies, facilitating informed decision-making and adaptive management practices.

The consideration of area in outcomes-based monitoring is essential as it provides spatial context to ecological changes, allowing for a comprehensive understanding of the distribution and extent of impacts within ecosystems. Evaluating outcomes based on spatial dimensions enhances the precision of conservation strategies, addressing ecological challenges at varying scales and facilitating effective management decisions in diverse landscapes.

A biodiversity credit therefore takes these principles and aligns them with a spatial and temporal framework, usually fixed, that allows for outcomes to be unitised and delivered to market.

Biodiversity credit archetypes

Archetypes relate to the types of outcomes that biodiversity credit schemes support and can be broadly classified as the overarching objectives for biodiversity management. These objectives serve as the management goals to guide conservation efforts, defined by the status and requirements of biodiversity for a given area (the baseline condition) and are used to outline the desired ecological outcomes. The achievement of these objectives is then measured through observed outcomes, which are the tangible, measurable changes in biodiversity and ecosystem conditions resulting from the implemented management strategies (Figure 2).

Figure 2 — The relationship between baseline condition, archetypes, management activities and outcomes

In their review Pollination identified four distinct archetypes for biodiversity credit schemes, outlining the different classes of activities that are currently deemed creditable. These include:

1. Protection — providing a verified designation of protected-area status through recognised instruments including conservation covenants, Indigenous Protected Areas, conservation easements and private protected area programs and agreements.

2. Regeneration — undertaking activities that result in an improvement of ecological value and condition over time

3. Stewardship — undertaking activities that result in the maintenance of ecological value and condition over time

4. Adaptation — undertaking activities that result in the ongoing resilience of ecological systems in the context of climate change related threats

Based on the prevailing status and condition of a project area there is potential for multiple archetypes to be considered, each requiring distinct management activities to be implemented and differentiated outcomes to be demonstrated in order to be achieved. This in turn offers opportunities for multiple classes of biodiversity credits to be recognised, also referred to as ‘stacking’, both within a single project area and also across the life of a project as biodiversity condition changes (i.e. the transition of a regeneration project into a stewardship project over time).

Another point to note with the archetypes is the recognition of stewardship as a creditable class of activity within biodiversity credit schemes and the opportunity that this raises for distinction against carbon credits. The primary objective of nature-based carbon credits is to mitigate climate change by enhancing carbon sequestration, with a secondary objective of promoting sustainable land use practices. Broadly speaking this has resulted in 2 classes of biodiversity enhancing carbon credits being recognised; carbon sequestration via a regeneration class of activities (afforestation, reforestation, biodiverse plantings, human induced regeneration etc) and emissions prevention through a habitat protection class of activities (avoided deforestation).

The regeneration class of nature-based carbon credits activities are primarily focused upon restoring degraded landscapes (i.e. not targeting the protection of pristine habitats) as these areas offer a greater opportunity for carbon sequestration over time. Nevertheless, there is an upper bound to the credit duration associated with these projects, as the sequestration rate typically decreases as the ecosystem matures and approaches climax conditions.

Avoided deforestation projects require that an area which otherwise would have been cleared is protected. In this way these projects align with the protection archetype for biodiversity credits but can also include aspects of stewardship if active management is being undertaken.

In biodiversity conservation habitat protection typically provides superior outcomes than habitat restoration, as it can be achieved at lower costs, with greater fidelity to the structure of natural systems and without the time delay required for restoration (admittedly it is a bit more nuanced than this so for further reference it is worth reading this). What’s more, protecting and managing what remaining habitat there is critical to achieving aspirational goals such as nature positive and 30x30 regardless of whether a direct clearing impact exists. Of course on top of this we then need to build connectivity through wildlife corridors and increase the total habitat area, all of which will require active regeneration of degraded lands.

For this reason stewardship biodiversity credits offer an opportunity to pay for the management and protection of pristine habitats, that need not be directly threatened by clearing, and over timeframes that are unbound with respect to carbon sequestration requirements. As a result, the potential economic and social impacts of stewardship biodiversity credits for Indigenous Peoples and Local Communities (IPLC) is immense.

Measuring biodiversity outcomes

Measurement and metrics play a pivotal role in evaluating and quantifying ecological outcomes by providing objective and standardised tools to assess the effectiveness of conservation and management efforts. Through the use of indicators, these measurements enable scientists, policymakers and now financial markets to track changes in biodiversity, habitat health, and ecosystem services. Expectedly, the effectiveness of ecological measurement hinges on:

· Thoughtful consideration of what aspects to measure and the selection of appropriate methodologies;

· Ensuring a comprehensive understanding of ecological dynamics;

· Available resources and technologies; and

· Requirements to inform strategies for biodiversity conservation and management.

However before exploring the details of what to measure when considering biodiversity it is important to recognise that nature is inherently complex, characterised by intricate interactions among diverse living organisms and dynamic relationships between biotic and abiotic components. As a result, and despite our efforts to comprehend the complexity of nature, our understanding is inherently limited by the sheer intricacy of the system. The interwoven relationships, feedback loops, and myriad factors influencing ecological dynamics make it challenging to grasp the entirety of nature in its holistic form, let alone define metrics that adequately represent biodiversity as a whole. As a result much of what we use to describe and define biodiversity will necessarily always be somewhat reductionist and incomplete.

