More than three years ago, I wrote a policy paper exploring the business case for biodiversity offsets in India. Since then, the international discourse on biodiversity offsets has evolved at a feverish pace. At this point, it is important to look at the developments in policy and practice surrounding biodiversity offsets internationally and their implications for India.
Biodiversity offsets refer to the gamut of conservation actions (ranging from ‘averted loss’ activities such as strengthening or expanding protected areas and establishing corridors and buffer zones to more active ‘restoration’ interventions including reintroduction of species, removal of invasives and improved land management practices) that are undertaken to compensate for the adverse impacts on biodiversity of high-footprint development and industrial activities including mining, oil&gas extraction, construction of large-scale (ports, dams, power plants refineries, oil rigs) and linear (roads, railways, powerlines and pipelines) infrastructure. Biodiversity Offsets are a part of the mitigation hierarchy – the environmental management framework that allows the integration of biodiversity into the development project life-cycle.
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Required by the law in some countries but mostly undertaken voluntarily by corporates, biodiversity offsets are the last-resort option for addressing unavoidable impacts, after reasonable efforts have been made to avert and mitigate the impact. The objective of the biodiversity offsetting is often to achieve no net loss (NNL) and sometimes even a net gain of biodiversity, measured often in terms of species richness, extent of habitat and flow of ecosystem services.
As per speciesbanking.com (a global information clearinghouse for biodiversity offsetting, compensation and offset banking), as many as 45 laws, policies and programs pertaining to biodiversity offsetting and compensation are active in countries worldwide and 20 more are under development. More than 86,000 hectares of land has been purportedly conserved or restored through offsetting and payments to the tune of USD 1.8 to 2.9 billion are being made annually.
Just as biodiversity offsetting has found its way into national and state-level legislation, it is also becoming an important pre-condition for international project finance as most major lenders such as the IFC and international private banks mandate the adherence to the mitigation hierarchy. Where it is not mandated by law or the lending institution, biodiversity offsetting is being adopted voluntarily by businesses as a means to enhance reputation and gain a social license to operate.
However, no other conservation principle has polarized the conservation community as has biodiversity offsets. The proponents claim that the offsets allow the internalization of the environmental externality of biodiversity impact into development decision-making, arguing that some development is inevitable and when implemented in accordance with best practice biodiversity offsets can lead to real conservation outcomes at the landscape scale and provide the much-needed private sector boost to cash-strapped conservation finance. The criticism is equally convincing and scathing – offsetting is being seen as a ‘license to trash’ and an attempt at ‘commodification of nature’. As George Monbiot incisively puts it – “It makes nature as fungible as everything else. No place is valued as a place: it is broken down into a list of habitats and animals and plants, which could, in theory, be shifted somewhere else.”
Even if we were to dismiss the debate as a natural process, the actual examples of biodiversity offsets have met with limited success. Their on-the-ground implementation has been fraught with challenges. To cite a review of biodiversity case studies by Fern, ‘biodiversity offsets face a number of problems: 1) technical (not being able to effectively measure what is lost and gained), 2) governance (not enforcing the mitigation hierarchy or adequate standards and measurements, nor penalising failed projects) 3) socio-geographical perspective (the local and wider cultural value of nature) 4) financial (fundamental errors in the market logic of using ‘price’ to regulate destruction 5) Legal (evidence to show that biodiversity offsetting interferes in the interpretation of environmental and planning laws and due legal process).’
The regulatory compensatory mitigation regime in India continues to be a rudimentary one – in lieu of diversion of forest land the developer pays to the government the cost of afforestation of equivalent area of degraded land (Compensatory Afforestation or CAMPA). In addition the developer also pays an amount equivalent to the Net Present Value(NPV) of the forestland which is to be used for ‘natural assisted regeneration, forest management and protection, infrastructure development, wildlife protection and management, supply of wood and other forest produce saving devices and other allied activities.’ The fact that the even the recently-revised figure of NPV of a hectare of forestland ranges from a mere Rs 4.38 lakh to Rs 10.43 lakh (6900 USD to 16000 USD) is another discussion altogether. What’s more, Compensatory Afforestation Funds to the tune of Rs. 38,000 crore (and accured interest to the tune of Rs. 6000 crore) collected by the states from the user agencies are lying unutilized. The compensatory mitigation regulation in India and its implementation is still a long way from the international best practice in offsetting. At the same time, voluntary offsetting is all but non-existent. There is no denying that corporates do take up afforestation activities but is often more as a social responsibility activity than as a compensation for impacts.
