Regulated nature offsets: the key to unlocking the billions required

by Tim Male, EPIC | September 17, 2025

Authored by Tim Male, Executive Director at the Environmental Policy Innovation Center (EPIC) in Maryland. EPIC is a partner of the Revenues for Nature Programme which is led by the GFI, UNEP FI and UNDP Biofin.

A study in the American city of Baltimore found that when degraded, eroded and deforested streams in urban areas were restored, the resale value of the average home within a ½ kilometre rose by more than 10% (1). Yet, homeowners are not paying for the restoration. In the USA, it is a well-enforced regulatory system that rewards privately financed stream ‘mitigation’ banks that produce enhanced ecosystems and the economic value and homeowner amenities that result.

Mitigation banking, rooted in laws allowing no net loss of wetlands and streams, has transformed the way private capital supports nature-positive investments.

A USD$4 billion annual market for credits linked to ecosystem restoration now exists because regulations have created a powerful financial incentive: when a developer unavoidably damages streams, wetlands, or habitats, they are required by law to offset that impact by purchasing credits from an approved mitigation bank. The credits themselves are generated by private investments in restoration, verified and maintained according to rigorous environmental standards. The investment backing for this work comes from some of Europe and North America’s largest pension funds, alongside others. Returns are market-rate rather than concessionary.

While there are global commitments to transition to a global economy underpinned by regenerative practices, negative impacts on nature, at least for the foreseeable future, are unavoidable. Global efforts to expand nature finance are overlooking the effective role that policy and regulation can play in driving avoidance of damage and incentivising investment in restoration that offsets that unavoidable damage.

This system accomplishes several critical objectives. First, clear and enforceable regulations provide something that is critical to long-term private investment: predictable behaviour from government. The guarantee of future demand for these credits is possible only with a strong regulatory foundation. Second, correctly designed policies block impacts to the most valuable habitats, facilitate housing and other development in areas most valuable for those uses, and facilitate nature investment in areas with lower development value where biodiversity benefits are more sustainable.

Investment-worthy systems like America’s are evolving in other countries too. For example, Colombia has a ‘no net loss’ law to protect its biodiverse ecosystems and has registered more than a dozen habitat banks that are providing a similar investment-backed structure to compensate for unavoidable losses caused by development. The UK is over a year into its new regulation of Biodiversity Net Gain.

The EU’s new Roadmap Toward Nature Credits is attempting to produce something similar but is too focused on lessons from carbon markets instead of much more closely matched nature and ecosystem credit systems in America and elsewhere. The draft plan is built on the premise that you can create strict standards on generating a nature credit and buying a nature credit – all of which makes nature assets more expensive – without doing anything at all to create standards on the harm to nature that is occurring in the first place. That is not an easy recipe with which to generate private nature investment.

There are some obvious lessons from the USA’s experience that could help. First, experts know how to put biodiversity back into many ecosystems and have been doing so for 100 years or more. Start there – those are the lowest risk ecosystems in which to start rewarding nature investment.

Second, unpredictable government behaviour is usually the biggest detractor on natural asset investment. Government actors need to make decisions that create clarity and stick to them.

Regulated nature offsets have created the largest and most biologically successful biodiversity investment track record on the planet. They should be in every country’s toolbox seeking to meet their National Biodiversity Strategy and Action plans.

This article was originally published in the September edition of Green Finance Quarterly. Read the full publication here. 

Sources

1.Charles A. Towe, H. Allen Klaiber, Joe Maher, Will Georgic – A Valuation of Restored Streams Using Repeat Sales and Instrumental Variables (2021)