What to measure

Despite this abstraction from the true, complex state of nature, careful and well-designed monitoring approaches can be adopted to capture essential aspects of biodiversity and used to quantify outcomes associated with conservation and management strategies. For biodiversity credit schemes the focus of measurement, as identified through various classes of metrics, falls into four distinct categories:

1. Ecosystem — a flexible approach focusing upon the selection of multiple metrics deemed most suitable to represent the holistic condition and integrity of the ecosystem type (i.e. terrestrial, marine, aquatic)

2. Habitat — metrics representing habitat condition, structure and integrity with respect to the requirements of a specific fauna species

3. Vegetation — metrics representing vegetation condition, structure and integrity as a proxy for condition of an ecosystem (principally terrestrial at this stage)

4. Indicator Species — metrics based on the presence of selected species as an indicator of functional ecosystems (eg. Savimbo Biodiversity Methodology Version 1.1-C)

In addition to distinction across the various classes of metrics it is important to recognise the interplay between metrics, area and time (the three components of a biodiversity credit identified in Figure 1).

For biodiversity credit schemes the ‘project area’ represents the entirety of the area from credits are derived, based on the outcomes as defined by the class of metrics deemed appropriate to the ecosystem type and the defined archetype (Figure 2). Within a project area a credit represents a sub-unit of the project area, typically fractionalised into a standard area. This approach to crediting works well for metrics representing sessile components of biodiversity (plant species, vegetation etc) but becomes more difficult for impermanent and mobile components of biodiversity (particularly long ranging animals) or more dynamic ecosystems (marine). This undoubtedly will have influence on the selection of metrics (species presence/absence over population dynamics, and the distribution/condition of plants over the distribution/condition of animals) as well as the focus of biodiversity credit schemes (preferencing terrestrial over marine).

Time is also an interesting consideration as the frequency of monitoring profoundly influences the understanding of ecological outcomes by determining the temporal resolution of observed changes. High-frequency monitoring, conducted at short intervals, offers a detailed understanding of rapid fluctuations, seasonal patterns, and responses to episodic events, facilitating adaptive management strategies and the detection of rare occurrences. In contrast, low-frequency monitoring, conducted at longer intervals, provides a broader perspective on long-term trends, ecosystem stability, and successional changes. Consideration of monitoring interval varies for metrics and across ecosystems and is also influenced by the archetype and the management activities that are being undertaken.

Unfortunately, these elements of complexity with respect to representing biodiversity operate in tension with the requirements of financial markets, which prefer simplified metrics and homogeneity to create standardised, interchangeable products and facilitate efficient and liquid trading. That is not to say that biodiversity credits are too complex to be achievable, it is to identify that a trade-off will always exist between the integrity of the outcome (or at least a demonstration of it) and concession towards convenience for the market.

How to measure

Deciding how to measure biodiversity outcomes involves a nuanced consideration of both the methodological approach and the available technology (obviously there is an intersection between the two), with an added emphasis on scientific principles including proper practice in sampling design and statistical analysis. However before exploring these aspects in more detail it is worth making a minor detour through the world of monitoring versus modelling.

Monitoring versus modelling

Monitoring and modelling are essential techniques employed to assess biodiversity outcomes, with monitoring involving direct observation and data collection, while modelling utilises mathematical frameworks to simulate and predict ecological patterns and changes. Both approaches are complementary, with monitoring providing empirical data for model parametrisation and validation, and modelling offering a tool to explore ecological processes beyond what can be directly observed in the field.

When considering the requirements for biodiversity credit schemes to provide meaningful outcomes for nature as measured via tangible outcomes there is a clear preference for adopting monitoring approaches over modelling approaches. The reason for this is monitoring provides direct, empirical data from the field, and actual on-the-ground verification of biodiversity outcomes, offering a real-word validation of biodiversity condition and changes. Monitoring also allows for the assessment of site-specific variability and is better suited to capture dynamic and unpredictable outcomes in circumstances where unexpected changes have occurred. In contrast models rely on assumptions, data inputs, and algorithms, and their accuracy is contingent on the quality of these inputs, leading to potential questions on their credibility if based on limited on-the-ground verification.

However, this is not to say that there isn’t a place for modelling in biodiversity credit schemes, particularly as it relates to their ability to provide predictions of species distributions, enhance the understanding of ecosystem dynamics, and contribute to more informed conservation and management decisions.

Monitoring approaches

Although several monitoring designs are used in ecology to quantify change over time, it is anticipated that the BACI (Before-After-Control-Impact) approach, a foundational methodology for evaluating the impact of environmental interventions or disturbances, will be one of the more widely adopted within biodiversity credit schemes. By collecting data before and after the implementation of an intervention in both treatment (impact) and control areas, BACI can be used to discern causal relationships between the intervention and observed ecological changes, by controlling for natural variability and allowing for differentiation between human-induced impacts and natural fluctuations in ecosystems.

