MALAYSIA is a mega-biodiverse country. We have flora and fauna not found elsewhere on Earth. However, this rich biodiversity is increasingly under threat. Climate change makes it worse.
Migration patterns and breeding cycles can be disrupted, putting further stress. Together, these would accelerate biodiversity loss, with potentially irreversible socio-environmental and economic consequences.
Biodiversity supports industries such as agriculture, fisheries and tourism. The loss of species would lead to the collapse of ecosystems, posing dire consequences for humanity.
A significant challenge is the lack of comprehensive data. The exact number of species that exist is yet to be fully documented. Many remote regions may harbour yet-to-be-discovered species. Despite significant research efforts, more undertakings are needed.
Countries worldwide are making Environmental, Social, and Governance (ESG) reporting mandatory. This is where companies disclose information about their performance related to ESG factors.
These provide stakeholders — such as investors, customers, regulators and the public — with insights into how a company complies with sustainability and ethical practices.
The environmental component discloses the company's impact on the carbon footprint. The social component demonstrates how the company manages relationships with employees, suppliers, customers and communities.
Governance is how the company is governed, including its leadership structure, executive compensation, shareholder rights, and ethical business practices.
ESG reporting is increasingly used by investors to make informed investment decisions. Carbon credits are used within the framework of ESG reporting. But there are challenges. Its acceptance globally has come into question. Not all carbon credits are created equal.
The quality of carbon credits can vary significantly depending on the projects they support. Some credits have been criticised for being "low quality," meaning they do not actually result in additional reductions in emissions. This has led to concerns about "greenwashing", where companies may appear more environmentally responsible than they truly are.
There is genuine concern that companies are over-relying on carbon credits to offset their emissions rather than reducing them. The price volatility of carbon credits is a concern. A volatile market can also undermine the stability and predictability of long-term sustainability strategies.
Some critics argue that the carbon credit market allows wealthy companies to "buy their way out" of their environmental responsibilities.
While carbon credits have been successful in promoting corporate responsibility and financing emission reduction projects, their effectiveness is contingent on the quality and integrity of the credits.
To address the shortfalls of carbon credits, the concept of biodiversity credits is suggested to better align conservation efforts with corporate responsibility. Biodiversity credits are a market-based instrument designed to incentivise the conservation and restoration of biodiversity.
Similar to carbon credits, biodiversity credits enable organisations to support the preservation of ecosystems and species. By purchasing these credits, companies can compensate for their environmental impact, offering a tangible way for companies to demonstrate their commitment to environmental stewardship.
As stakeholders, such as investors, consumers and regulators, become more concerned with sustainability, this not only enhances their ESG performance but also helps build trust and credibility with stakeholders.
Companies that invest in biodiversity credits are not just mitigating their environmental impact, they are also contributing to the resilience of the ecosystems. By investing in biodiversity credits, companies in sectors like agriculture can ensure the sustainability of the natural resources they depend on.
Biodiversity credits can also stimulate local economies by providing financial incentives for communities to engage in conservation activities. But there are also challenges.
One main challenge concerns establishing standards to assign biodiversity credits, ensuring they accurately reflect the consequent ecological benefits. Robust monitoring and reporting mechanisms are required to ensure that the conservation outcomes are achieved. This is where local expertise more familiar with the tropical ecosystems can be employed.
Collaboration between governments, the private sector and environmental non-governmental organisations (NGOs) is key. The government creates the supporting regulatory frameworks and incentives for the biodiversity credit markets.
Environmental NGOs can offer expertise in conservation science and help ensure that biodiversity credits are grounded in sound ecological principles. As this concept gains traction, it has the potential to transform the way businesses interact with the natural world, driving a more sustainable and equitable future for all.
The writer is a professor at the Fellow Academy of Sciences Malaysia and former Deputy Vice-Chancellor at Universiti Malaysia Sarawak (Unimas)