With India being one of the fastest growing economies in the world and with conflict between development and environment escalating, the impact of development on biodiversity and its mitigation is set to gain increased prominence in environmental legislation. In fact, the term offsets has already crept in policy discussions. But India will have to be very cautious before adopting a policy on offsets. It will first have to assess whether the present Environmental Impact Assessment mechanism even begins to follow the mitigation hierarchy. Environmentalists have repeatedly slammed the EIA process in India as a mere sham. When the first two stages of avoidance and mitigation of impact are compromised, the very purpose of offsets gets defeated.
It’s important to remember biodiversity offsets come into play only in the case of unavoidable and residual impacts. Unless it has been determined without a shred of doubt that the impact cannot be avoided nor it can be mitigated through the environmental management plan, biodiversity offsetting will have no meaning. Lest we rush into offsets and it becomes another tool for justifying reckless development, we must tread carefully.
The failure was attributed in large part to insufficient finances. The same year, parties to the convention met in Nagoya, Japan (COP 10) to agree upon renewed goals to stem the burgeoning tide of global biodiversity loss, which according to a European Commission study, is costing the world economy USD 740 billion per year in lost ecosystem services. At Nagoya, the parties set for themselves the more ambitious and far-reaching Aichi Biodiversity Targets to be achieved by 2020 (as a part of CBD’s Strategic Plan for Biodiversity adopted during COP-10 in Nagoya).
The 11th Conference of Parties (COP-11) held in Hyderabad inherited from COP 10, the unfinished business of mobilizing financial resources for the Aichi Biodiversity Targets. During the conference the international commitment to fund the targets were doubled from USD 6 billion to USD 12 billion – the amount pledged still fell short of the investment required by an entire order of magnitude.
Funding for biodiversity conservation comes broadly from two sources:
- International flows of financial resources including both the Official Development Assistance or ODA (i.e. official aid from developed to developing countries – this includes both bi-lateral transfers and multi-lateral transfers e.g. those channelized through GEF) and the non-official funding provided by international NGOs and foundations
- Domestic funding including government budgetary outlay of various departments and funding from private sector
In its review of the progress towards the Aichi Biodiversity Targets, the CBD maintains that the funding gap continues to be serious. Over the past few years, the growth in Biodiversity-related ODA and GEF funding for biodiversity focal area has remained sluggish and the doubling of funding is nowhere in sight.
India has done pioneering work among the signatories in making a detailed assessment of its domestic funding for biodiversity. Although the MOEF budget for biodiversity has increased, the funds are clearly not enough to meet the national-level targets.
The sheer magnitude of the funding gap, both internationally and nationally, calls for raising funds from all possible sources. Private sector funding for biodiversity conservation offers a promising opportunity to bridge this gap. Countries have been exploring feasible mechanisms to mobilize this hitherto untapped source. Referred to broadly as Innovative Financial Mechanisms, the ones that involve private sector funding include Biodiversity Offsets and Payment for Ecosystem Services.
In 2013, India became the first country to mandate Corporate Social Responsibility(CSR) through its new Companies Act. The provisions of the act require all companies of a certain net worth/turnover/net profits to set aside 2 per cent of the annual net profits for CSR activities – an estimated 3 billion USD of capital will be generated by the 16,000 companies that come under the ambit of the Act.
Among the nine areas outlined by the Indian Ministry of Corporate Affairs, on which the CSR budget can be spent, one is ‘Ensuring environmental sustainability, ecological balance, protections of flora and fauna…’ – thus there is a clear mandate from the government that corporates invest a part of their CSR kitty on biodiversity conservation. The Companies Act, 2013 encourages companies to focus their CSR efforts in the local regions of their operation. Thus biodiversity conservation as a sector for CSR intervention becomes relevant for companies operating in areas of high conservation value and those that have a high-biodiversity footprint.
One modus operandi for making CSR investments in biodiversity conservation is through individual company-level projects, something that a few companies have already been doing voluntarily. The other method of operationalizing this is for a group of companies to pool resources to reach a scale, an idea for which there are provisions in the Companies Act.
Whatever the modus operandi, companies are expected to have a CSR strategy in place, specifying their geographies and issues of intervention. With companies reporting on their 2 percent CSR targets for the first time this year, it would be interesting to see which companies have included biodiversity conservation in their CSR strategies and whether the CSR spend can make significant contribution to the much-needed biodiversity finance in India.