This topic has become highly relevant and is likely to change the traditional and familiar model of forest and land management in Latvia too. Nature credits are financial and nature conservation instruments that transform measurable nature improvements into certified and tradable units. They have been created as an innovative mechanism to attract private capital for the restoration of biodiversity and ecosystems. The “Roadmap for nature credits” developed by the European Commission provides for a voluntary, market-based system that financially rewards those who genuinely care for the environment.
The nature credit system supports both the restoration of European wetlands and the expansion of forest areas, which are among the primary and most frequently mentioned examples in the European Union.
How do nature credits work in practice?
In practice, the nature credit system acts as a bridge between landowners and companies that wish to invest in the environment. The entire process is based on four consecutive steps.
In the first stage, a landowner, farmer or forest manager decides to carry out nature-valuable improvements on their property that exceed the mandatory requirements set by law. For example, a farmer might stop intensive farming on a piece of land and convert it into a natural meadow or flood a former drainage ditch.
In the second stage, independent auditors and scientists get involved, conducting an initial survey of the area and monitoring the progress achieved using strict, scientifically sound criteria. For instance, measurements are taken to see whether the number of nesting birds has increased in the area or whether water purity has improved. Once real and measurable improvements in nature have been achieved, they are certified and converted into official “nature credit” units.
In the third stage, the certified credits enter the voluntary market. They are purchased by large companies or financial institutions. Companies need this to meet European Union sustainability reporting requirements, improve their reputation or simply mitigate the risks posed to their business by the depletion of natural resources and the climate crisis.
In the fourth stage, the funds from the sold credits go directly to the landowner. This creates a new, alternative source of income, making nature conservation and restoration a profitable occupation that can compete with traditional intensive agriculture or logging.
Supported activities – wetlands and forests
The nature credit system fully supports both the restoration of European wetlands and the expansion of forest areas. These activities are among the most prominent examples in European Union initiatives, as they have a huge impact on ecosystem health.
Wetland restoration means returning natural functions to formerly drained bogs or floodable meadows. This helps retain water in the landscape, reduces the risk of floods and droughts, and creates an excellent environment for rare bird, insect and plant species. In such projects, nature credits are awarded by evaluating the stabilisation of water levels and the return of specific wetland species.
The expansion of forest areas in the context of nature credits does not mean simple monoculture planting for timber production. The emphasis is on creating diverse forests rich in local species and preserving old-growth stands. Credits are calculated based on the variety of planted tree species, improvements in soil quality and the creation of new habitats for forest dwellers.
In addition to these two areas, the system also supports the improvement of soil health, the restoration of pollinator populations on agricultural land and the preservation of mosaic landscapes, which prevents the spread of uniform monocultures.
Methods used by scientists to measure nature improvements
Quantifying biodiversity and ecosystem improvements is more complex than carbon accounting, so scientists use a combination of several modern and traditional methods.
Firstly, the environmental DNA or eDNA (environmental DNA) method is widely used, allowing genetic traces left by organisms to be extracted from nature samples, such as water from a restored wetland or a soil sample from a forest. This method provides an immediate, accurate overview of all species present in the area, including invisible soil microorganisms, fungi and hidden insect or fish species, without physically “encountering” the organisms themselves.
Secondly, remote sensing and bioacoustics are used. With satellite imagery, drones and laser scanning or LiDAR technologies, researchers measure forest structure, canopy density, the volume of deadwood and soil moisture levels over large areas. Meanwhile, automated audio recorders placed in the field capture the sounds of birds, amphibians and bats, which are analysed by artificial intelligence to determine species diversity and changes in their activity over the seasons.
Thirdly, field inventory or habitat counting remains critically important. Certified experts inspect areas in person, creating sample plots where they count specific indicator species – species whose presence suggests high ecosystem quality – measure the structure of plant communities and monitor the thickness of the organic soil layer. All these data are combined into a unified point or index system that clearly shows the increase in natural value over time.
Development of the nature credit system in the Baltics, Finland and Sweden
The Nordic and Baltic countries are currently among the most active pioneers of nature credits in Europe, where states and the private sector are rapidly creating their own systems and pilot projects.
