Highlights

Biodiversity offsets are increasingly used in global conservation efforts, including in the World Bank Group’s Environmental and Social Frameworks. The last step in the mitigation hierarchy, biodiversity offsets are difficult to implement effectively since they require long-term, sustained financial and technical support to deliver their intended conservation outcomes.

There are capacity and skills gaps related to identifying, supervising, and managing biodiversity offsets within the Bank Group, and the extent of these gaps varies across the three institutions.

There has been uneven and inconsistent updating of offset information after project Board approval, undermining transparency. The methods used to calculate biodiversity losses and gains are also rarely transparent, leading to potential inaccuracies in offset design and monitoring. Both of these performance gaps diverge from international best practice.

Although implementation status and quality vary, most implementation activities are delayed or incomplete, undermining the ability to estimate whether offsets will likely deliver their intended conservation outcomes.

This chapter focuses on Bank Group (World Bank, IFC, and MIGA) use of biodiversity offsets to address the significant residual adverse biodiversity impacts arising from development. To derive lessons from the Bank Group’s use of biodiversity offsets, we used a sequenced approach. First, we identified projects with offset activities. Then, we assessed (i) the alignment of biodiversity offset development against Bank Group environmental and social requirements and Bank Group supervision of client implementation (survey work, stakeholder engagement, and documentation), and (ii) outcomes to the extent that monitoring and reporting data were available (including the principles of no net loss or net gain). Lastly, we conducted interviews with 20 senior experts in environmental and social fields to derive explanatory factors.

The World Bank, IFC, and MIGA include biodiversity offsets within their ESFs, and their requirements have become more aligned over time (box 5.1). Biodiversity offsets are defined under ESS6 and PS6 as “measurable conservation outcomes resulting from actions designed to compensate for significant residual adverse biodiversity impacts arising from project development, and persisting after appropriate avoidance, minimization, and restoration measures have been taken.” In simpler terms, this means taking actions such as protecting or restoring biodiversity in another location to compensate for unavoidable impacts that remain after all feasible steps to avoid or reduce harm have been taken. Positioned as the final step in the mitigation hierarchy—after avoidance, minimization, and restoration—offsets aim to balance biodiversity losses with equivalent or greater gains. The objective is to achieve no net loss or even net gain in biodiversity; in other words, to ensure that development does not come at the cost of irreversible impacts on biodiversity values. Today, the offset requirements in both PS6 and ESS6 are largely based on international best practice, or the international Business and Biodiversity Offset Program. IFC’s extended exposure to and experience with implementing offsets, relative to the World Bank, is reflected in the maturity of the approaches to offsetting within the institutions’ respective portfolios.

Biodiversity offsets are an increasingly used tool in global conservation efforts, often driven by regulatory requirements, lender policies, and reputational risk management. The more frequent appearance of offsets may reflect not an increase in impact severity, but rather the more explicit and stringent requirements of ESS6, compared with the previous safeguard policies. For example, the prior OP 4.04 required mitigation of habitat impacts but did not mandate no net loss or explicitly require offsets. ESS6 now includes clearer expectations regarding critical habitat, residual impacts, and offset use as a last resort, bringing the World Bank in line with international good practice. Nevertheless, in practice, when no financing component for biodiversity offsets is included in the design of public sector projects, financing them can be a major constraint.

We identified a portfolio of 54 projects approved during the evaluation period (FY15–24) that either explicitly indicated that biodiversity offsets would be incorporated per ESS6 and PS6 requirements or signaled requirements for potential offset measures if risks materialized downstream. This portfolio included 19 World Bank projects, 22 IFC projects, and five MIGA guarantees. In addition, there were eight joint operations (six jointly implemented by IFC and MIGA, one by IFC and the World Bank, and one by MIGA and the World Bank). The regional distribution of these projects is as follows: Latin America and the Caribbean, 13 projects; Western and Central Africa, 12 projects; South Asia, 11 projects; Eastern and Southern Africa, 7 projects; Europe and Central Asia, 6 projects; East Asia and Pacific, 2 projects; and Middle East and North Africa, 3 projects.

Offset projects across IFC, the World Bank, and MIGA vary in sector and scope, addressing both small- and large-scale biodiversity impacts. For IFC, many of the smaller-scale offsets were associated with solar or wind projects. For the World Bank, offset projects primarily focused on energy and infrastructure development. These included rural and regional transport connectivity operations, as well as energy-related initiatives such as gas or hydropower operations. MIGA operations with offsets were mainly hydropower, wind power, and other energy-related operations, plus one mining and two infrastructure projects. All projects were rated high environmental and social risk, with one exception.

Capacity Constraints

There are capacity and skills gaps related to identifying, supervising, and managing biodiversity offsets at the World Bank. There was consensus among the 20 environmental and social experts and environmental specialists interviewed that there are significant capacity gaps within the World Bank related to identifying the need for biodiversity offsets and guiding their effective design and implementation, in line with ESS6. The World Bank lacks global and regional biodiversity leads to facilitate learning on biodiversity offsets and ensure the consistent use of knowledge about standards and best practices. There was a focal point for offsets at the World Bank, but they have retired. Interviews indicate that there is insufficient guidance, training, peer-to-peer learning, and mentorship for staff working on offsets at the World Bank. However, IFC now has global and regional technical leads for biodiversity who provide support, guidance, and a level of consistency for projects implementing PS6. MIGA has limited staff capacity in this area. Interviewees raised concerns about the difficulty of supervising offsets while also managing new projects, despite knowing that close monitoring of offset projects is critical to ensuring compliance and effectiveness and to generating lessons and knowledge.

