The carbon analogy breaks immediately, because biodiversity is not fungible. What a credit tries to represent, how to judge a scheme, and an honest read on maturity.
The analogy everybody reaches for
“Carbon credits, but for nature.” It is the first sentence in almost every introduction to this subject, it is how the idea gets sold internally, and it breaks on contact with the detail.
It breaks for one reason, and once you see it the rest of the subject becomes much easier to reason about.
Carbon markets work because a tonne is a tonne. The atmosphere does not care whether the tonne was avoided in Brazil or the Gulf. That equivalence is what makes credits interchangeable, and interchangeability is what allows a market with prices, volume and liquidity to exist at all.
Biodiversity has no equivalent unit. A hectare of restored mangrove in Abu Dhabi is not interchangeable with a hectare of restored grassland elsewhere, and it is not even interchangeable with a hectare of mangrove in a different tidal setting. The species differ, the condition differs, the function differs.
Take away fungibility and you take away the mechanism the carbon market runs on. Everything difficult about biodiversity credits traces back to that.
Carbon credits work because a tonne is a tonne. Biodiversity credits have to solve a problem carbon never had, which is what a unit even means.
What a credit is trying to represent
A biodiversity credit tries to represent a measurable gain in biodiversity at a particular place, produced by protecting habitat that would otherwise have been lost, or by restoring habitat that has already been degraded.
The problem is contained in the word measurable. Measured how?
You could measure area. That is simple and it ignores condition entirely, so a degraded hectare counts the same as a thriving one. You could measure condition against a reference state, which is better and requires you to agree what the reference state is. You could measure species presence, or the status of a particular species of concern, which is meaningful and narrow. You could build a composite index combining several of these, which is what most serious schemes do, and then the index is scheme-specific and your unit no longer means the same thing as anybody else’s unit.
None of these is wrong. They are answering different questions. The consequence is that two credits from two schemes are not comparable, which is a very different situation from carbon, where the underlying unit is the same even when quality differs.
The distinction that carries the commercial risk
This is the part to get right, because getting it wrong creates exposure that is difficult to walk back.
An offset compensates for damage you caused. It is normally required of you. Under IFC PS6 it sits at the end of the mitigation hierarchy, it has to demonstrate like-for-like or better, and it is tied to your specific residual impact.
A credit funds a gain you were never obliged to make. It is usually voluntary. It is a contribution to nature somewhere, not a settlement of a debt you incurred.
Describing the second as though it were the first is the trap. A company that damages coastal habitat, buys voluntary biodiversity credits from a scheme elsewhere, and communicates that its impact has been addressed, has made a claim it cannot defend. The regulator did not accept it, the lender did not accept it, and nothing about the specific habitat lost has been remedied.
If you are going to buy credits voluntarily, describe them as what they are: funding for conservation you chose to support. That claim is honest, defensible, and repeats well year after year, which is the test that matters for any published claim.
Where credits sit in the hierarchy, which is at the end
The mitigation hierarchy is sequential and the order is not a preference, it is a requirement:
- Avoid the impact
- Minimise what cannot be avoided
- Restore what was affected
- Offset the genuine residual
Credits and offsets live at step four. A project that arrives at step four without having demonstrated steps one to three has not satisfied the standard, and a lender applying IFC PS6 will send it back.
This matters commercially because step four is also the most expensive and the least certain. Avoidance is nearly always cheaper than compensation, and the cheapest moment to avoid an impact is during route selection and site layout, long before anyone has drawn a mitigation plan. Projects that treat biodiversity as a late-stage compliance item routinely pay for that twice.
Any scheme that markets credits as a way around avoidance is telling you something important about itself. Treat that as disqualifying rather than convenient.
How to judge a scheme
The quality questions are recognisably the same family as the ones the voluntary carbon market spent a decade learning, which is genuinely useful: you do not have to invent the framework, you can port it. Our guides to carbon credit additionality and carbon credit quality and integrity cover the parent versions of most of these.
Additionality. Would the gain have happened anyway? Protecting habitat that was never actually threatened generates a credit and no benefit.
The metric, and whether it is published. What exactly is being counted, and can you read the methodology without signing anything? If the metric is proprietary and unpublished, you cannot assess the credit and neither can anyone challenging you.