The BACI approach aligns with many of the archetypes for biodiversity credits, specifically those relying upon management actions and interventions to achieve biodiversity outcomes such as regeneration and stewardship. The approach also regularly forms the basis of accredited methods for the measurement, reporting and verification of natural assets, such as in certifiable environmental accounting frameworks like Accounting For Nature. The BACI approach is also highly versatile, with a systematic and statistically rigorous framework that is adaptable to various ecological systems and scales.

Additional methods integrate spatial and temporal dimensions and employ methods such as space-time cube analysis and remote sensing. These approaches, which are particularly relevant for studying phenomena such as habitat fragmentation, migration patterns and climate change impacts, enable the continuous monitoring of biodiversity across landscapes, helping quantify patterns, trends, and responses to environmental changes. Other approaches include time series analysis, repeated measures designs and mark-recapture studies.

Rigorous survey designs and data analysis methods are essential for objective assessment of whether biodiversity outcomes have been achieved and to support integrity in biodiversity credit markets. Careful consideration of sampling design, randomisation, and statistical power is crucial during monitoring strategy development, whilst appropriate statistical analyses are required to interpret the collected data and draw conclusions about the observed changes in monitored metrics.

Cost, practicality, and the transition to digital

Cost and practicality have always been significant factors influencing the choice of ecological monitoring methods and the level of effort applied to quantifying biodiversity outcomes. In the commercial sphere, field monitoring approaches for non-research focused biodiversity assessments are typically pared back, with requirements to mobilise experienced and expert personnel to remote locations also impacting on the frequency with which monitoring is undertaken.

Practically it is not feasible for field teams to monitor every individual plant or animal, habitat or area, particularly for ecological systems that are vast and complex. As a result, there has historically been a preference for conducting sampling approaches that yield detailed information on selected variables, from largely accessible locations, but offering only limited spatial coverage for the data that is collected.

In recent years there has been a move towards the use of technology enabled monitoring techniques in ecology, including the adoption of remote sensing data, eDNA analysis and artificial intelligence for field camera and acoustic sensor data, over singularly human labour-based approaches. Much of this has been propelled off the back of technological advancements and increased accessibility for a range of digital data platforms and solutions including, but not limited to, satellites, UAVs, connected IoT sensor networks, mobile devices, DNA extraction, amplification, and sequencing technologies, high performance computing, neural networks, machine learning models and open data initiatives.

Importantly many of these technologies influence the temporal and spatial resolution at which monitoring can be undertaken, typically offering opportunities for more frequent data capture and at scales that can encompass entire project areas and their surrounds (the latter of which is important for understanding connectivity). In some instances this allows for a move away from more traditional sampling type monitoring approaches to more comprehensive evaluation techniques using remote sensing data and time series analysis.

As digital technologies continue to evolve and interact, the overall cost of implementing digital monitoring approaches for biodiversity is likely to decrease, making these tools more widely available and applicable for ecological monitoring. This in turn will positively impact upon the availability of data to quantify and verify outcomes associated with biodiversity credit markets, resulting in higher integrity verification of outcomes at lower overall cost. Importantly the ascent of these technologies will also continue the transition of biodiversity data towards a natively digital format that can be integrated into frameworks for the creation of digital biodiversity credits.

Identifying appropriate actions to achieve positive biodiversity outcomes

To round out this exploration into the foundations for creating digital biodiversity credits it is worth considering the management actions and on-ground activities required to produce biodiversity credits.

Firstly, it is important to recognise that biodiversity management and ecological restoration is a complex subject for which desired outcomes are difficult to achieve. Indeed the underlying complexity of nature and the intricacy of interrelationships in ecological systems has undoubtedly contributed to a history of poor performance with respect to biodiversity and threatened species management, biodiversity protection and the implementation of biodiversity offset schemes. Layered on top of this is the fact that biodiversity protection and ecological restoration is an expensive activity (see also this and this) meaning that constraints in funding at a project level are likely to have a significant influence on whether successful outcomes are achieved. Finally, seasonality and stochastic variability (including aspects such as drought, flood and fire) are also considerable constraints to implementing effective management programs as these factors lend themselves to increased requirements for responsiveness, flexibility and irregularity, all of which act in conflict with the ideals for planning.

Nevertheless, despite these constraints biodiversity protection and ecological restoration are achievable particularly if some key principles and considerations are adhered to. First of these is an understanding that the practice of biodiversity management and ecosystem restoration is foundationally local due to unique ecological characteristics, species compositions and environmental dynamics. Understanding these unique ecological characteristics and addressing the local threatening processes necessitates context-specific strategies that acknowledge the intricacies of each locale. This in turn highlights that community engagement and understanding of local ecological contexts remains a crucial component for the design and implementation of successful conservation and restoration initiatives.

Once a local and regional understanding of biodiversity has been gained practices such as strategic conservation planning can be employed. Strategic conservation planning is a systematic and science-based approach used to guide the allocation of resources and efforts for conservation purposes. It involves the identification of conservation goals, the assessment of ecological and socioeconomic factors and the development of prioritised actions to achieve those goals. Strategic conservation planning aims to maximise the effectiveness of conservation efforts by focusing resources where they will have the greatest impact. For ecological restoration, documents such as the National standards for the practice of ecological restoration in Australia should be considered as these not only detail principles underpinning restoration philosophies and methods, but they also outline the steps required to plan and implement a restoration project to increase the likelihood of its success.

