On 30 March, the UK Government published a slew of documents, including its new Green Finance Strategy and nature markets framework, to spur the growth of private sector funding for nature recovery and sustainable farming.
The recent Environment Improvement Plan (EIP23) set out ambitious targets for environmental protection, recovery, and reaching net zero by 2050. The EIP23 acknowledged the significant role private finance would need to play to achieve government targets, stating a target of at least £500m every year by 2027, rising to more than £1b by 2030. However, the green finance gap between public funding and need is over £4bn per year for the next 10 years, according to the Green Finance Institute (GFI).
What are nature markets?
Nature markets enable private investment through the selling of credits or units which can be bought and sold. It is a way of protecting the environment by viewing nature as an asset, or series of assets, to be managed. Private sector nature markets can be initiated through regulations, such as the upcoming Biodiversity Net Gain (BNG) rules for development, or through voluntary approaches from businesses who wish to offset their emissions and impacts on biodiversity.
These markets are important for farmers and land managers as they could potentially act as a new source of income. However, nature markets will not be a suitable option for everyone
CLA members will need to take stock of their natural capital assets to assess the suitability of these markets for their land. The CLA has produced a series of guidance notes for members on environmental markets which can be found here.
Combining and blending sources of finance
The government has confirmed that in some cases, having multiple sources of income for the same piece of land will be possible. This is often referred to as ‘stacking and bundling’.
Stacking is when separate credits or units are issued for different ecosystem services from the same piece of land. For example, a woodland could be used for carbon and water credits or units.
Bundling refers to a single credit or unit which delivers a bundle of environmental benefits. For example, a wetland credit could deliver a bundle of benefits such as water quality, carbon sequestration, and biodiversity. Environmental benefits can be delivered in a stack or a bundle.
There are opportunities to blend Environmental Land Management (ELM) scheme payments with private finance, provided they do not deliver the same outcome. In practice, this means that if the ELMs scheme covers an activity such as woodland restoration, it could then be possible to receive private sector funding for carbon or water quality. However, whether private finance can be blended with ELM scheme payment will depend on whether the credit or unit issuers agree to a blended approach.
Opportunities for blending, stacking, and bundling are currently limited due to how small the nature markets are and the lack of standards to ensure there is a measurable gain for nature (known as additionality).
Nature Investment Standards
In the nature markets framework, the government acknowledges that these markets are still young but are expected to grow rapidly in the coming years. As such, there is a need to develop robust standards to ensure these markets are consistent, reliable, and deliver the desired environmental outcomes.
The British Standards Institution (BSI) is working with Defra to launch a new Nature Investment Standards Programme to help overcome some of the barriers to investing in nature. The new high-integrity standards will guard against greenwashing and ensure farmers and land managers can attract investment which will lead to genuine nature recovery. The CLA is pleased to see that action is being taken to ensure the right principles and standards are in place to give businesses the confidence to invest with farmers and land managers. The CLA has been invited to join the BSI project steering group which provides a platform to represent landowners interests.
These standards will provide clarity and structure in nature markets and drive a step-change in the role of private finance in addressing nature’s decline
The CLA will continue to work with government and other organisations to ensure these markets provide potential new sources of income which also lead to nature’s recovery.