In our new series, The Hidden Cost, Vogue Business breaks down everything you need to know about climate finance as it relates to fashion’s supply chains. No jargon, just insights. Read more here.
Earlier this month, the European Commission published its roadmap towards nature credits, a plan that President Ursula von der Leyen said will “put nature on the balance sheet” and drive investments in biodiversity.
To some, it was a surprisingly sustainability-forward move for the European Commission, whose mandate has been defined by regulatory rollbacks since von der Leyen started her second five-year term in October 2024. Many of the progressive regulations that fall under the EU Green Deal have been heavily watered down, including due diligence, deforestation and greenwashing rules. But the European Commission says nature credits have something that the other regulations did not: they help, rather than hinder, its top priority of promoting European competitiveness and resilience.
“Already today, climate risk is causing higher insurance costs, damaging supply chains and farms, and could cost businesses up to 7 per cent of their yearly profits in the next decade,” the Commission wrote when announcing the roadmap. “[That is] if they don’t adapt and support nature preservation.”
Textile Exchange is urging fashion to adopt science-based targets for nature as progress lags.
The World Economic Forum estimates that more than half of global GDP and at least 66 per cent of the EU’s added economic value depend on nature and its ecosystems. “With this roadmap, we are taking a bold step to recognise nature as a strategic asset for Europe’s future,” said Jessika Roswall, commissioner for environment, water resilience and a competitive circular economy. “Nature credits have the potential to attract essential private investment, while also rewarding those who are the custodians of our land and seas, including farmers, foresters and local communities. Our goal is clear: working hand in hand with nature and turning this into an opportunity for a resilient and competitive economy.”
However, experts say there are kinks to work out before nature credits can deliver on these promises, including how to measure progress and success, whether the scheme should be voluntary or mandatory, and how to make sure funds reach the right people at the right time.
Here, Vogue Business lays out everything to know about nature credits, and how to get them right.
What could nature credits offer fashion businesses?
Nature credits are like carbon credits, but for biodiversity. They allow private entities to invest in projects that protect, preserve and restore nature, giving a monetary value to future-facing climate solutions, which are then independently measured and verified. They are not intended to simply offset the harm a company’s operations are doing to nature, but rather to finance positive action that goes above and beyond that harm — minimising the future risk from climate change.
The beauty of nature credits is that they are highly local and context-specific, which means there are lots of different ways to deliver on their promises, says Virginia Keesee, senior director of global fashion and nature initiatives at Conservation International, the non-profit behind Kering and Inditex’s Regenerative Fund for Nature. For fashion companies, this could be anything from keeping forests intact and slowing the decline of biodiversity to resting soil to avoid overuse and taking part in active restoration projects by planting forests and mangroves. For brands transitioning to regenerative agriculture, it might also mean establishing pollinator habitats, increasing soil organic matter through cover cropping, or enhancing biodiversity by curbing the use of synthetic pesticides and herbicides.
The European Commission says the benefits could be bountiful: cleaner ecosystems, risk reduction, improved reputation, and higher social acceptability for projects that might damage biodiversity. “Nature loss threatens material availability and long-term supply chain stability,” says Keesee. “If ecosystems aren’t resilient, then agriculture and production systems aren’t resilient, which means businesses are less resilient.”
For many, nature credits are an imperfect but tangible solution to a critical and quite overwhelming problem. “Capitalism has delivered major increases in living standards over the past 200 years, but it has done so at the expense of nature. Nobody has been paying that cost, and as a result, nature has declined,” explains Sophus zu Ermgassen, an ecological economist specialising in biodiversity finance at the University of Oxford’s Leverhulme Centre for Nature Recovery. “The idea of putting nature on the balance sheet is basically giving a physical form to those impacts on nature. In economics, we call this internalising the externalities. It’s a way of getting governments and businesses to see the actual cost of production and appropriately accounting for that cost.”
For others, the idea of putting nature on the balance sheet is “unethical and abhorrent”, says Gail Gallie, the former marketing whiz behind the United Nations Sustainable Development Goals campaign, who recently launched non-partisan convenor The Nat to try and unlock $20 million in private funding for nature-positive projects by 2050. “I definitely felt this way in the past, and I’m aware that quantifying nature in this way might repulse some people [because it shoehorns nature into capitalism rather than vice versa]. But it’s the fastest way to get money to the people on the ground who know how to look after nature. We can’t let perfection get in the way of progress.”
Working out the kinks
Nature credits will only deliver positive change if they are properly executed, which is not easy.
Alongside the Biodiversity Credit Alliance, the World Economic Forum and the International Advisory Panel on Biodiversity Credits, the European Commission has been running pilot programmes to try and find the right methodologies. These pilots span France, Estonia and Peru, and the European Commission says the initial findings have been positive. But among the scientific community, there are concerns about gaps in the European Commission’s current proposals.
Even if nature credits were mandatory, they would not be able to plug the nature funding gap alone, says Joshua Berger, founder and CEO of The Biodiversity Footprint Intelligence Company (BioInt), which researches and analyses nature credits. According to the European Commission, that gap currently tops €65 billion annually in Europe, while the Global Biodiversity Framework estimates that it sits at around $700 billion globally.
The plan is for nature credits to form part of a matrix approach, according to a spokesperson for the European Commission. “Public funding will remain a cornerstone of nature protection and restoration, but we also know it is not enough to bridge the gap, so we have to unlock private finance to complement public support,” the spokesperson adds. In announcing the roadmap, the EU also committed to allocating 10 per cent of its overall budget to biodiversity by 2026-2027, and doubling external biodiversity spending to €7 billion.