Finland has taken a leading role, recently publishing an ambitious nature credit roadmap for the period up to 2035. The Finnish government is purposefully building a national regulation for the voluntary nature market so that local companies can transparently invest in ecosystem restoration, while ensuring that these credits later integrate perfectly into the European Union's emerging unified nature credit market. In Sweden, meanwhile, development is clearly moving through collaboration between the financial and scientific sectors. Researchers at the Swedish University of Agricultural Sciences have developed a unique point system for forest biodiversity, where points are awarded for the presence of rare species, deadwood and sunlight access to the forest floor. This methodology is already working in practice – Swedbank in Sweden became the first bank in Europe to purchase nature credits certified according to this system, financially supporting local forest owners who manage their land in an environmentally friendly way.
In the Baltic states, the system is currently in the active stage of research and initial pilot projects. Estonia is one of Europe's demonstration grounds for nature credits, where startups and scientists are testing the first digital solutions for creating nature-based credits. In Latvia and Lithuania, interest is growing rapidly both at the government level, by analysing the legal and conservation aspects of implementing the system, and in research. In Latvia, the Baltic Institute of Natural Capital B-Nature (formerly an association) has begun work, bringing together scientists specifically to integrate natural capital and ecosystem services into the economy, preparing the groundwork for local nature credit projects.
Comparison of nature credits and carbon credits
Although both instruments were created to improve the state of the environment, fundamental differences exist between nature credits and carbon credits in terms of goals, units of measurement and environmental impact.
The main difference lies in the nature and complexity of the units of measurement. The carbon credit system is distinctly universal and mathematical – one credit unit is always equal to one tonne of carbon dioxide (CO₂) that has not reached the atmosphere or has been captured from it, regardless of where in the world the project is implemented. Nature credits do not have a single universal unit of measurement because nature is too complex. They are measured locally as a relative improvement in ecosystem quality within a certain area, for example, by recording an increase in the number of species or habitat health indicators in a particular region. The focus and risks to biodiversity of the two systems also differ. Carbon credit projects focus solely on climate goals, which can sometimes even harm nature, for example, by planting a fast-growing monoculture of a single tree species that captures CO₂ perfectly but also creates a so-called green desert without biodiversity. The goal of nature credits is living nature and its diversity. Since the European Commission is currently working on the synergy of both systems, future carbon certification methodologies will include mandatory requirements for the coexistence of biodiversity to prevent such conflicts.
The philosophy of using these credits in the market also differs. Companies have often used carbon credits as a “compensation mechanism”, transferring emissions or carbon offsetting to justify pollution (which often continues) by planting forests elsewhere. Europe is trying to build the nature credit market on a “nature-positive” principle, where purchasing credits does not compensate for the destruction of nature elsewhere, but is a direct investment by companies in increasing total natural capital and achieving sustainability goals.
Banks and companies in Latvia – interest in natural capital
In Latvia, the nature credit and natural capital market is in its early stages of development, with interest from the financial and business sectors growing rapidly. The main drivers are large commercial banks, which are responding to European Union sustainability reporting requirements and the need to “green” their loan portfolios.
Swedbank Latvia and SEB are among the most active financial institutions integrating nature conservation criteria into their operations. They offer more favourable conditions or “green loans” to those farmers and forest managers who implement methods that promote biodiversity in their management. Since parent banks in Sweden are already making the first practical nature credit purchases, this experience is gradually being transferred to Latvia as well.
As for companies, large state and private forest and land managers are showing interest. The state-owned enterprise “Latvijas valsts meži” is actively studying the synergy between carbon sequestration and biodiversity, developing environmental projects that could serve as a basis for credit creation in the future. Private sector startups and platforms, in collaboration with the Baltic Institute of Natural Capital B-Nature, are looking for ways to digitise and certify the ecosystem services provided by Latvian forests and meadows in order to offer them to local and international investors.
Forecasts for nature credit prices in the market
The nature credit market is experiencing rapid growth globally and in Europe. International market studies, including reports from Polaris Market Research and Grand View Research, show that the global biodiversity credit market volume exceeds 100 million US dollars and is forecast to grow by approximately 23-30% annually until 2033-2034. Europe is currently the leading region, controlling almost 40% of the global market.
