Biodiversity credits vs carbon credits: The key differences

Carbon markets have matured rapidly over the past two decades. Today, billions of dollars are traded each year in credits that reduce or remove greenhouse gas emissions. And for many investors, carbon has been the gateway into natural capital.

But climate and nature are not the same thing. Where carbon focuses on emissions, biodiversity addresses the underlying resilience of ecosystems - the foundation of agriculture, supply chains, real assets, and even insurance markets.

As the world wakes up to the scale of biodiversity loss - including one million species at risk of extinction and ecosystems degrading at unprecedented rates - a new asset class is emerging. Biodiversity is the logical next step.

Carbon as a template

Carbon markets have shown how natural assets can be made investible. Standardisation, verification, and trading platforms have created liquidity and investor confidence, and crucially, carbon proved that environmental outcomes can be measured, priced, and incorporated into financial markets. These important outcomes have been leveraged for the development of biodiversity markets, which stand ready to scale. 

There are similarities between carbon and biodiversity markets. Perhaps most importantly, they both reward additionality - i.e. a credit is only created when it can be demonstrated that additional carbon or biodiversity outcomes are being achieved (i.e. additional to previous site management and/or by mitigating imminent threat of land clearing).

But key differences between carbon and biodiversity mean that the markets for these two natural assets also differ in important ways. We focus on three core differences between carbon and biodiversity credits and their associated markets below, with a particular focus on what they mean for the investor.

1. What’s in a credit?

Carbon emissions, and the credits that offset them, can be readily converted to a single metric (tonnes of CO₂ equivalent). This means that carbon credits are completely fungible. One tonne of CO₂ equivalent is one carbon credit, irrespective of its location or how it is sequestered (e.g. by land restoration or by technical means).

But biodiversity markets bring new measurement challenges. Biodiversity is intrinsically complex and diverse (hence the name!). Biodiversity markets require more complex metrics that seek to quantify the extent to which ecosystems are functioning to maintain healthy ecosystem processes (like the provision of clean air and water) and provide habitat for species, including those that are threatened and at risk of extinction.  

A single biodiversity credit typically represents some measurable uplift in ecological condition over a set period - for example, a 1% improvement over a hectare, with protection ranging from 20 years to in-perpetuity. Independent standards and verification frameworks (like IAPB’s Framework for high integrity biodiversity credit marketsand Wallacea Trust’s Methodology for Quantifying Units of Biodiversity Gain) are emerging to underpin voluntary biodiversity credits - and these will continue to develop over time. But for now, the most robust and mature credit frameworks come from the compliance market. For example, USA’s Mitigation Banking, Australia’s Biodiversity Offsets Scheme and the UK’s Biodiversity Net Gain units all provide compliance-grade credits that are used for regulatory offsetting. 

Scepticism around voluntary carbon markets has highlighted the importance of quality credit metrics. As the market matures, biodiversity investors will need confidence that credits represent genuine, additional, and lasting ecological outcomes. 

2. Place-based specificity

Unlike carbon, which is fungible globally, biodiversity outcomes are tied to specific geographies. Biodiversity credits are local, place-based, and multidimensional. 

This has two implications for investors:

• Less commoditised, more differentiated, investing for impact: Because biodiversity credits represent place-based improvements, investors can choose to invest in specific projects or places - perhaps linked to their specific values or interests. It also means that investors can actively choose to invest in global biodiversity hotspots, ensuring maximum impacts from the investment.

• Diversification is possible: Investors can invest in multiple projects and places (either directly or via a fund) to spread individual project risk and participate across numerous biodiversity markets. 

3. Credit generation times

There are also important differences between carbon credits and biodiversity credits with respect to project and investment timelines. Carbon credits are almost exclusively issued ‘ex-post’, that is after works to produce the carbon mitigation have been undertaken. But biodiversity credits may be issued ‘ex-post’ or ‘ex-ante’ - once the works to produce biodiversity benefits have been agreed, but before they have been implemented. 

There are pros and cons to each approach: 

• Ex-post issuance assures the proposed outcome and only provides payment to a landholder once the ecological benefit associated with a credit has been delivered. But it may not be always be practical or possible to measure desired outcomes at a specific point in time in the face of natural ecosystem variability - especially where fire, drought or other events play a role in maintaining landscapes over multi-year or even decadal cycles. Ex-post payments also mean that landholders have to foot the bill for any conservation works upfront - a system that is likely to limit market participation, supply of credits and, ultimately, the scale of ecological restoration that can be achieved

• Ex-ante issuance delivers funding to landholders at the start of a project, once the desired ecological works and outcomes have been agreed, but before they have been implemented. This means that credits sold can help to fund conservation works, opening up new opportunities for valuable restoration projects to proceed. An obvious implication is that ex-ante credit issuance must be accompanied by strong regulatory frameworks - including caveats on the land title - to ensure that the agreed conservation works are undertaken and achieve their ecological objective.  

