Madagascar is recognized as a global biodiversity “hotspot”—rich in plant and animal species not found anywhere else in the world. In the country’s southeastern corner, where the Vohimena Mountains unfold into coastal plains extending to the Indian Ocean, remaining pockets of coastal forest provide a home to around 13 percent of Madagascar’s native flora species.

While rich in ecology, this is one of the poorest and most isolated parts of the country: 82 percent of people here live on less than $1 per day. In 2004, the mining group Rio Tinto—which is mining for ilmanite in these coastal plains—committed to a policy of “net positive impact” (NPI) on the area’s biodiversity. In other words, the company promised that by 2065, a combination of minimizing damage, rehabilitation, community-based actions, and conservation elsewhere will result in biodiversity being better off in terms of forest coverage and quality than before the mining operation took place. Part of these efforts include minimizing impact at its mine sites, rehabilitating forested areas once mining is completed, and working with communities on alternative livelihood programs.

Another tool has the potential to advance conservation goals after all other appropriate mitigation measures have been considered: biodiversity offsets. This approach to mitigation means the company will protect equivalent coastal forest areas outside its mine sites to help reduce the overall loss of this type of ecosystem. It’s expected that these offset sites—which are either fully funded by the company or co-funded with government and conservation organizations—will eventually cover some 6,000 hectares of Madagascar’s coastal forest.

Biodiversity is good business

Rio Tinto is clear that this NPI policy is good for its business. In a 2008 position statement, the company declared: “We want to be biodiversity leaders within the mining industry, for the competitive advantage and reputational benefit this provides. Our performance on biodiversity conservation and management issues will create benefits for our business.”

All eyes are now on the company as it works to fulfill its NPI commitment at this and a number of other pilot sites in Africa and Mongolia. Specialists, including people from the International Union for the Conservation of Nature, are working with Rio Tinto to over-see progress, strengthen methodologies, and identify limitations.

Many other companies are realizing the benefits of mitigating their impacts onsite and offsite, including using biodiversity offsets. Two of the largest oil, gas, and mining industry associations (IPIECA and the International Council on Mining and Metals) have developed the “Cross-Sector Biodiversity Initiative” in partnership with the Equator Principles Finance Institutions. Their motivation is to find ways to conduct biodiversity management in a more coordinated manner.

Combining forces

This important work could be a taste of things to come: public-private biodiversity conservation deals that benefit countries, companies, and local communities who depend most on natural resources. (By some estimates, ecosystem goods and services account for more than half the household income of the poor.)

Offsetting is an approach with real benefits for developing countries and local communities. Many governments are looking to reconcile the need to expand their extractive industries and commercial agriculture for jobs and food security, with their desire for well-managed protected areas, and sustainable forest management. Biodiversity offsets offer a way to address these distinct objectives in a spatially organized manner.

Early evidence suggests that well-designed biodiversity offset efforts could ensure that large-scale infrastructure, extractive industries, and commercial agriculture proceed in ways that maintain forests and other natural ecosystems, their environmental services, and many rural livelihoods. However, since conservation and biodiversity protection are not the core business of investors, the World Bank Group is engaged in early-stage work with the governments of Liberia and Mozambique to assess the feasibility of nationally aggregated biodiversity offset schemes. These initiatives could establish a state-endorsed specialized agency (such as a conservation trust fund) that could deliver conservation outcomes at offset sites where it makes the most sense to secure ecosystems that are equivalent or greater than those that are lost. The investor would transfer liability and funding for managing the offset, in the form of an endowment, to the specialized agency.

Aggregated offset schemes could help reduce transaction costs by achieving economies of scale rather than each separate investor shouldering the burden alone. They could also overcome the limitations of individual project offsets by coordinating larger, collective offsets that could support national conservation priorities. And importantly for governments and companies, aggregated offsets could improve delivery of conservation impacts and provide for long-term sustainability through institutions that maintain and monitor conservation impacts when the investment project closes down.