Given the complexity of nature there should be preference towards approaches that embrace uncertainty, encourage learning and promote flexibility as championed by frameworks such as adaptive management. Adaptive management is a dynamic and iterative process designed to enhance the effectiveness of biodiversity conservation and ecological restoration efforts. It involves continuously monitoring and assessing the outcomes of interventions, learning from the results, and adjusting management practices accordingly. By incorporating feedback from real-world outcomes, adaptive management allows practitioners to refine their approaches over time, adapting to changing ecological conditions and uncertainties whilst remaining responsive to the effectiveness of management actions.

The final aspect to identify is that human intervention plays a necessary and crucial role in achieving biodiversity protection and ecological restoration. While natural processes can contribute to ecosystem recovery to some extent, natural processes alone are largely insufficient for achieving biodiversity protection and ecological restoration. This is particularly the case where threatening processes, such as habitat destruction, invasive species and the impacts of climate change are now outpacing the ability of ecosystems to adapt.

As a result relying on the concept of leaving natural areas unmanaged is unlikely to achieve optimal biodiversity protection and ecological restoration outcomes, as this approach fails to acknowledge and address the contemporary challenges that global ecosystems face.

Congratulations on making it to the end of Part 3 of the Biodiversity in the Digital Age series. The next article in the series will tie everything together by looking at a system for funding community led digital biodiversity credits and linking this to the digital economy, i.e. a system for facilitating meaningful transfers of value between nature and the digital world.

Biodiversity credits - the role of digital assets in empowering high integrity demand

Welcome to part two in a series of five articles exploring the place of biodiversity in an increasingly digital society. The aim of this series is to investigate the process of facilitating meaningful transfers of value between nature and the digital world.

In the first article I wrote about biodiversity credit markets and outlined the key drivers behind the demand side of the market. In this article I expand upon this by exploring the role that digital assets and the growing digital economy can play in facilitating high integrity demand in biodiversity credit markets. The article provides the background on key concepts behind digital assets and explores emerging consumer trends indicating increasing demand for nature positive outcomes.

Background to digital infrastructure and assets

Digital infrastructure is increasingly becoming the backbone of our economy, analogous in importance to the physical infrastructure of previous eras. Just as roads, railways, and ports were critical for facilitating the movement of goods and people during industrial and post-industrial eras, digital infrastructure now underpins our global connectivity and communication.

The burgeoning of digital infrastructure has facilitated the growth of the digital economy, which encompasses all economic activities conducted through digital means. Digital assets within the digital economy are the broad range of digital content, information and resources representing value, utility or significance. The creation, consumption and distribution of digital assets is dependent on digital infrastructure, particularly internet connectivity, data centres, content delivery networks, cloud services and personal devices like smartphones and computers.

In recent times digital assets have gained significant attention due to the rise of blockchain technology (blockchain). Blockchain is a decentralised and distributed digital ledger technology that records transactions across multiple computers in a way that ensures security, transparency and permanence. As the name ‘blockchain’ suggests the digital ledger of blockchain consists of a chain of blocks, where each block contains a list of transactions, which once added cannot be altered retroactively (i.e. they are immutable).

One of the revelation of blockchain is that it has facilitated the establishment of property rights for digital assets by providing secure and transparent methods of digital asset ownership verification and transfer.

This in turn has allowed for individuals to assert control over their digital assets without the need for intermediaries (brokers, agents, registries and the like).

Enablement of digital property rights has the potential to revolutionise industries like art and intellectual property, by providing new levels of transparency and trust in transactions. It also offers a means of bringing previously intangible assets such as brand and culture to market, potentially unlocking a vast stock of previously untradable assets for trade. Importantly blockchain, also enables the tokenisation of real-world assets by representing ownership as digital tokens on a decentralised ledger.

This process allows traditionally illiquid assets, such as art, property and biodiversity(!), to be divided into smaller, tradable units, providing a more accessible and liquid form of investment.

The rise of the digital age

Since the late 20th century we have witnessed a rapid evolution of technological advancements that are now converging and transforming society. Internet connectivity has created a seamless and high-speed digital infrastructure, enabling instant global communication and access to an abundance of information. The ubiquity of smartphones and smart devices has empowered individuals with unprecedented computing power, catalysing a shift towards digital dependency. The COVID-19 pandemic has further accelerated this phenomenon, with remote work, online education, and e-commerce becoming either common or dominant. The data-driven nature of the digital economy is also generating vast amounts of information, which, when leveraged with artificial intelligence, is offering unprecedented insights and efficiencies. These combined forces are reshaping the structure of society. We have entered the digital age.

In addition to influencing how we work and conduct business, the rise of the digital age has also revolutionised how we socialise. Social media and messaging platforms have become important tools for social interaction, enabling global connections where individuals can identify with like-minded groups based on shared interests, rather than geographical proximity. These platforms have offered an unprecedented opportunity for self-expression, allowing individuals to curate their online personas, as well as explore and experiment with their digital identities.

The rise of the digital age has also profoundly influenced our leisure activities, especially in the realm of gaming and e-sports.