Regarding prices in the market, there is currently no single universal value because, unlike a tonne of carbon, nature credit units are determined by the project developers themselves based on the area preserved, time and the rarity of the habitat. In the voluntary market, the price range is very wide.
Simpler, area-based credits, such as a preserved square metre of forest, are relatively cheap in developing countries – from 5 to 20 US dollars per unit. Higher-quality and more complex voluntary credits, where actual species return is measured, range from 200 to 700 US dollars per unit.
Especially exclusive and science-intensive projects, such as rescue programmes for rare tree species, are sold for even several thousand dollars per specific impact unit.
An important benchmark for price forecasts is Great Britain, where the biodiversity net gain – Biodiversity Net Gain – scheme is established by law. In the state-regulated market, official nature credit prices range from 42,000 to 125,000 British pounds for one top-tier wetland or forest credit. This shows that in countries with strict legal regulation, the price of nature is extremely high. Experts predict that prices in the voluntary market will only increase in the coming years. Companies are becoming increasingly selective and are willing to pay a higher price for nature credits that have a transparent, scientifically provable methodology, for example, using eDNA or satellites, because this protects them from the risk of being accused of “greenwashing”.
How many nature credits can be obtained from one hectare of Latvian forest?
The calculation of the number of nature credits from one hectare is not as simple as in the case of carbon quotas, where only tonnes are measured. Nature credit schemes use “ecosystem improvement points”, and the main principle is additionality (additionality). This means that credits cannot be received for a forest that just “exists and grows”. The owner must carry out active, targeted actions to increase biodiversity that exceed legal requirements. If a farmer or forest manager implements a biodiversity project on one hectare of Latvian forest, for example, preserves deadwood or old ecological trees, creates a micro-reserve for rare bird species or converts ditches into natural wetlands, scientists evaluate this improvement.
In Nordic and British practice, a one-hectare sample plot is usually able to generate an average of 2-8 nature units or credits after the improvements are made. The exact number depends on the initial state of the forest. If the forest was initially depleted and in a monoculture state, but was then transformed into a natural and diverse habitat, the number of credits obtained per hectare will be significantly higher because the ecological leap has been enormous.
European regulations that will “force” Latvian companies to buy nature credits
Currently, no regulation directly imposes a mandatory obligation or penalty on companies to “buy nature credits”. However, the European Union has created a legal framework that creates enormous indirect pressure, making the purchase of these credits the simplest way for companies to comply with legal requirements and maintain competitiveness.
The main regulation is the EU Corporate Sustainability Reporting Directive (CSRD), which stipulates that large companies and banks must mandatorily report on their environmental impact in accordance with European sustainability reporting standards. A specific standard regulating the nature domain requires companies to disclose in detail how they are halting biodiversity loss in their supply chain. If a company’s operations, such as construction, manufacturing or logistics, harm nature, purchasing nature credits is the most legally clean way for a company to demonstrate a real, auditable and positive impact on ecosystems in its official report.
The second important driver is the European Union Nature Restoration Law, which imposes a legal obligation on member states, including Latvia, to restore habitats in poor condition by 2030. For states to achieve these goals, public funding is not enough. The Nature Credit Roadmap developed by the European Commission serves as a tool for national regulations and tax incentives to stimulate private companies to invest in these market instruments.
The third factor is the European Union Carbon Removal Certification Framework (CRCF), which stipulates that in the future, carbon credits can no longer be sold as high-quality products if they do not have a provable additional positive impact on biodiversity, so-called co-benefits. Consequently, companies will be forced to purchase credits that combine both climate and nature protection components.
Examples of pricing – Great Britain and Sweden
To understand how nature credit prices are formed, it is worth looking at two different models in Europe – the state-regulated and the voluntary market.
