Corporations and governments can legally destroy natural areas, even those that are protected, if they promise to compensate for the loss of biodiversity elsewhere. Such biodiversity compensation does not stop the loss of biodiversity, but it has nonetheless become an increasingly popular practice.
Biodiversity compensation is not new: The United States, Germany, and India introduced the approach into their environmental regulations in the 1980s. Advocates of the idea claim that without such compensation, even more biodiversity would be destroyed. With the obligation to provide compensation, they claim, corporations that are destroying biodiversity at least compensate for their impacts by maintaining or improving biodiversity elsewhere.
Experience with biodiversity offsetting in many countries, however, demonstrates a different reality: Biodiversity offsetting undermines environmental protection. It allows companies to ignore environmental regulations at any particular place of interest to them as long as they promise to compensate for damage elsewhere. They can thereby claim to be respecting environmental protection laws while destroying the biodiversity of areas protected by law. In a way, compensation offsetting allows government agencies and banks, both private and public, to maintain a dependable flow of environmental licences and financing for corporate destruction, even in protected areas and World Heritage Sites. Biodiversity compensation is the regulatory tool that allows for such licensing of destruction, despite the growing catalogue of environmental regulations that has been evolving in response to public pressure for better environmental protection since the 1970s.
The following quote from a New Zealand-based law firm neatly sums up why corporations are interested in biodiversity offsetting: “Biodiversity offsets can help companies manage their risks more effectively and strengthen their licence to operate by showing regulators that operations can be based on a ‘no net loss’ or ‘net gain’ approach to biodiversity and by securing the support of local communities and civil society. Companies are increasingly seeking to demonstrate good practice on environmental issues to secure their licence to operate and access to capital, to obtain consent in a timely way, to operate cost effectively, and to maintain a competitive advantage.”
It comes as little surprise, then, that biodiversity offsetting has been gaining popularity. According to the International Union for Conservation of Nature (IUCN), the number of countries where biodiversity offsetting or other forms of compensation offsetting have been introduced into environmental regulations has nearly doubled since the turn of the century. The instrument received a major boost at the international level during the 2012 Rio+20 summit in Brazil. The summit was dominated by proposals on how to achieve a green economy through the economic valuation of nature, and compensation offsets were presented as integral parts of the green economy promise. Many of the biodiversity offset initiatives that exist today, both at the corporate and intergovernmental levels, can be traced back to the run-up and immediate follow-up to the Rio+20 summit.
The reasons for the popularity of biodiversity compensation and government interest in integrating biodiversity offsetting into environmental regulations are manifold, including that:
- Many countries have adopted the political goal of ‘no net loss’ of biodiversity. Biodiversity offsetting is the mechanism to achieve this goal on paper because it allows government agencies to continue to issue licences to destroy, while at the same time demonstrating that something is being done to reduce the damage.
- Corporate destruction is increasingly targeting formally protected areas or particularly biodiversity-rich habitats where the law currently allows for the licensing of destructive activities only in exceptional cases. As a result, corporate calls for ‘regulatory relief’ are increasing. Biodiversity offsetting and compensation offset schemes provide such ‘regulatory relief’ or ‘flexibility’.
- The World Bank and its private-sector financing arm, the International Finance Corporation (IFC), have been heavily promoting biodiversity offset provisions in environmental regulations in the Global South. In 2012, the IFC revised its Performance Standards, which is a rule book that the institution established to check its investments for any risk of environmental, social, or human rights impacts. Performance Standard 6 addresses environmental impacts. Since 2012, it includes biodiversity offset provisions. They were added to the Performance Standards in 2012, the same year that the Rio+20 summit provided a major boost to biodiversity offsetting as a policy instrument. The revised 2012 Performance Standards allow the IFC to finance destruction in what the World Bank has defined as ‘critical habitat’. Before the 2012 revision, approval of IFC financing for corporate destruction in such habitat would have been more difficult and controversial.
Regulated destruction of critical habitat
IFC Performance Standard 6 has turned out to be a particularly powerful driver of biodiversity offsetting, both at the corporate and governmental levels. With many public- and private-sector banks having adopted the IFC’s Performance Standards, or standards similar to them, the presentation of a biodiversity offset plan has become almost a prerequisite for securing financing for corporate destruction.
Because many rivers have already been dammed and many habitats rich in biodiversity as well as ores have already been destroyed to extract the desired minerals, companies in the hydropower and extractive industries are increasingly targeting critical habitat for corporate expansion. IFC financing is often crucial for securing further private-sector funding for such corporate projects. That is why hydropower, mining, and oil and gas companies have been trailblazers for biodiversity offsetting. Presenting biodiversity offset plans, they hope, will provide a public licence to operate and ensure the backing of the conservation industry for these corporate projects, which are likely to face public opposition due to their being located in areas that are of particular importance for biodiversity conservation.
