World Earth Day is on 22 April 2023 and this year’s theme is “Invest in Our Planet”, which highlights the importance of dedicating our time, resources, and energy to solving climate change and other environmental issues. The significant impact that climate change will have on all our lives is leading to a fundamental reassessment of how natural resources are viewed and managed.
While the concept of Natural Capital has been around since 2012, it has only relatively recently gained more widespread attention. Major pieces of legislation, including the Environment and Agriculture Bills, set clear markers for both habitat protection and carbon reduction. We caught up with one of our Associates, Tom Beeley, to explore the developments in the natural capital market and to find out what we are doing to support farmers, landowners and developers.
“Despite recent political upheaval and uncertainty, there remains strong interest in UK natural capital markets, in particular carbon, nutrient and biodiversity offsetting. The Environment Act gained Royal Assent in November 2021 and provides the legislative platform for an array of environmental policies. This includes binding targets around biodiversity, air, and water quality; the development of Local Nature Recovery Strategies (LNRS); and the introduction of Biodiversity Net Gain (BNG).
“Many changes are happening with increasing emphasis on enhancing the environment around us. Biodiversity net gain is one way of delivering measurable improvements for biodiversity by creating or enhancing habitats in association with development. BNG can be achieved on-site, off-site or through a combination of on-site and off-site measures.
“While we expect the Act to drive policymaking across all government departments, the effects of the Act will be keenly felt in the rural sector where the ability to influence environmental improvement is greatest. This is being seen in the Agricultural Act and the design of the Environmental Land Management Scheme (ELMS) already as we transition away from EU-designed support.
“How private funding will integrate with public funding is a critical question for landowners as they begin to explore these new markets. Until a clearer picture emerges of the new schemes and how they will interact with private funding, many will be reluctant to fully engage in these new markets.”
Biodiversity Offsetting
“The Environment Act introduces the requirement of BNG to the planning system. It is expected to become mandatory across England from November 2023, but several local planning authorities (LPAs) are already applying the net gain policy. Where BNG is applied, developers are required to demonstrate how biodiversity will be enhanced by at least 10% as part of a planning application.
“Feedback to date suggests that, whilst LPAs are applying BNG, the mechanisms for delivery remain unclear causing frustration amongst developers trying to navigate the system. In many cases, the uplift in habitat values required to demonstrate a net gain will be achieved through on-site enhancement within a development. This means that in many instances only a handful of offsetting credits are required to meet the net gain. Smaller, more constrained sites are likely to have less scope for on-site enhancement so the need for offsetting will be more acute.
“Several business models are materialising for the delivery of biodiversity offsetting including:
- bespoke agreements between landowners and developers to provide the offset needed for a specific planning application.
- lease of land to third parties to develop and sell credits, with the owner of the land receiving a low-risk income payment.
- habitat banking was undertaken proactively by
- a landowner to establish habitat credits for marketing and sale.
“Each model comes with advantages and drawbacks, but for many landowners, habitat banking could provide an attractive diversification opportunity. Whilst many landowners would be keen to take forward habitat banks, engagement with local authorities is critical and, in many areas, the resources and mechanisms needed for delivery are not yet established.
“LNRS will be key to identifying priority areas for habitat establishment and the types of habitats which are needed. Landowners should keep a close eye on the development of LNRS which could be consequential for habitat values for both offsetting and development sites.
“There is currently limited market evidence for offsetting values. The Department of Environment, Food and Rural Affairs (DEFRA) report suggested values of £20,000–£25,000 per habitat unit; however, values will depend on many variables including habitat type, cost of delivery, land availability and of course supply and demand. It is not just new habitats that can be used for offsetting; enhancement of existing habitats can also be used to generate credits. This might include reseeding existing grassland with species-rich mixes or improving the management of woodland to enhance the condition and quality of existing habitat.
“Regardless of market prices, it is vital that landowners pay close attention when determining the price at which credits are sold. Whilst on-face value payment may seem attractive, agreements involve legally binding contracts for the establishment and management of land for at least 30 years. It is important to remember that offsetting is not the only option, with funding through ELMS and other grants likely to be available. For woodland creation in particular, significant funding is available as well as an active market for carbon credits which may provide a more attractive route to securing new woodland rather than BNG. Although this remains a nascent market, habitat banking does appear to be an attractive and viable opportunity for many landowners bringing genuine financial benefit for the delivery of habitat creation.”
“Fisher German continues to assist landowners in exploring the opportunities offered by these markets through The Green Offset which is a dedicated platform for exploring the natural capital potential of land. The platform is particularly relevant for water utility companies as, like developers and many farm businesses, they will be required to demonstrate biodiversity net gain on any of their assets which require planning permission following the introduction of The Environment Act in 2021. The platform connects those requiring land for a wide variety of environmental improvement reasons with landowners who are willing to provide acreage that will sustain new habitats or host renewable energy sources.”
To discuss biodiversity offsetting or any other natural capital opportunities please get in touch.
The Government have published several documents relating to BNG and wider natural capital markets in the first quarter of 2023 which has helped to provide some clarity although there remain many questions for landowners around these new policies and markets'
