Growing business interest and momentum towards Biodiversity Offsetting!

There are growing recognitions of importance of biodiversity conservation that have been observed particularly among the big business communities in recent years. We heard about carbon offsetting - making carbon history for last many years. Global carbon offset markets have tremendously grown over the last decade, which saw 3.6 billion tonnes (Gt) CO2e exchanged over the first six months of 2011, valued at some €50 billion (US$71bn), compared to €48bn in H1 2010 (Point Carbon, 20 July 2011).

Similar to carbon offsetting that puts a monetary value on carbon emissions, there is a growing desire on a market based approach to put a value on nature that would potentially stop the biodiversity loss and if possible reverse it. Named as 'Biodiversity Offsetting' that designed to replace the destroyed natural capital with measurable conservation outcomes and compensate for the significant residual impacts. The concept of Biodiversity offsetting is not new. In the US a wetland banking scheme where public or private developers restore, establish or enhance an aquatic resource to compensate for any unavoidable damage they cause has been in existence since the 1970s. More than 400 wetland banks have now been established in a market worth more than $3 billion a year (Levitt, 2010).

Biodiversity offsetting is measurable conservation outcomes resulting from actions designed to compensate for significant residual adverse biodiversity impacts arising from project development and persisting after appropriate prevention and mitigation measures have been implemented. The goal of biodiversity offsets is to achieve no net loss, or preferably a net gain of biodiversity on the ground with respect to species composition, habitat structure and ecosystem services, including livelihood aspects (Business and Biodiversity Offset Programme, 2008).

Natural loses, for example loss of forests and local eco systems, fisheries, wetlands, soils, species, oceans and corals have been so far invisible from the economic models. Market instrument such as 'biodiversity offsetting', in other word 'Bio-compensation' would certainly fill the gaps, where in essence particularly developers need to compensate or buy bio-credits to protect somewhere else if they have damaged the original development sites. However, there are still lots of questions needed to be answered with regard pros and cons on how the bio-offset markets will operate, as the complexity of eco-system's processes are immense, further more they are inter-linked, which raises the most important question about the 'common denominator' as we know CO2 in the case of carbon market.

Fundamental questions may be asked - why big businesses are so interested primarily to protect the biodiversity and reverse any eco-system loses? The answer is very simple and we can all envisage the grave consequences on humanity if the natural capital is systematically destroyed. Biodiversity offsetting can be a standard practice for business organisations that have got significant impacts on biodiversity from their business activities. This is an opportunity where business organisations can make a difference on their biodiversity footprint; reinforcing their license to operate in a particular area, more over become a trustworthy organisation to the local communities (particularly indigenous communities)  who may agree to provide the access (social license to operate) to the lands and oceans for commercial purposes.

Within the biodiversity impact mitigation hierarchy businesses must take efforts to prevent or avoid any negative impacts on biodiversity. Then efforts should be made to minimise and reduce, and then repair or restore any undesirable effects. After all these steps biodiversity offsetting could be implied to address the significant residual impacts that planned to achieve no net losses but if possible net gains of biodiversity. If the offsetting is not feasible then compensation can be offered. However, measuring the amount of compensation that would be suitable for significant residual impacts of any development could be complicated and difficult job. Department for Environment Food and Rural Affairs (DEFRA) developed a metric which is the ‘Guiding Principles’ of offsetting in England. Firstly, a development site should be divided into habitat parcels based on their distinctiveness (e.g. habitat category), which are called habitat type bands. These bands have numbers associated with them (e.g. High 24, Medium 16, and Low 8) and they are used to calculate the biodiversity units/hectare to compensate the loss of habitat.

Undeniable facts that there are array of many business benefits from biodiversity offsetting, yet it is not without any challenges, for example the notion of no net loss, ecological proximities and economic valuation. Challenges remain on how one should determine no net loss of biodiversity? How do you get a clear understanding of the land with regards its existing species and their habitats, interactions between them, measuring the impacts of land use on species and surrounding habitats and finally putting economic values on it, given the fact that every eco system is not equal? Among others, indirect impacts should also need to be considered, for example outside the boundary of any designated development site where further growth of human settlements will create undesirable negative impacts on biodiversity. Therefore, measuring the direct impacts on biodiversity of a selected development site may not be sufficient, indirect impacts need to be part of the equation.

Biodiversity offsetting should be like-for-like and that is why it is practically impossible to offset with one eco system with the other in a different part of the world; the reason being they are not equal. Unfortunately, this is why many business organisations cannot declare their reforestation activities as their biodiversity offsetting programme because impacts on biodiversity and land use from their business activities are taking place somewhere else. Therefore, it is recommended to offset biodiversity as close as possible to the development site, as a result making it more relevant to the local eco systems and gain more acceptances from the local communities. For sure there are needs for further work on methodologies particularly on economic valuation. Biodiversity offsetting is not a panacea to protect the eco system where development occurs but it has certainly made business case and many European observers believe that the biodiversity offsetting market will get bigger than carbon offsetting markets.