The Promise and Limits of Regulatory-Driven Biodiversity Markets

Biodiversity holds significant economic, socio-cultural, and intrinsic ecological value, yet current financial systems struggle to capture this complexity. As governments and markets look to scale investments in nature positive action, a central question that emerges is: how can effective regulatory-driven markets reliably mobilise biodiversity finance to foster measurable progress towards societal biodiversity goals?

Outstanding gaps remain in regard to the above question. Metrics for valuing biodiversity are non-standardised, fragmented, and often inaccurately used for decision-making Turnhout et. al 2014).  The commensurability of ecological factors is difficult to verify in practice (Kashyap et al. 2025). At the market level, market designs rarely integrate ecological, economic, and socio-cultural dimensions in coherent or logical ways that adequately or accurately capture the value of ecological systems at local or global levels (Zhu and Carrasco 2025). Evidence on whether regulatory frameworks actually unlock sustained private finance is also limited, while risks of greenwashing, asset bankability, and market credibility remain recognised but poorly understood (Sjåfjell, 2025).

This paper builds on previous work in this field and introduces a conceptual framework for understanding how biodiversity financing needs and demands are (or are not) met through current regulatory-driven and compliance-based markets. Through a scoping review and historical case analysis, we identify the structural dynamics and “market levers” that determine whether and how these mechanisms achieve real ecological outcomes or simply create transactional activity. By mapping actors, regulatory instruments, and inter-firm dynamics across key legislative contexts (e.g., the EU, US, UK, and Australia), the framework will highlight how integrity, success, and failure are defined and operationalised within biodiversity markets. The analysis provides an initial framework for policymakers and market actors to understand the conditions under which regulatory driven mechanisms can mobilise finance at scale while delivering high-integrity outcomes, and to identify critical relationships and levers for future market design and governance.