The development of biodiversity credits is necessary to maximise the potential for natural capital strategies, according to AXA IM Alts head of impact PE and natural capital Jonathan Dean.
“At the moment, all of our project underwriting is based on basically the ecosystem service value coming from carbon only because there isn’t a way to value and monetise the biodiversity piece,” Dean said at the firm’s media roundtable in London this morning.
“We are therefore relying on the value to be reflected in the price of the carbon credit, which is not a natural alignment because you have got two very different things going on there. And the only way the market is appreciating the biodiversity activity is through the price of the carbon credit.”
Were the firm able to “switch on the value of nature and biodiversity” in its portfolio through the sale of biodiversity credits in addition to carbon credits, it would make the “portfolio completely different”, said Dean.
“We see this potentially bringing a huge amount of upside,” he added.
AXA IM Alts has raised $1.5 billion towards natural capital strategies in recent years. Last year, the firm collected $500 million from parent company AXA Group, with which it hopes to generate €100 million in verified carbon units.
A number of actors in the private markets have turned their attention to biodiversity as a theme for impact investment. This includes SWEN Capital Partners, which recently closed its first biodiversity-focused venture fund above target on €170 million. To measure its biodiversity impact, SWEN will measure and report on the avoided destruction of marine biomass (living organisms in the ocean, measured by mass) of the fund’s assets in aggregate.
Nevertheless, the tools to measure biodiversity are still relatively nascent. Verra, a non-profit organisation that operates standards in environmental and social markets, announced on 3 November that it is developing a new biodiversity methodology that will enable the independent assessment and verification of real-world biodiversity benefits that will lead to the generation of credits, but a market consensus on methodology is yet to be reached.
Biodiversity measurement is a much more complicated process than tracking carbon emissions. “A tonne is a tonne when it comes to carbon,” said natural capital lead Adam Gibbon. The same is not true for nature: “A panda is not a tiger. It is not a frog. It is hard to find that equivalence.”
As a result, despite the firm seeing an increased demand in the market for biodiversity solutions, there is a need for that “demand to turn into something real” before the full returns potential of natural capital can be realised, Gibbon explained.
“We have a price signal today for carbon. We do not yet have that signal for biodiversity. So, I think that is why I just say we’re few years behind,” he said.