Biodiversity offsetting as a door opener to oil drilling at World Heritage Sites and in protected areas
The French energy company Total cites IFC Performance Standard 6 as its reason for developing a biodiversity offset plan for its Tilenga oil exploration project in Uganda and other operations that involve drilling in national parks and other protected areas: “Total has agreed to meet the performance standards of the International Finance Corporation (IFC, World Bank) for its Tilenga, Papua LNG and EACOP projects, in order to take the particularly sensitive biodiversity of certain sites into consideration.”
The Tilenga oil drilling and the East African Crude Oil Pipeline (EACOP) will affect two of the world’s biodiversity hotspots: the Albertine Rift and the spectacular Murchison Falls National Park. Even the company acknowledges its operation will target “a particularly sensitive area for biodiversity”. Biodiversity offsetting provides a tool for Total to divert attention away from the company’s impact on this “particularly sensitive area for biodiversity”. How is that possible? By blaming the local population for destruction. Total’s biodiversity offset plan claims that local land use is responsible for the degradation of biodiversity. The company is promising that the biodiversity offset project will bring this degradation to a halt, and even provide “net gains” for biodiversity. Offsetting allows corporations such as Total to present the destruction of biodiversity hotspots as a win-win situation.
In Costa Rica, the energy company Instituto Costarricense de Electricidad is experimenting with biodiversity offsetting to compensate for the ecological damage resulting from the construction of a large hydropower dam on the Reventazón River. The construction is being financed by, among others, the IFC and the European Investment Bank. According to the company, “the Reventazón River qualifies as Natural Habitat according to IFC PS6”, and changes to the hydrology as a result of the dam will affect the Tortuguero National Park. As a compensation measure, the company promised to restore another river, the Parismina River. Experience from Canada shows that such restorations have not been able to restore the biological diversity in the time – usually some decades at most – that companies are obliged to maintain an area as a biodiversity offset. The Costa Rican government has committed itself to not developing any hydropower dam on the Parismina River for the coming decades. Examples from Uganda (see below) show that such promises can quickly be broken.
In Germany, compensation for environmental damage has been a regulatory requirement since the 1980s. The interpretation of this requirement, however, has changed substantially over time: Initially, compensation was required to be made close to the site of destruction, and responsibility for finding and managing a compensation site lay with the company responsible for the damage. Today, companies can outsource this responsibility to biodiversity offset providers and acquire sites from ‘habitat banks’.
When perpetuity does not last
The biodiversity offset for the controversial Bujagali dam in Uganda demonstrates how unreliable such compensation promises are. The dam project on the Nile River is being co-financed by the IFC. The reservoir created by the dam flooded ecologically significant waterfalls and river banks of great cultural and spiritual importance to the Basoga indigenous peoples. In its public communications, the IFC assured critics that “comparably important” waterfalls and river banks would be set aside in perpetuity as a biodiversity offset for the Bujagali reservoir. The legal agreement that the IFC eventually signed with the government of Uganda, however, did not mention a commitment to protection in perpetuity. As a result, perpetuity only lasted until another hydropower developer obtained permission for another dam on the Nile River. This new hydro reservoir will submerge the waterfalls and river banks that had been set aside a few years earlier to compensate for the destruction of the waterfalls and river banks further downriver caused by the Bujagali dam. The IFC agreed to the destruction of the biodiversity offset site on the condition that a new offset location be identified and protected.
In Australia, the Warkworth Sands Woodland, an area dedicated as an offset site for a Rio Tinto mine, was destroyed when it, too, was included in a new mining permit.
These examples show one of the many risks that offsetting poses to biodiversity protection: If an area set aside as a biodiversity offset today becomes of economic interest to a company in the future, its destruction can also be licensed and financed simply by promising to offset a second time and to replace the area that the company now wishes to destroy. Biodiversity offsetting thus allows perpetual destruction rather than dependable protection of biodiversity.
Increasing number of countries enable biodiversity offsetting
It is not just companies that are incorporating biodiversity offsetting into their business plans. Liberia and Mozambique are examples of two countries where the World Bank has been funding biodiversity offset policy initiatives. In Liberia, World Bank consultants even developed a national biodiversity offset roadmap. In this World Bank proposal, mining and other extractive projects are to be allowed in protected areas or areas with high levels of biodiversity – the only condition being that developers pay a biodiversity offset fee, which is then used for maintaining and managing (other) national parks and protected areas.
In Mozambique, an organisation involved in the biodiversity offset roadmap explains why companies need not fear biodiversity offsetting: “Far from being a burden to private companies, this new regulation may actually speed up the approval process for new projects by clarifying procedures, giving companies a way forward to comply with national rules and international standards, for which they are increasingly accountable.”
