A Case for Biodiversity Credits, Nature Credits and Social Impact Incentives

I recently worked on a project for a grassland restoration project in the Northern Cape province of South Africa. Those familiar with the Northern Cape will know that large areas have effectively been turned to “wasteland” as a result of tree encroachment. The objective of the project is straightforward: remove invasive encroaching trees, primarily Blackthorn (Senegalia mellifera) and Mesquite trees (Prosopis juliflora) from the affected areas and allow native grasslands to recover. It is estimated that approximately four million hectares of the Northern Cape is affected by Blackthorn and Mesquite trees encroachment. The motivation for this project is not only environmental, but it also promises a suite of social and ecological benefits for the region.

Job Creation and Poverty Reduction: Clearing invasive trees is labour intensive work. In the Northern Cape unemployment is running at 66% and poverty levels are high. The operational part of the project is based on teams of local workers (about 10 people per team) from the towns in the province. A successful project could provide sustainable jobs for hundreds of people and even more if it can be scaled up. This will result in steady incomes for families and improved livelihoods in the communities.

Water Security: The invasive trees targeted by this project are notorious for heavy water use. Mesquite, for example, aggressively draws up groundwater, drying out soils, waterways and in some cases river systems. Removing these invaders would free up more water in the ecosystem and improve groundwater recharge, stream flows, and water availability for agriculture and domestic use. In a semi arid region, this boost to water security will be extremely valuable.

Improved Grazing and Agriculture: Native grasslands are the foundation of the region’s livestock farming. Tree encroachment substantially reduces available grazing for livestock and by allowing native grasses to return, the land’s carrying capacity for livestock will increase. The whole rangeland ecosystem becomes more productive and balanced, supporting herbivores from cattle to small mammals.

Fire Management and Ecosystem Health: In areas with thick thickets of tree encroachment it is not possible to have controlled fires as part of a land management program. Setting fire to these trees will cause intense runaway fires. Restoring open grassland will allow a return of controlled fires that can prevent smaller woody plants like Driedoring (Rhigozum trichotomum) from taking over and helps cycle nutrients back into the soil.

Biodiversity Restoration: Perhaps the most important benefit is the restoration of native biodiversity. The Northern Cape’s grassland savanna ecosystems are home to a variety of grasses, wildflowers, insects, birds, and mammals that depend on them. Areas with thick thickets of tree encroachment kills everything underneath it leading to much lower biodiversity. By removing the trees, the native biodiversity will return and allow for a healthy ecosystem and overall, the landscape would shift from wasteland to a diverse grassland ecosystem.

In sum, the single intervention of clearing invasive trees could deliver multiple wins: better livelihoods for local people, improved water and grazing resources, safer fire conditions, and a big boost to native biodiversity. It sounds like a model sustainable development project for the region. The initial idea was to finance the entire operation through carbon credits generated by the potential increase of carbon sequestration by the soil and grassland restoration. However, there is a critical challenge in relying solely on carbon credit financing.

Firewood provision: In many of the poorer, more rural communities in the Northern Cape, people still rely on firewood for cooking and heating. A medium size mesquite tree provides approximately 150 kg of firewood. As a side benefit of the project, the tree biomass that is removed will be processed into firewood and made available to local communities. This will help with basic energy needs and will also reduce the cutting of indigenous trees, which are often cut for firewood in these areas.

The Carbon Credit Conundrum

Carbon credits are often seen as a key funding mechanism for environmental restoration projects. The project plan was to earn carbon credits by restoring grassland and managing the cleared biomass responsibly, which would then be sold to cover the project’s costs. However, it is not so certain that removing woody plants and replacing it with native grassland will lead to a net increase in carbon sequestration.

In some ecosystems, woody plants and trees hold more carbon above ground than native grassland. Dense Blackthorn and Mesquite thickets sequestrate high levels of carbon, while grassland has far less above ground biomass. Grasses and soils do sequestrate carbon below ground, but that might not fully offset the loss of woody mass.