Information Disclosure Post-Board Approval

A lack of visibility on biodiversity offsets after project Board approval reduces transparency for public oversight and institutional learning and is out of step with evolving global best practices. Bank Group projects typically disclose only preliminary information about biodiversity offsets before project Board approval. However, no evidence was found of post-Board disclosure of updates, even though all offsets reviewed had updates. This lack of visibility matters because much offset-related documentation is prepared post-Board approval because offsets take time to plan and implement. Not releasing updated offset information on key mitigants for the project (including biodiversity action plans or biodiversity management plans post-Board approval) undermines accountability, public oversight, institutional and client learning, risk management, and—ultimately—better outcomes. Global frameworks such as the Taskforce on Nature-related Financial Disclosures, the Global Reporting Initiative, and the European Sustainability Reporting Standards push for greater transparency on nature-related risks, including transparency for biodiversity offsets.

Implementation

Although the extent of offset implementation varied across projects, there is a tendency across the portfolio for the necessary assessments and subsequent implementation of enabling activities to be very delayed. These delays suggest that many projects will not be able to confidently say that offsets will be implemented according to the guidance after project end. It takes 20–30 years to achieve no net loss or no net gain. Therefore, we examine implementation status and quality during the project cycle to understand the probability of achieving positive biodiversity offset impacts over time. Since offsets vary in type, size, and scale, we examine implementation across cohorts. The main patterns emerged less by institution and more by sector; therefore, the remainder of the chapter highlights challenges on a sector basis.

Hydropower and Renewable Energy

Offset implementation in the nine hydropower cases in the portfolio is significantly constrained by sector-specific complexities and inadequate financing, in part due to a lack of granularity on offset requirements in project documents. Strengthening early-stage assessments and upstream interventions can help enhance avoidance and result in more effective and adequately funded offsets. Biodiversity offsets in the hydropower sector included supporting terrestrial and riverine protected areas, rivers outside of the area of influence, afforestation, and species translocation. Implementation was behind schedule for five of the nine projects with offsets that were three or more years into implementation (and some were still preparing key documents six years after financing). Another closed project revealed unsatisfactory offset implementation. Implementation was progressing satisfactorily or well in only two projects. The challenges in hydropower projects stem from sector-specific factors, including the need to address both terrestrial and aquatic impacts; the increasing concentration of projects within the same basin, which creates complex cumulative effects that are difficult to mitigate; limited budgets; very weak institutional capacity (Nepal and Pakistan); and a lack of capable implementing partners. In some projects, assessments also were insufficient. Two projects relied on controls on overfishing and riverine sand mining, despite no feasibility assessment on incentives and enforcement mechanisms. Reliance on afforestation implemented by state authorities, with funding limited to three to five years, raises concerns about the long-term sustainability of these measures.

The seven wind and solar projects in the portfolio, which involve smaller-scale and less complex offsets, are being implemented well, in line with the relevant guidance. For instance, one solar project created additional wetland areas to support a range-restricted frog species. Another wind project has been collaborating with regional landowners to enhance cattle management practices, improving habitat quality for a threatened species of bird.

Mining

Strong financing, expert engagement, and established environmental capacity within mining companies have enabled more effective biodiversity offset implementation. Mining projects (n = 3) exhibited more advanced implementation of offsets. A key factor is the choice and capacity of the client. In all cases, the clients were well-capitalized private sector firms, with advanced environmental, social, and governance programs. Implementation progress across mining projects is progressing well, including the establishment of a new national park in Western Africa to protect a large concentration of chimpanzees. All three projects had strong long-term financing, had engaged with both species and offset experts, and had capable implementation partners. Mining companies tend to have stronger, more established environmental, social, and governance capacity than hydropower companies, which may have contributed to more effective implementation.

Transport

The implementation of offset activities in transport infrastructure is, in most cases, challenged by a lack of information in project documentation about implementation status, by dropped components, or by delays. Of nine mature transport projects that included offsets, three reported activities as “in progress,” with one completing a dolphin study to inform national conservation plans, assess potential impacts, and validate management measures but offering no other details, such as on the status of the species. Two projects removed components with high environmental risks and the related ESS6 actions. Offset implementation is delayed on another road project, pending detailed engineering design. Only two projects showed offset progress: one is in the final stages of establishing protected areas for threatened primates and wetland ecosystems, and the other has built underpasses for tiger connectivity and undertaken restoration efforts.

High-Integrity Verification

Establishing the credibility and effectiveness of offsets remains a challenge. Interviews with leading environmental and social experts suggested that, to ensure high-integrity biodiversity offsets, it would be worth exploring a verification framework akin to other rigorous certification models. Without robust verification systems, offsets risk becoming paper commitments rather than delivering real conservation outcomes. Key attributes of high-integrity offsets include standardized metrics of net loss and net gain, long-term monitoring to assess ecological effectiveness, independent verification to ensure transparency, engagement of IPLCs, and sustainable funding for long-term stewardship. An innovative, though challenging, idea expressed in the interviews was the development of a new verification body—potentially within the Bank Group, the International Union for Conservation of Nature, or a United Nations–linked organization—that could certify and monitor offsets globally. Outcome data could be hosted on open-access platforms such as the Global Biodiversity Information Facility database or the UN Biodiversity Lab to enhance public accountability. In practice, such a change would be a long-term endeavor, but there are precedents for the effectiveness of verification practices in biodiversity and nature-based schemes where outcomes are monetized.