In Great Britain, the biodiversity net gain (Biodiversity Net Gain) system is strictly defined in law. Every real estate developer or builder has a legal duty to ensure an increase in biodiversity in the area after project completion by at least 10%. If this cannot be done on the building site, the company must buy credits from private “habitat banks” – farmers who have restored their land. In the free market, one credit unit of meadow or grassland costs approximately 20,000-30,000 British pounds. If a developer cannot find a private seller, as a “last resort” they must buy state-issued “last instance” credits, the prices of which are deliberately set as “astronomical” – from 42,000 pounds for a meadow to up to 125,000 pounds for high-value broad-leaved forest and 230,000 pounds for river habitats. Such a model shows that as soon as the state introduces a mandatory requirement, the price of nature credits becomes very high and stable.
In Sweden, by contrast, a voluntary market operates based on the synergy of the private sector and science. Researchers at the Swedish University of Agricultural Sciences have developed a methodology that assesses the ecological quality of a forest. When local forest owners agree, for example, to stop logging for 30 years and carry out nature restoration measures, these improvements are converted into credits. In this model, the price is not dictated by the state; it depends on the willingness of companies to invest. Swedbank in Sweden carried out such a voluntary transaction, purchasing nature credits directly from local forest owners. The price here is formed by calculating the forest owner’s lost profit from timber sales and adding the costs of nature restoration work and scientific monitoring. This ensures that for a farmer or forest owner, nature conservation is financially as attractive as logging.
The world’s largest investment funds, asset managers such as BlackRock, BNP Paribas Asset Management, Foresight Group and international financial organisations consider natural capital and nature credits to be the next major investment frontier, following in the footsteps of the carbon market but with a more stable structure based on real assets. Several significant trends are emerging in reports and forecasts from leading funds and financial experts.
Market growth and volume
The largest market research funds and analysts, including Grand View Research and Polaris Market Research, predict that the global biodiversity credit market volume will experience a rapid jump. From approximately 7.1 billion US dollars, it will increase to 38 billion, maintaining an ambitious annual growth rate of approximately 23%.
Investors realise that more than half of the world’s gross domestic product is directly dependent on nature. Fund analysts, such as PwC, warn that if nature degradation is not stopped, it could destroy up to 12-18% of the market value of publicly traded companies over the next 15 years. Directing investment into nature credits is no longer just charity for funds, but the protection of their own capital and investment portfolios against systemic risks.
Structural supply deficit and price increase
Investment funds point to a marked difference between supply and demand. While corporate demand for nature credits is growing by about 25% per year due to stricter ESG laws, the supply of high-quality and certified nature projects can only grow by ~15% per year. The long-term lack of supply means that high-quality, scientifically sound nature credits in particularly valuable and sensitive ecosystems, such as Nordic and Baltic forests or wetlands, will be guaranteed a constant price increase and premium status value. The funds predict that buyers in the voluntary market will prioritise not the lowest price, but the transparency, reliability and local community involvement of the project.
Transition from “niche” to core investment class
As recent research conducted by the institutional investor network Mallowstreet in collaboration with BNP Paribas shows, natural capital is currently at a historical turning point and is transforming into a mainstream investment instrument. Pension funds, insurance companies and charitable foundations around the world are starting to purposefully increase their share of capital allocated specifically to natural assets.
Large asset managers, such as New Forests, are currently creating and activating specialised multi-billion-dollar global natural capital funds; their strategy is to invest in real natural assets – sustainable forestry, regenerative agriculture and biodiversity projects. Institutional investors prefer these projects because they serve as an excellent hedge against inflation and market volatility, offering a stable historical investment return of 7-13%.
Funding gap and state support
The World Economic Forum and UN funds emphasise that funding from state budgets and donors for nature conservation is catastrophically insufficient, making up less than 0.1% of public spending. To achieve global nature conservation goals, approximately 400-900 billion US dollars are needed annually, which can only be provided by private capital.
Investment funds predict that governments around the world, including the European Union with its Nature Credit Roadmap, will increasingly introduce tax incentives, subsidy shifting and legal regulations to make the nature credit market as attractive and safe as possible for private investors. Every euro invested in nature restoration yields a 5-25 euro economic return in the long term, creating a stable foundation for national fiscal security and job creation. Nature credits are a “great opportunity” for Latvia’s prosperity as well.
Sources: European Union and US information websites