For example, clearing a hectare of dense Blackthorn and Mesquite immediately eliminates a substantial carbon stock and native grasses and soil would need years to rebuild the lost carbon, if ever. This dynamic means the project may not yield the carbon credits, but in fact, the carbon sequestration numbers could show a net loss in the short term, leaving the project with no credits to finance the project.

This “carbon credit conundrum” highlights a limitation of carbon centric financing for this project. For a project to focus solely on carbon outcomes can overlook broader ecological benefits. As part of the viability study, carbon levels in both invaded and restored areas will be measured and compared and will show if restoration yields a net carbon gain or a deficit.

If the restored grassland stores less carbon than the to be removed woody plants, then carbon credits cannot be the project’s main funding source. Without adequate revenue this beneficial project could stall, an ironic tragedy given its clear environmental and social benefits. Unfortunately, current carbon markets only reward verified emission reductions or removals and place no value on co-benefits like biodiversity, job creation, or water savings. This realisation shows that there is a real need for more financial incentives like biodiversity credits and social impact incentives and the sooner the better.

Biodiversity Credits

A biodiversity credit is a certificate that represents a measured and evidence-based unit of positive biodiversity outcome that is durable and additional to what would have otherwise occurred (Biodiversity Credit Alliance (2024). Definition of a Biodiversity Credit).

The biodiversity gains from the project are substantial, from enhanced habitat diversity to improved ecosystem stability. The biodiversity gains are well suited to be monetised through biodiversity credits. While the global market for such credits is still emerging, Verra’s Climate, Community and Biodiversity Standards have opened the door for credible, science based certification of nature outcomes, including biodiversity gains.

Importantly, South Africa has taken a meaningful step forward with the release in 2023 of its National Biodiversity Offset Guidelines. While the guideline is mainly focused on regulatory offsets linked to development impacts and not voluntary credits, it lays down a nationally endorsed framework for assessing and accounting for biodiversity gains. These guidelines could serve as a springboard for voluntary biodiversity credit schemes that support restoration led projects like this one.

What’s needed is a formal, affordable and easy to use biodiversity credit market tailored to the realities of Africa and other emerging regions. Without mechanisms to value biodiversity restoration in these landscapes, high-impact projects like this one risk being overlooked. Developing these markets is no longer a theoretical exercise, it is an urgent economic and ecological necessity.

Social Impact Incentives

This project’s measurable job creation potential makes it a strong candidate for impact linked finance incentives in particular models like Social Impact Incentives (SIINC). Under the SIINC model, projects receive payments for achieving measurable social outcomes, such as sustained employment or skills development. These payments don’t fund the entire projects, but act as a performance based subsidy making social impact more investable.

In practice, SIINCs could help cover part of the salary costs for local workers, a critical input in a labour intensive restoration project like this. However, they are not intended to fully fund a project like this, and the balance of the project’s budget would still need to come from biodiversity / nature credits and if possible, carbon credits.

Currently, only a few organisations globally offer Social Impact Incentives and there is a need for a more formal framework offering measurable and verifiable social impact achievements that makes it easy for social outcome funders to participate in projects.

Nature Credits

Nature Credits are closely related to Biodiversity Credits and sometimes morphed into one. Traditionally Biodiversity Credits will be linked to biodiversity improvements such as species richness, restored habitats, or improved ecosystem health, while Nature Credits are broader and take into consideration additional benefits like water supply, soil health and climate resilience.

Nature Credits offer a more integrated approach that reflects nature in practice, recognising the outcomes of functioning ecosystems rather than treating benefits in isolation. Verra and a few other international bodies (NatureFinance and Biodiversity Credit Alliance) are in the process of enhancing nature credit methodologies.

According to the World Bank, nature underpins economies and the livelihoods of billions, but some emerging market countries face huge financial shortages to protect their ecosystems. The bank estimates that reversing nature loss in these countries requires an additional US$ 700 billion annually.

Clear standards and certification for ecosystem restoration and protection frameworks are urgently needed to enable private and public finance to flow in the form of Nature Credits to contribute to the cost of nature conservation projects, especially for emerging market countries.

Disclaimer: The ideas and information shared in this article are based on my experience and research, and are intended for general information only.