Colombia is yet another country that has overhauled its environmental legislation in recent years, introducing a comprehensive environmental framework for offsetting. Because corporate activities that require biodiversity offsetting have been growing rapidly in Colombia, one area of conflict is quickly emerging: Biodiversity offsetting inevitably increases corporate demand for control over public land. In many cases, biodiversity offsetting will amount to a double land grab: Companies control not only how the land is used at the site of their corporate project, but also at the biodiversity offset site.
The area of land involved in Colombia is considerable: Between 2013 and 2015 alone, the potential demand for land declared as biodiversity offset amounted to more than 180,000 hectares. A major land question is thus looming, as an observer in Colombia pointed out: “With over 8 million hectares under mining titles, over 130 oil and gas companies with operations in the country over at least 1.5 million hectares, including Shell, Chevron, ExxonMobil, and Petrobras, and thousands of kilometres of highways in the pipeline that will affect critical biodiversity hotspots, one of the key questions is where are the hundreds of thousands of hectares needed in offsets going to come from?”
Biodiversity offsetting increases conflicts over land
Conflicts over land are set to become a corollary of biodiversity offsetting in ever more locations. Existing biodiversity offset projects already demonstrate this reality.
Take the example of a mining company that is looking for a biodiversity offset to compensate for the forest that will be destroyed by the corporate mine. In order for a forest to qualify as being suitable for compensation, the company needs to demonstrate that, without the forest becoming a biodiversity offset, it would have been destroyed. By averting this hypothetical destruction, the company can demonstrate that it is compensating for the loss of biodiversity caused by its mine by preventing biodiversity loss elsewhere. This scenario of hypothetical destruction that the company claims is averted through its biodiversity offset tends to include the following storyline: “Poor peasants have been degrading the land because they use ‘slash-and-burn’ agriculture and take out too much firewood from the forest. Our biodiversity offset will prevent further ‘slash-and-burn’ and firewood collection and help the forest recover.”
Variations in detail notwithstanding, this is the hypothetical scenario that underpins most existing biodiversity offset projects in the Global South. It has several advantages for the company: Putting the blame for deforestation and biodiversity loss on peasant farming practices and firewood collection helps make the real risk – corporate destruction caused by the mine, dam, etc. – invisible. Because the company will need to ensure that the hypothetical destruction is averted over years, corporate biodiversity offset needs will control land use at the biodiversity offset site as well as at the mining site or the hydro reservoir. That is why many warn that biodiversity offsetting amounts to a double land grab, in which the corporate demand for land trumps peasant farming needs at two locations: the site of corporate destruction and the site of corporate offsetting.
New trends, same conflicts
One trend in biodiversity offsetting in the past few years is companies making payments into conservation trust funds, which then implement conservation measures labelled as ‘biodiversity offsets’, rather than the companies being directly involved in the implementation of the offset. As a result, it is becoming more difficult to establish a direct link between a particular biodiversity offset and the corporate destruction paying for it.
Another trend in the corporate and conservation industry literature is a change in terminology. Many corporate and conservation industry brochures no longer use the expression ‘biodiversity offset’. Instead, industry publications, government policies, planning documents, licensing decisions, and funding commitments refer to quantifying ‘losses and gains’, achieving ‘net biodiversity gains’, or ensuring ‘no net loss’ of biodiversity through the establishment of biodiversity banking and conservation trust funds. A move away from the use of the term ‘biodiversity offsetting’, however, must not be understood as the instrument losing appeal among corporations, international institutions and governments. The European Commission, for example, undertook a fresh attempt in 2019 to integrate biodiversity offsetting into EU regulations by proposing to include biodiversity compensation as a ‘sustainable finance’ mechanism. The European Investment Bank’s Natural Capital Financing Facility continues to fund biodiversity offset pilot initiatives; international environmental conventions are increasingly relying on compensation and extractive industries; and the conservation industry and institutions such as the IFC and the World Bank are advancing compensation by more closely integrating biodiversity and carbon offsetting – for example under the umbrella of ‘nature-based solutions’ – to the biodiversity and climate crises.
Literature and references:
Friends of the Earth International (2019): Regulated destruction. How biodiversity offsetting enables regulated destruction.
Green Finance Observatory (2019): 50 shades of green. Part II: The fallacy of environmental markets.
World Rainforest Movement (2018): “Mainstreaming biodiversity” in extractive industries: Concealing devastation and land grabbing.
Total (2018): Total and biodiversity. Commitments and action.
IUCN and TBC (2017): “Understanding Government Biodiversity Offset Policies in the Mining Sector.”
ReCommon (2017): “Your mine”. Video about a biodiversity offset project in Madagascar.
ReCommon and World Rainforest Movement (2016): Rio Tinto’s biodiversity offset in Madagascar – double landgrab in the name of biodiversity?
International Rivers website on the Bujagali dam.