With the proliferation of high-speed internet and the development of sophisticated gaming technology, gaming has evolved to a highly popular and social experience. The introduction of cross platform capabilities and multi-player formats has transformed gaming into a vastly communal activity, with virtual and physical tournaments drawing gamers and spectators together from around the world.

With an expanding global market in excess of $200 billion, gaming is now a substantial economy. As an example, the game Fornite has generated an estimated $20 billion in revenue from its launch in 2017 through to the end of 2021, the majority of which was from sales of digital avatars, ‘backpacks’, and ‘dances’ also known as emotes. The global success of Fortnite has made its producer, Epic Games, one of the largest sellers of fashion in the world, outgrossing more recognisable labels such as Dolce & Gabanna and Balenciaga.

Consumption in the digital age

The digital age has also revolutionised consumption patterns, offering consumers more choices, convenience, and personalised experiences than ever before.

Uniquely it has also introduced a dynamic interplay between the purchase of material and digital products, with the notion of digital property rights blurring the lines between what is considered tangible and intangible.

While most traditional material goods continue to exist as either necessities or desirables, digital products have surged in popularity, facilitated by the ease of distribution and accessibility of digital platforms and marketplaces. For many individuals the consumption of digital assets follows their desire to curate and express their online identity via purchases that reflect their style, aesthetic and beliefs.

The trend towards digital consumption is expected to accelerate as the first digitally native generations, Z and Alpha, continue to mature. Having grown up in an era characterised by pervasive digital technology, these generations exhibit an innate comfort and proficiency in navigating online spaces.

Now entering adulthood and with more disposable income and autonomy over their purchasing decisions, it is anticipated that Gens Z and Alpha will continue to drive a surge in digital consumption, including digital assets and other virtual commodities.

The enablement of property rights for digital assets is also expected to further accelerate demand for digital products. In the early days of the digital age (Web 1.0 and 2.0), ownership and control over digital assets, such as content, were not clearly established. This ambiguity led to the rise of centralised platforms that acted as intermediaries, providing a controlled environment where users could create, share, and consume content. Under this model the platforms assumed the role of gatekeepers, asserting authority over user-generated content and effectively becoming the custodians of digital property including user data. A number of these platforms have been able to create highly lucrative business models around user data, through activities such as targeted advertising, user behaviour analysis, and selling anonymised data to third-party advertisers and marketers.

With digital property rights, however, there is an opportunity to empower consumers as active participants and owners within decentralised ecosystems with greater control over their personal data and assets.

Through the ownership of digital assets, consumers are now able to directly participate in the value creation process and in some instances contribute to the governance of decentralised platforms. This transition represents a fundamental shift from passive users to active stakeholders, granting consumers more agency, autonomy and ownership of their digital presence and opening the door for business models based on mutual co-ownership and stronger incentives for engagement and collaboration to achieve a common purpose.

Sustainability focused consumption

Running in parallel to this transition towards more digital lifestyles is an increased focus on sustainable consumption which is also fundamentally reshaping consumer patterns.

In general consumers are becoming increasingly mindful of the environmental and social impacts of their choices, leading to a surge in demand for eco-friendly and ethically produced goods.

This growing consumer awareness is reflected in the growth of sustainability-marketed products, which are exhibiting growth rates nearly double those of conventionally marketed products. More broadly this movement has catalysed a shift towards the use of sustainable materials, energy-efficient technologies, minimal ecological impacts and products designed for longevity and recyclability. It has also ushered in the rise (or perhaps the reemergence) of the circular economy model, emphasising reuse, repair, and recycling, as a sustainable alternative to the traditional linear “take-make-dispose” approach.

Source — Stern.nyu.edu courtesy of The ReGen Deep Dive

So how does this relate to biodiversity credits?

In the previous article I outlined the concepts behind biodiversity credit markets and detailed the dynamics behind the demand for credits. The key components were:

· Foundational demand (those requiring physical biodiversity outcomes)

· The creation of financial products to facilitate secondary trading

· The promotion of participation for those organisations seeking reputational enhancement.

In the article I identified potential for undesirable outcomes associated with facilitating secondary trading and also highlighted concerns for greenwashing and de-facto offsetting associated with markets driven by reputational motivations.

Yet for biodiversity credit markets to work there is clearly a requirement for increased liquidity to facilitate scale, which assuming a well-designed and highly functional market should correlate strongly with the positive biodiversity impact that can be achieved.

This is where I believe there is an opportunity to harness the intersection of shifts in technology and human behaviour to ensure that nature occupies a space of importance in the future place of being.

The means to achieve this is through the creation of nature backed digital assets that embed genuine and verified biodiversity outcomes into the metadata of digital fashion, collectibles, in-game assets, digital memberships and art.

Much like sustainable products in the material economy, where consumers preference reduced environmental impacts, eco-friendly materials and responsible production processes, nature backed digital assets offer an opportunity to tap into an increasing consumer desire for positive change. This would enable a direct-to-consumer market for biodiversity credits that brings liquidity on the demand side of a biodiversity credit market, eliminating the requirement for secondary trading to facilitate scale and potentially generating fewer extra-market impacts on biodiversity in comparison to material goods.

End of Part 2

Congratulations for making it to the end of Part 2 in this series! The next article will be focused on the process for creating high quality digital biodiversity credits and outlining how these can be used to build nature backed digital assets.

