Biodiversity in the Digital Age Part 4A

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.

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 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 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 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.

• 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.

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 establish a record of the baseline state. 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.

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.

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.

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.

n 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.

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 deliver positive biodiversity outcomes, and solutions which are accessible and equitable 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 achieve meaningful contributions to nature through meaningful pay.

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.

Mint this article as an NFT!