Financing biodiversity: The role of biodiversity credits for SMEs in Switzerland

Biodiversity credits are increasingly being discussed as a new instrument for closing the financing gap for biodiversity measures. The following blog article explains what biodiversity means, how biodiversity credits are structured and why they may be particularly relevant for SMEs in Switzerland.

What exactly is biodiversity?

Biodiversity forms the basis of our lives. Intact ecosystems provide essential services such as food production, clean water, fertile soil, climate regulation and protection against extreme events. Around half of global gross domestic product depends directly or indirectly on functioning ecosystems. The loss of biological diversity therefore poses not only an ecological risk, but also a considerable economic and social risk.

Global biodiversity loss is progressing rapidly, habitats are being destroyed or fragmented, species are becoming extinct and ecological tipping points are approaching. Many of these losses are irreversible and, unlike emissions, cannot be offset or reversed by climate protection projects. Biodiversity is therefore a particularly critical area for action.

Biodiversity loss as a growing problem for businesses

Biodiversity loss is posing increasingly concrete risks for businesses. Physical risks for companies include crop failures, water shortages and unstable supply chains as a result of degraded ecosystems. Added to this are transition risks from new regulations, stricter environmental requirements and increasing demands from investors and customers. Reputational and liability risks are also increasing as biodiversity becomes more of a focus for the public, NGOs and financial markets.

Regulatory and political developments are adding to this pressure. International agreements such as the Kunming-Montreal Global Biodiversity Framework, European requirements such as the CSRD, and new frameworks such as the TNFD require the systematic recording and disclosure of nature-related dependencies, risks and impacts. For companies, failing to act increasingly means falling short of regulatory requirements and market expectations.

Financial gap in biodiversity restoration and protection

Protecting and restoring biodiversity requires significant financial resources. Estimates suggest that there is an annual global financing gap of several hundred billion US dollars between the capital needed for biodiversity protection and the capital actually available. Public funds and traditional nature conservation financing are far from sufficient to meet this need. Although many companies want to address biodiversity, there has been a lack of effective mechanisms to finance nature-positive measures and transparently map their impact. Biodiversity credits aim to close this gap as a new market instrument and are therefore being discussed as a complementary tool to mobilise private financial flows for biodiversity conservation.

But what exactly are biodiversity credits?

Biodiversity credits represent measurable, verified positive effects on biological diversity resulting from specific conservation or renaturation measures. Their tradability can make investments in nature-positive projects more economically attractive and create incentives for long-term biodiversity measures. This gives companies and financial actors the opportunity to invest specifically in biodiversity and take responsibility for their impact on nature and ecosystems.

Difference to carbon credits

Biodiversity credits are a relatively new concept in the field of nature conservation and differ from the well-known carbon credits in several key respects. While carbon credits are based on the logic of avoiding greenhouse gas emissions or removing them from the atmosphere, biodiversity credits take a different approach: they represent verifiable, positive changes in biological diversity achieved through targeted conservation, renaturation or restoration measures. In essence, therefore, it is not exclusively a matter of avoiding or reversing ‘damage’ that has already been done (as in the case of emissions), but of promoting measurable ecological benefits.

Biodiversity credits also differ from carbon credits in the way impact is measured. While carbon credits are based on a global, comparable unit (CO₂ equivalents), biodiversity is more complex and location-specific. It encompasses various dimensions such as species diversity, genetic diversity and the integrity of ecosystems. Biodiversity credits must therefore reflect specific, locally relevant indicators, such as the improvement of species diversity in a particular habitat or the restoration of a threatened ecosystem function.

Emergence of a global market for biodiversity credits

With the development of biodiversity credits, a new market is emerging worldwide. Although this market is based on the experience gained from carbon markets, it also has important differences that make it highly complex.

High complexity and need for specific standards

The diversity of ecosystems, the different assessment approaches and the high degree of context dependency make it necessary to develop specific standards and methods. Various stakeholders (from international organisations and standard setters to nature conservation initiatives and companies) are currently working on pilot standards and initial projects to lay the foundations for credible and efficient trading in biodiversity credits.

Complement to carbon markets rather than a substitute

It is important to emphasise that biodiversity credits are not intended as a substitute for carbon credits, but rather as a useful complement to them. They address a gap in the existing market by enabling targeted investment in the protection and promotion of biological diversity. However, companies and investors should have realistic expectations: biodiversity credits are not a panacea and cannot fully reflect the complexity and uniqueness of biological diversity. Nevertheless, they offer an innovative tool for channelling urgently needed financial flows into nature and making the value of biodiversity visible and tradable.

SMEs particularly affected by biodiversity loss

Biodiversity credits are not only exciting for large international companies, but can also play an important role for SMEs in the future. These are often particularly affected by the biodiversity crisis, as they are usually closely linked to local ecosystems and are more dependent on natural resources such as water, soil or biological raw materials.

Limited resources and increasing demands

Unlike large companies, they often have fewer financial and organisational buffers to cushion ecological changes or respond to short-term disruptions in the supply chain. At the same time, SMEs are subject to new environmental regulations and increasing demands from customers and business partners, without having specialised sustainability departments or comprehensive data and risk management systems. As a result, biodiversity loss translates more quickly and directly into economic risks for SMEs.

Links between climate and biodiversity

It makes sense and is necessary to consider climate and biodiversity issues together, as they are closely linked and reinforce each other. Intact ecosystems contribute significantly to climate protection and climate adaptation, for example through carbon storage, temperature regulation and flood protection. At the same time, climate change exacerbates biodiversity loss by altering habitats, putting species under pressure and accelerating ecological tipping points.

Integrated sustainability approaches as an opportunity for SMEs

Companies that take an integrated approach to climate and biodiversity avoid conflicts of interest, such as climate measures that have unintended negative impacts on ecosystems, and exploit synergies between emission reduction, resilience and nature conservation. A comprehensive sustainability approach enables holistic risk management, efficient compliance with regulatory requirements and long-term value creation.

Existing contributions by SMEs to biodiversity

It is important to note at this point that many SMEs already support biodiversity (indirectly). They do this, among other things, by investing in CO₂ certificates, which not only promote emission savings or avoidance, but also protect biodiversity. Numerous climate protection projects already offer so-called co-benefits: in addition to reducing emissions, they also promote the conservation of ecosystems, protect water resources and strengthen social structures. Awareness and demand for such multidimensional projects are steadily increasing as companies increasingly recognise how closely climate and biodiversity goals are intertwined.

Co-benefits of climate protection projects for SMEs

This already gives SMEs the opportunity not only to focus on climate protection, but also to make a demonstrable positive contribution to biodiversity. These integrative approaches help companies meet regulatory requirements, strengthen their resilience and sharpen a sustainable, credible sustainability profile. Excursus: New scope under the Swiss Climate Label

The Swiss Climate Label is also opening up exciting new opportunities for SMEs in this context: Recognised climate protection projects in the CO₂ market can still be supported, but there is also the option of supporting innovative initiatives outside the voluntary CO₂ market, accompanied by an internal CO₂ price and audited by Swiss Climate in line with the emerging requirements of the emerging biodiversity market in terms of impact, environmental and social standards, and contribution to the SDGs.

Photo by Nico Evard on Unsplash

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