Biodiversity Credit Markets and the Dynamics of Demand

As societies recognise the urgent need to address the accelerating loss of species and habitats, the use of market mechanisms such as biodiversity credits as a potential solution is gaining traction. This was reinforced through the outcomes of COP15 (the 15th Conference of Parties to the UN Convention on Biological Diversity held in Montreal 2022), with biodiversity credit markets being identified in Target 19 of the Kunming-Montreal Global Biodiversity Framework (GBF) as an important mechanism for driving private sector finance towards nature protection and restoration.

At their simplest biodiversity credit markets are systems where conservation projects generate tradable units representing positive impacts on biodiversity. Their aim is to address the significant gap that exists in financing for biodiversity by encouraging private investment in nature protection and restoration while facilitating sustainable development practices. The thought is that by aligning economic incentives with conservation objectives, markets can become an additional mechanism by which a primary goal of biodiversity protection and restoration can be achieved.

Although there have been some initial projects and explorations into biodiversity credit markets and a number of publications to provide guidance on their governance and design (for example here, here and here), the concept remains nascent. As such the potential for biodiversity markets to achieve their primary goal of biodiversity protection and restoration at scale remains untested.

In creating and supporting a robust supply of credible and impactful conservation projects, biodiversity credit markets need to be designed and implemented so that any unintended negative social or environmental outcomes associated with their function are avoided.

While there is undoubtedly potential for negative outcomes to occur on the supply side of the market (the generation of credits), with the most notable being potential misrepresentation of biodiversity gain [1], it is arguably within the demand side of the market (the purchasing of credits) where hidden risks reside.

The reason for this is that it is the demand side of the market that is responsible for introducing finance and liquidity into the system[2], with which comes an expectation of return for participants, whether that be direct and financial or indirect and other (e.g. enhanced reputation). Therefore, clearly understanding the nature of that return, and determining whether it results in an extra-market impact on nature, is essential to ensuring that the primary goal of a biodiversity credit market (i.e. biodiversity protection and restoration) is maintained.

Offsets vs credits

Before going deeper into the demand side of a biodiversity market it is important to clarify the difference between biodiversity offsets and biodiversity credits, as the distinction leads to a foundational requirement for biodiversity credit markets.

Biodiversity credits and offsets can often be conflated due to their shared focus on the value of biodiversity, a common use of metrics to quantify and verify changes in biodiversity, and the fact that both address ecological harm through some form of investment in conservation or restoration projects. However, the distinction between the two instruments lies in their focus and ultimately their end use by the purchasing party.

Biodiversity offsets are a conservation strategy used to compensate for the unavoidable negative impacts of development projects on biodiversity and ecosystems. The goal of offsets is to achieve a “no net loss” or even a “net gain” of biodiversity as a result of the development. Biodiversity offsets are often subject to regulatory frameworks and guidelines to ensure that they are designed and implemented effectively. This includes ensuring that the mitigation hierarchy is properly applied and that offsets are only being used as a last resort to achieve equivalent or greater conservation outcomes.

Biodiversity credits are units representing some quantity of maintenance or improvement of biodiversity and are increasingly being adopted as a financial instrument to facilitate investment in biodiversity conservation and restoration. Credits are generated by conservation or restoration projects that measurably maintain and improve biodiversity, such as increasing species diversity or restoring habitats. Once created these credits are purchased by market participants who value biodiversity and/or are interested in generating a financial return.

A fundamental distinction therefore exists between the two in that an offset is a licence for buyers to compensate for a known and direct impact on biodiversity, while a credit is not tied directly to any development or predicated on any associated impact occurring. Given that the primary goal of a biodiversity credit market is to scale biodiversity protection and restoration, the impact associated with biodiversity offsets, which equates to an actual loss of biodiversity at a specified location, makes them unsuitable for inclusion. Therefore, a foundational requirement for an effective biodiversity credit market is that the demand side operates in isolation to any biodiversity offset scheme.

Foundational demand for biodiversity credits

Given that the demand side of a biodiversity credit market isn’t compensating for any direct impacts on nature, motivation for market participants largely aligns with facilitating proactive measures that support the protection, restoration and maintenance of critical ecological features and functions. For the purposes of this article I have identified this form of demand as ‘foundational’ as the value for participants is derived directly from the creation or maintenance of biodiversity assets (i.e. physical and tangible improvements). Some examples of this type of demand include:

Maintenance or improvement of a biodiversity asset from which economic value is derived: for example tourism operators protecting a coral reef, or the concept of ‘in-setting’ where companies focus on improving biodiversity within their own operations or supply chains

Companies seeking to avoid long term downstream costs associated with the degradation of ecosystems and/or the loss of access to natural resources: for example insurance companies using nature based solutions to reduce flood risk, or manufacturers restoring catchments to maintain access to clean water; and

Investors seeking to promote economic activity through biodiversity protection and restoration activities: for example, governments, but also impact investors considering both biodiversity and social returns.

It is also worth noting that voluntary purchases by either a business or an individual, driven by altruistic motivations, can also represent a form of foundational demand. However, given that this type of activity is often charitable and entered into with no expectations for any return in any form, participation may be better defined as constituting a donation rather than an investment, and perhaps the instrument better classified as a credit scheme rather than a market per se.