For the investor, varying credit issuance timelines bring opportunity for both impact and returns. Investing in biodiversity credits can help to fund much-needed biodiversity conservation works when they matter most - now. Varying timelines also allow for staggered returns, that are often earlier than for equivalent carbon investments.

Complementarity, not competition

It is not biodiversity versus carbon. The two are complementary. A forest protection project, for example, might generate carbon credits (from avoided emissions) or biodiversity credits (from habitat improvement). Both draw value from the same underlying ecosystem. But caution should be taken to ensure that the benefit (whether carbon or biodiversity) should not be claimed twice. Regulators and standards bodies are already alert to this, developing clear guardrails to ensure outcomes are counted once, in the right category - but not all projects are regulated.

For portfolios, this means careful selection should be a priority. High-quality projects and funds will be transparent about what is being measured, what credit type is being issued, and how it is verified.

The frontier ahead

For investors already in carbon, biodiversity is the natural next allocation. Carbon established the model, biodiversity brings a new opportunity that complements carbon in a portfolio by providing a more comprehensive hedge against nature-related risk. Introducing a portfolio of biodiversity credits also offers diversification across asset classes and geographic locations, and timing of investment returns.  

Just as early movers in carbon secured outsized returns and reputational leadership, those who move now into biodiversity will shape an emerging market. And in a world facing both climate and ecological breakdown, portfolios that hold both are positioned for resilience.

References

Atlantic Council – Climate Resilience Center. (2025). Understanding Biodiversity and Carbon Credits. https://onebillionresilient.org/2025/03/19/understanding-biodiversity-and-carbon-credits/.

Bloomlabs. (2023). Biodiversity Credits vs Carbon Credits. https://newsletter.bloomlabs.earth/p/biodiversity-credits-vs-carbon-credits.

Carbon Market Institute. (2025). Evolving Markets, Emerging Solutions: CMI Westpac Carbon Market Report 2025. https://carbonmarketinstitute.org/app/uploads/2025/04/Carbon-Market-Report-2025-FINAL.pdf. 

European Forest Institute. (2025). Biodiversity Credits: How to Ensure Their Integrity and Impact? https://efi.int/publications-bank/biodiversity-credits-how-ensure-their-integrity-and-impact.

EY. (2025). Carbon Trading: An Emerging Commodity Class. https://www.ey.com/content/dam/ey-unified-site/ey-com/en-in/insights/sustainability/images/ey-carbon-trading-an-emerging-commodity-class.pdf.

 International Advisory Panel on Biodiversity Credits (IAPB). (2024). Framework. https://www.iapbiocredits.org/framework.

International Institute for Sustainable Development. (2025). Building the Business Case for Biodiversity Credits: Hybrid Financing Solutions for Scalable Conservation. https://www.iisd.org/articles/deep-dive/biodiversity-credits-nature-investment.

McKinsey & Company. (2024). Biodiversity Credits: Lessons for Leaders. https://www.mckinsey.com/capabilities/sustainability/our-insights/sustainability-blog/biodiversity-credits-lessons-for-leaders.

United Nations. (2019). UN Report: Nature’s Dangerous Decline ‘Unprecedented’; Species Extinction Rates ‘Accelerating’. https://www.un.org/sustainabledevelopment/blog/2019/05/nature-decline-unprecedented-report/.

Wallacea Trust. (2023). Methodology for Quantifying Units of Biodiversity Gain. https://wallaceatrust.org/wp-content/uploads/2022/12/Biodiversity-credit-methodology-V3.pdf.

World Economic Forum. (2025). How Credit Markets Are Evolving in Climate and Nature Finance. https://www.weforum.org/stories/2025/01/how-credit-markets-are-evolving-in-climate-and-nature-finance/.

World Economic Forum. (2023). Biodiversity Credits: Demand Analysis and Market Outlook. https://www3.weforum.org/docs/WEF_2023_Biodiversity_Credits_Demand_Analysis_and_Market_Outlook.pdf.