Sponsored: Natural capital accounts explained

The policy framework facing farms and estates is changing rapidly, with the government firmly focused on incentivising methods of farming and land management that will protect and enhance natural capital.

Strutt & Parker recently carried out market research with over 1,000 clients across the country to understand what issues landowners see as critical as their businesses enter this new chapter.

Delivering a profit in a changing world was the most immediate challenge highlighted, with 2021 marking the start of the transition away from direct payments in England. Landowners were also keen to be part of the solution when it comes to addressing some of society's key challenges, such as climate change and declines in biodiversity.

Against such a backdrop, natural capital has understandably become of growing interest to farmers and landowners. It is a concept that is generating discussion because it presents both challenges and opportunities.

The challenges lie around understanding what natural capital assets a farm or estate has and assessing the long-term sustainability, in economic and environmental terms, of current land management practices.

The opportunities include opening up new income streams, by accessing ‘public money for public goods’ or by tapping into emerging environmental markets in the private sector.

How should landowners approach this new world of natural capital?

Land managers need to understand the quantity and quality of their natural capital assets, to make decisions about how best to manage and, where possible, monetise them.

This is why Strutt & Parker is collaborating with Economics for the Environment Consultancy (eftec), a firm of leading environmental economists, to produce natural capital accounts for farms and estates. A natural capital account is a tool enabling you to measure, monitor and value a farm or estate’s natural capital assets, presenting the information in a similar way to a set of financial accounts.

You can choose from a baseline account – which looks at the long-term implications of current land use – or a future account, which also shows what happens if land use changes are implemented. These accounts provide quantified information to guide short- and long-term decision-making about the best way to use your assets with the goal of improving both environmental and business performance.

Producing a natural capital account is an investment. However, the reality is that anyone hoping to enter these new environmental markets, to fill the financial gap created by the phasing out of direct support, needs a credible evidence-base to work from. Landowners can only sell what they can show they can deliver. 

Over recent years there has been lots of talk about the potential of natural capital for landowners, but we are now at the point where this talk is starting to be turned into action.

The number of companies and organisations who are willing to pay to secure the environmental benefits of well-managed natural capital is rapidly growing, ranging from the government at one end, to corporate businesses at the other. It is notable that even with the economic downturn associated with Covid-19, firms are still signing up to aggressive environmental targets, opening the door on innovative ‘estate to business’ solutions.

Strutt & Parker is delighted to be the headline partner for the CLA’s Rural Powerhouse Week because we believe now is a crucial time to explore what the next chapter looks like for estates and farms, which inevitably involves a greater focus on natural capital.

Further articles on natural capital that you may find of interest