For participants who make up the foundational demand, biodiversity credit markets are there to deliver a product (the protection, restoration and maintenance of biodiversity), with that product giving them a greater opportunity to continue to generate revenue and profit, or minimise the risk of economic losses, over the longer term.

Given their underlying motivations, these participants are more likely to be prioritising meaningful conservation efforts over financial returns or symbolic gestures that lack substance.

Limits to foundational demand and the importance of scale

For a biodiversity credit market to build sufficient momentum to drive the proliferation of biodiversity conservation and restoration projects that generate high quality credits, participants must be able to buy and sell credits easily. Assuming a well-designed and highly functional market, the size of the market should correlate strongly with the scale of positive biodiversity impact that is achieved. This direct relationship between the size of the market and the scale of impact highlights one of the primary motivations for growing biodiversity credit markets.

At a functional level there are also additional strong motivators for scale.

Essentially, larger scale markets attract more participants, leading to more diversified conservation projects and allowing for resources to be allocated more efficiently.

With foundational demand offering a basis of support for biodiversity credit markets the question remains whether the total volume of support from foundational demand can be activated quickly enough and at a large enough scale to drive meaningful change in biodiversity protection and restoration efforts. If not then demand may remain weak, with the market then not able to generate enough funds to achieve the critical mass required to result in substantial conservation outcomes. Hence finding and accommodating additional sources of demand for biodiversity credit markets may be required.

Additional sources of demand

Beyond foundational demand, additional demand for biodiversity credit markets is generally associated with two key motivators: the ability to generate a financial return and the ability to enhance and promote sustainability credentials. Details of each of these options are outlined below.

1) Financial assets and secondary trading

One method of increasing the demand side of the market is through the creation of financial assets and investment products open to secondary trading. As an example, a financial product for secondary trading in a biodiversity credit market could be a Biodiversity Credit Exchange-Traded Fund (ETF), created to track a specific index of biodiversity credits. The value of this ETF would be determined by the overall performance of the underlying biodiversity credits with shares in the ETF made available for purchase on the open market. Financial products such as this, and the facilitation of secondary trading, offer a means of enhancing the liquidity of biodiversity credits, making for a more flexible and dynamic market in which it is easier for buyers and sellers to transact.

A potential downside of secondary markets, however, is that they can attract speculative behaviour with participants motivated to buy and sell credits for financial gain without any genuine concern or connection to the underlying conservation outcomes. Although that is how secondary markets operate, by bringing liquidity that allows for markets to scale without direct investment in asset creation, this impacts on the public perception of credibility for a biodiversity credit market.

With an increasingly sceptical populus and increased scrutiny of the financial mechanics and beneficiaries within the adjacent carbon offset market, there could be considerable negative perception for a biodiversity credit market where trading in the financialised layer generates substantial returns that are abstracted from the biodiversity outcomes that are or need to be achieved.

Moreover, the financial activity of secondary trading can also lead to greater commoditisation of the underlying asset, that being a process to standardise biodiversity credits driven by a focus on price competition rather than differentiation based on the unique qualities of the credits. Commoditisation is desirable for markets in which the underlying asset is largely homogenous, such as carbon credits, as it generally leads to cost-effective production across the market. However, for non-homogenous assets such as biodiversity, where the implementation is local and the cost of production greatly variable depending upon the management actions required, commoditisation can result in negative outcomes. Specifically, commoditisation can lead to a reduction in pricing power for suppliers (the ones actually undertaking on-ground activities to protect and conserve biodiversity), potentially resulting in poor quality outcomes (cost constrained) or project locations contingent on production price rather than need.

Furthermore, it is questionable whether the path towards greater commoditisation is a desirable outcome for biodiversity credits. Although commoditisation can lead to convenience for the financial participants in a biodiversity credit market (particularly for larger investors and secondary traders who are restricted by the terms of their mandate to invest), the requirements for commoditisation such as homogeneity of the asset and standardisation of the metrics representing that asset, can result in a disservice to the variability, context and complexity of biodiversity. Notwithstanding that the foundational demand for biodiversity credits is within niche and specialised markets where participants value conservation outcomes (sometimes specific to their operations) rather than the convenience of a generalised commodity. And whilst price considerations and efficiencies remain front of mind for these participants, the integrity in the delivery of the product, that is the protection, restoration and maintenance of biodiversity, remains their primary objective.

Given this is the case it could be argued that a foundational level a more desirable biodiversity credit market is one in which there is preference towards maintaining the complexity of nature (i.e. material integrity in the outcome) rather than promoting a more simplified interpretation as preferred by secondary traders.

2) Reputational rewards

There is a portion of the market that will seek to be involved in biodiversity credit markets to enhance their reputation or sustainability credentials. This could be driven by a companies’ commitments around Environmental, Social, and Governance (ESG) or a desire to demonstrate their commitment to sustainability and environmental stewardship via Corporate Social Responsibility (CSR). Although genuinely invested organisations with an intrinsic desire for participation exist, in most cases organisations are influenced by external stakeholders, including investors, financial institutions offering access to capital and consumers demanding sustainable and ethical products. For the most part these parties are also invested in seeing substantial outcomes being achieved rather than tokenistic gestures.