Who verifies, and are they independent. Same principle as any other assurance. A scheme that verifies its own units is not verified.
Permanence, and what happens if the site degrades later. Habitat can be lost after the credit is sold. Ask what the scheme does then, whether there is a buffer, and who carries the risk. The honest schemes have an answer. The weak ones have not thought about it.
Baseline quality. The gain is measured against a starting point. If the baseline was weak, generous or undated, the gain is unverifiable regardless of what happens afterwards.
Leakage. Did the pressure simply move next door? Protecting one area while the activity relocates a kilometre away produces a credit and no net gain.
The honest position on maturity
The market is early. Standards are still forming, methodologies are competing rather than converging, volumes are small, and price discovery is thin because units are not comparable across schemes. There is genuine and thoughtful work happening, and there is also a quantity of marketing that runs well ahead of the evidence.
That is a description, not a criticism. Early markets are how markets start. But it means two things practically.
You should not build a compliance strategy on biodiversity credits today. The obligation side of your exposure, the permitting and the lender standards, is mature and enforceable, and it is not satisfied by voluntary units.
And you should expect the specific units you buy now to be superseded. If your reason for buying is a genuine conservation contribution you can describe accurately, that is fine and the contribution is real. If your reason is to hold an asset you expect to trade, be clear that is a speculative position in an illiquid market.
Who should be looking now, and who should wait
Look now if you already meet your obligations, you have a specific place or habitat you want to support for a reason connected to your business, and you are comfortable making a contribution claim rather than a compensation claim. Buyers in that position get real value, particularly where the habitat is local and the story is genuinely yours.
Wait if you have unresolved permitting or lender obligations, if your interest is primarily in the claim rather than the outcome, or if nobody internally can currently explain what the credit measures. In that last case the answer is not to buy better credits, it is to understand the underlying obligations first.
How ESGweise helps
We assess schemes against the criteria above and tell you which claims the purchase will and will not support, which is usually a shorter list than the seller suggests. Where the real issue is an unmet project obligation rather than a voluntary contribution, we say so, because credits will not fix that and buying them delays the work that will.
See our nature and biodiversity and carbon management services. If you are earlier in the subject, start with what biodiversity actually is.
Conclusion
Biodiversity credits are not carbon credits for nature, because the fungibility that makes carbon tradable does not exist for biodiversity. A credit funds a gain you were not obliged to make; an offset settles damage you caused, and treating the first as the second is the trap worth avoiding. Credits sit at the end of the mitigation hierarchy and never substitute for avoidance. Judge schemes on additionality, published metrics, independent verification, permanence, baseline quality and leakage. And treat the market as what it currently is, which is early.
Frequently asked questions
What is a biodiversity credit?
A unit intended to represent a measurable gain in biodiversity at a particular place, created by protecting or restoring habitat, which can then be purchased by someone who wants to fund that gain. The difficulty is in the word measurable. Carbon has an agreed unit. Biodiversity has no single agreed metric, so different schemes measure different things and their units are not comparable with each other.
Are biodiversity credits the same as carbon credits?
No, and the analogy misleads more than it helps. Carbon markets function because a tonne of CO2 is equivalent wherever it is emitted or avoided, which makes credits interchangeable and allows a market to form. Biodiversity is local and multi-dimensional. A hectare of restored coastal habitat in one place is not equivalent to a hectare somewhere else, so the fungibility that makes carbon tradable does not exist.
What is the difference between a biodiversity offset and a biodiversity credit?
An offset compensates for damage you have caused, and is normally required of you, usually as the last step of the mitigation hierarchy under a standard such as IFC PS6. A credit funds a gain somewhere else that you had no obligation to deliver, and is usually voluntary. Describing a voluntary credit purchase as though it offsets your own project damage is misleading, and it is the most common reputational trap in this area.
Can biodiversity credits replace avoiding impact?
No. The mitigation hierarchy is sequential: avoid, minimise, restore, and only then consider offsetting a genuine residual. A project that reaches for credits before demonstrating avoidance will not satisfy a lender applying IFC PS6, and any scheme that markets credits as a substitute for avoidance should be treated as a warning sign about the scheme.