The matrix approach should also include subsidies, says zu Ermgassen. “Every year, trillions of dollars of private finance and trillions of dollars of government subsidies go into funding activities that destroy and degrade nature. Credits are tiny in comparison to these macroeconomic drivers of nature loss. So the first thing governments should be doing is regulating damaging activities so it is less profitable to destroy and degrade nature.” The European Commission says it has asked member states to report on their environmentally harmful subsidies (in both energy and non-energy sectors) and to indicate how they consider their repurposing to support nature-positive activities.
Policymakers will also have to work out whether payment is delivered upfront — easing the financial burden on farmers and land stewards, but risking paying for something that never materialises — or once the impact has been proven.
Then there are technical challenges. Firstly, figuring out how to quantify something as complex and amorphous as nature. There are currently more than 50 different standards and methodologies for biodiversity in development, says Keesee. This is especially problematic because we don’t have a globally standardised definition of biodiversity, which means scientists haven’t been able to get a proper grasp on the hard limit for biodiversity loss and nature degradation. “Because scientists have not been able to define a hard limit, policymakers have not been able to prioritise nature and biodiversity against all of the other competing political priorities,” adds zu Ermgassen.
The European Commission is weighing a voluntary nature credits market, which zu Ermgassen says is unlikely to deliver the funding required. “Voluntary markets don’t have much value because there is no guaranteed buyer. You attract investment into these initiatives by making them mandatory, normally for industries that damage nature.” The US has done this with its Wetland Mitigation System, which has been pushing a form of nature credits on pollution industries for 30 years. The European Commission spokesperson told Vogue Business that the scope, market structure and regulatory framework for nature credits are open to discussion and remain undecided.
However, the European Commission moves ahead, experts say it is vital that nature credits guarantee additionality — making sure that the impact you claim wouldn’t have happened without the nature credits in place — and permanence, which means creating a lasting impact over decades, if not a lifetime. Without this, nature credits won’t have the desired effect, says Keesee.
Fashion companies — alongside other industries, scientists, governments and civil society — now have an opportunity to influence how nature credits develop. The European Commission has issued an open call for feedback on its proposals, which will run until 30 September. A new expert group will oversee this process to make sure there is a “bottom-up” approach, and the European Commission says the ultimate aim is to decide on further development by 2027.
Can carbon credits offer a blueprint for best practice?
To an extent, carbon credits provide a blueprint for nature credits. However, carbon credits remain highly contentious two decades in because of deep flaws in the system, casting doubt over the potential impact of nature credits if the lessons are not learnt.
Climate Farmers was an early adopter and vocal advocate for carbon credits, helping farmers across Europe glean extra income from the fledgling market by transitioning to regenerative agriculture. A few months ago, the non-profit shocked the industry by revoking its support for carbon credits, citing the oversimplified metrics and burdensome bureaucracy which undermined the financial viability for small-scale farmers. It has now released a position paper urging the EU to reform its carbon credit markets.
“It’s actually very hard to measure carbon because it is cyclical,” says co-founder Philippe Birker. “The plants and mycelium in the soil are constantly trading carbon against other nutrients, so it is constantly in flux. That makes carbon one of the hardest indicators to measure.”
Biodiversity is much easier to measure, Birker says, because there are metrics like soil water storage capacity, which reduces the risk of flooding damages or drought. “We can measure that remotely with an accuracy of up to 90 per cent. You can also use a microphone to record noises and use AI to determine the number of species present and the amount of each species, which is relatively cheap technology.”
When credits are well-designed, carbon and nature can be “two sides of the same coin”, says Keesee, both sequestering carbon and improving biodiversity. There are other similarities, too. Just like carbon, nature follows what the European Commission calls a “mitigation hierarchy”. The first port of call should be avoiding damage in the first place. Only when damage is absolutely unavoidable should businesses consider nature credits.
The best approach is insetting, as is the case with carbon emissions. Here, there are six guiding principles businesses should follow, according to Conservation International. These include: prioritising climate impact, collaborating with groups of suppliers operating in certain landscapes, delivering shared value for people, delivering positive outcomes for nature, making credible claims about these efforts, and making sure that monitoring, reporting and verification are efficient.
To do this, brands need to start with supply chain transparency and traceability. “It’s really hard to know where your impacts and vulnerabilities are if you don’t know where you’re buying your products from,” says zu Ermgassen. “Then you need to figure out whether or not the areas you source from are actually vulnerable to nature loss. So, in farming landscapes, for example, if you are using pesticides, then there will be fewer pollinators, which means smaller crop yields in the long run. These are the kind of issues every company will need to grapple with.”
Many large consumer goods companies are already putting significant funds into this, continues zu Ermgassen. “These efforts can help to shield companies from regulatory and litigation risks, but there is also emerging science that suggests growing commodities in more biodiverse systems can prevent things like yield losses from big climate shocks such as heatwaves. So biodiversity makes business sense too, because it makes your supply chain more resilient.”
More urgency and investment are critically needed, and fashion is well-positioned to lead, adds Keesee. “We have spent the past decade focusing primarily on carbon, but protecting the ecosystems that sustain raw materials is the next frontier. Given its dependence on agricultural production systems — be it cotton, cashmere or leather — the fashion industry has an immense opportunity to turn the tide on nature loss and set an example for what is possible across industries.”
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