Biodiversity Offsets

Last week at work I came across the concept of biodiversity offsets. I found the concept very interesting. Particularly because of 

the implications these ideas bring to the table for companies that have replaced in the past, or are thinking of replacing, native forests with other land uses, such as plantations or real estate... There are many things to think about here, and there is this report called ¨Biodiversity offsets: Views experience, and the business case¨ that explains what this is all about. It's by Kerry ten Kate (Insight Investment), Josh Bishop (World Conservation Union IUCN) and Ricardo Bayon, and it syntheses and interprets with a relatively objective view a series of interviews about biodiversity offsets conducted in 2004 with 37 people from the private sector, government organizations, NGOs, and academic organizations. 

Here is my two-page, super concise summary of it, so you don't have to read the 90 pages :) 

I. BIODIVERSITY OFFSETS (chapters 1 and 2) 

Biodiversity offsets are off-site conservation actions for the compensation of unavoidable harm to biodiversity caused 

by development projects. They are meant to ensure no net losses, and even achieve gains, in biodiversity. These 

activities should be quantifiable and should complement, not substitute, the strategies to avoid, reduce and rehabilitate 

harmed biodiversity areas, in that hierarchical order. In other words, they should be Specific, Measurable, Achievable, 

Relevant and Time-Bound (SMART). 

II. MOTIVATIONS TO UNDERTAKE BIODIVERSITY OFFSETS (chapters 3, 4, and 5) 

i) The conservation case. If adequately designed, implemented and enforced, biodiversity offsets could result in 

1) more conservation, 2) better conservation (i.e. with geographic flexibility beyond on-site restoration, 

conservation can be directed to areas where long-term conservation benefits are more likely, such as large 

areas instead of isolated smaller areas), 3) more cost-effective conservation (i.e. conserving areas of high 

biodiversity value and developing areas of high real estate values), and 4) value creation for undeveloped land 

(i.e. the creation of a market for biodiversity offsets could turn environmental liabilities, such as endangered 

species that are always accompanied by land use restrictions, into a financial asset that can be sold and 

traded). 

ii) The regulatory case. Developers use offsets for legal compliance: in some cases there are legal regulations 

that mandate offsets, while in others the policy framework facilitates them but doesn´t require them. In either 

case, this has caused the mitigation and conservation banks that sell biodiversity credits (which can be species 

or habitat specific) to needy developers that have to fulfill legal obligations. 

iii) The business case. In the absence of legal requirements for offsets, the business case is the motivation for 

companies to voluntarily offset their unavoidable harm on biodiversity. Reasons include an enhanced 

reputation (¨social license to operate¨) and regulatory goodwill, which lead to faster permitting, access to 

capital, and competitive advantage that facilitates future business by saving time and money. There is also 

employee satisfaction, sense of pride and retention, and the fact that offsets are practical tools for managing 

liabilities, especially through outsourcing. 

Challenges to voluntary offset implementation include the risk that the voluntary offset efforts will be 

unappreciated given the high levels of suspicion of the companies´ motives (public notion of ¨false altruism¨); 

risk of offset project failure, and new risks and liabilities created in the new offset areas. With no legal 

requirements, voluntary offsets are often the result of local, small scale initiatives from passionate individuals. 

Also, they are often only aspirational goals (often dismissed as ¨greenwash¨) with no clear back-up of 

strategies, targets and routine implementation.  

III. IMPLEMENTATION CHALLENGES (chapters 6 and 7)

Unlike CO2 and SO2, for which there are already well-established markets, biodiversity is a difficult thing to measure 

and commoditize. Quantifying ecosystem services is complex, and it requires prioritization of ecosystem services to 

establish an appropriate currency system encompassing values such as ecosystem functions and quality and quantity of 

flora and fauna. 

Defining the extent of biodiversity compensation is also problematic, as indirect damage is often not considered in the 

equation (i.e. the damage caused by workers moving to an area to work on a development project). There is also a lack 

of consensus about the equivalences needed in order to have ¨no net loss¨ of biodiversity, and we go back to the 

currency problem.  Equivalences are measured through ecological equivalence or economic equivalence, with the 

former being the most commonly used and the most accepted. 

Low flexibility of regulations that require offsets might be problematic, and a process that allows for site-specific 

solutions would work best. For example, it is usually a good idea to use ecological equivalence for really rare habitats 

that are being harmed, but conserving another type of habitat could be more effective with damage done to standard 

habitats. Public acceptance, however, is better when the conserved area is similar to the damaged area and the distance 

is closer.  In terms of timelines, offsetting should occur before the development project takes places, which creates 

high up-front costs, and it should also last at least for the duration of the expected impacts.   

There is also the problem of defining what counts as legitimate offsets, and this should be resolved on a case-by-case 

basis. For instance, we have additionality (when it is unclear whether an offset is really a contribution or if the action 

would have taken place anyway) and companies using offset funds to meet the costs of existing conservation projects 

that need funding (although this might be better than starting a new project from scratch). There is also the question as 

to whether other forms of investment are acceptable forms of compensation, such as capacity building (e.g. support for 

conservation agencies, environmental education and research) and social community development projects instead of 

direct conservation. These have many criticisms and low credibility when used as offsets, and a solution might be to 

invest only a percentage of the budget in capacity building in order to secure the long term success and longevity of 

conservation activities. 

Adequate participation, expertise, support and commitment from all stakeholders involved is key for successful 

biodiversity offset implementation. Environmental Impact Assessment and biodiversity offset implementation should 

be done by third parties to avoid underestimation of damage. Success is judged formally (by government and third 

party company audits) and informally (by local communities, NGOs and media), but the lack of biodiversity expertise, 

the lack of baseline data and the expense gathering it makes it important to define objectives and indicators of 

performance beforehand. 

IV. CONCLUSIONS (chapter 8) 

Biodiversity offsets offer a practical tool for managing social and environmental risks and liabilities without 

necessarily requiring elaborate new legislations. They have the potential of benefitting companies, government, 

conservation groups, and communities affected by development projects. Including biodiversity offsets as part of 

development projects is becoming increasingly accepted as best practice, and the number of biodiversity offset 

projects is growing, particularly thanks to the business case of voluntary offsets. However, even when properly 

designed, biodiversity offsets are likely to be controversial and the subject of disagreement.  In many cases, 

development projects are simply not appropriate and offsets should not even be considered.  

Despite the many issues, the concept of biodiversity offsets offers endless possibilities for conservation if a market 

mechanism with appropriate governance, transparency, participation from all stakeholders (including local, national 

and international discussion, co-ordination and dialogue to define and develop concepts and shared vocabulary, such 

as ¨biodiversity offsets¨), and accountability is created. It should therefore be further explored through dialogue, pilot 

projects and case study documentation, which would help gain practical experience and facilitate the development of 

guidelines and methodologies in the future.