Tokenistic gestures, or worse, greenwashing, are risks associated with using biodiversity credits to support reputational enhancement. Greenwashing occurs when organisations falsely present themselves as environmentally responsible or sustainable without making genuine efforts to address real environmental concerns within their own operations and supply chains.

In this circumstance an organisation uses their association with biodiversity credits, and more specifically the outcomes (biodiversity) achieved by participants (brands) in the supply side of the market, to enhance their own brand reputation whilst ignoring or disregarding their own known, unknown, direct and/or indirect impacts on nature.

For this reason companies seeking to participate in biodiversity credit markets should not only be considering adherence and disclosure with respect to their regulatory commitments, but also ensure that there is a clear distinction for any offsets requirements they have, so as to avoid any potential conflation or confusion. Moreover, across-the-board transparency for participants is essential for instilling credibility in a biodiversity credit market, a process assisted through the use of standards such as the SBTN’s science-based targets for nature for assessing nature and biodiversity footprints and the Taskforce on Nature-related Financial Disclosures (TNFD) for defining and disclosing nature related impacts, risks and dependencies. These measures are important to ensure that the ‘ledger’ with which an organisation is entering into a biodiversity credit market is disclosed and clear, so that the public can understand whether participation is genuine or rather driven by a desire for some form of de-facto offsetting.

End of Part 1

Congratulations for making it to the end of Part 1! This article was all about setting the scene for what I think are the more interesting bits to come. The next article will be focused on the role of digital assets and the digital economy in empowering high integrity demand for biodiversity credits. This is a topic around which I have not yet seen a lot published, so hopefully it offers some new perspectives on what I believe are potential opportunities for bringing biodiversity to the people and rapidly facilitating biodiversity conservation and restoration at scale.

[1] In addition to the supply of credits misrepresenting biodiversity gain, other potential negative impacts can include inappropriate management actions affecting habitat structure and species composition leading to an increase in threatening processes within local ecosystems, or potential misalignment of incentives resulting in impact on social and cultural systems.

[2] Remembering that the gap in available finance remains a primary justification for the introduction of biodiversity credit markets in the first place, and that many conservation projects have long struggled to secure sufficient funding to initiate and maintain their on-ground initiatives.

An introduction to the biodiversity in the digital age series

The metaverse, an immersive realm of digital assets and online utility, would appear to offer an unlikely pairing with biodiversity, a concept bound in the complex physicality of nature. However, I believe that we are heading towards a future where the two are deeply intertwined, driven by shifts in technology and human behaviour.

This is a short introduction to a series of articles that will explore the representation of biodiversity in an increasingly digital society and investigate systems to facilitate meaningful transfers of value between nature and the digital world. I believe that the key mechanism to enable this is a biodiversity credit market, a system where conservation projects generate tradable units representing positive outcomes for biodiversity.

While on-ground hands-on work is needed to protect and restore nature, the value of this work can be captured digitally in a biodiversity credit market. An array of digital tools and components are required for a digital biodiversity credit market (DBCM). This includes digital tools to assist with the generation of credits, digital data to represent and validate outcomes, and digital infrastructure to deliver credits and facilitate market function.

However, I also believe that the rapidly expanding digital economy will offer a new and important source of high integrity demand for biodiversity credits, an area to date that remains largely unexplored.

Over a series of five articles I will drill deeper into the topic of biodiversity credit markets, explore the role of the digital assets and the digital economy in empowering high integrity demand, outline a process for creating digital representations of biodiversity outcomes, identify a system linking these components into a network of community-owned nature-positive economies, and explore the pros and cons of a digital-first approach.

It is generally accepted that nature has intrinsic value independent of its utility or benefit to humans, with worth and a right to exist and flourish regardless of its instrumental value. Nature is also an integral part of our existence, with our evolutionary and cultural history intertwined with and shaped by the challenges and opportunities that nature presented. We rely upon nature for essential resources like clean air, water, food and materials for building and manufacturing, and time spent in nature can reduce our stress, improve our mood, enhance our cognitive function, and promote overall feelings of well-being.

Society is becoming increasingly aware that we must find new ways to protect and restore nature, by re-examining and modifying human behaviour to promote and facilitate change. With a long history of human behaviour on the record it could be argued that the near-term mode of operating for large portions of society is the norm. We champion economic growth, consumption and lifestyle whilst technology is increasingly integrated into our day to day lives.

Despite some progress towards sustainability, wholesale change is a difficult process and generally takes decades to be achieved. Yet we are now at a time where the urgency of the biodiversity crisis demands a swift and concerted response, with the decline of nature perhaps moving at a rapidity beyond our capacity to change.

I believe that it is time to consider unlikely alliances as we look to new solutions with the capability to conserve and restore biodiversity at scale.

This includes alliances with financial and cultural systems that can be repurposed from historically destructive modes of operation to deliver positive outcomes for nature. Positive change can be achieved by recognising the value of nature within economic systems, and via integrating biodiversity conservation with how people live through delivery of nature to where people are and will increasingly be in the future. It is therefore a primary objective to make nature conservation incidental using systems designed to bring biodiversity to the people.