The Natural Capital rollercoaster ride: always forward, never straight

Anyone with an interest in the Natural Capital marketplace will probably feel as though they’ve been on a bit of a rollercoaster in recent months. The landscape continues to shift (no pun intended), creating much uncertainty for all involved, to the extent that writing an article about where things stand feels like a precarious thing to do at the moment. Nevertheless, we look briefly at where we are now and what you can do to prepare for the future. Strap yourselves in, the ride will continue for some time yet… 

A suite of draft regulations which define what, how, when, where and by whom Biodiversity Net Gain (BNG) is to be delivered, together with a template biodiversity gain plan and accompanying guidance was produced by the Government at the end of November 2023. Broadly speaking, it is full steam ahead for the delivery of a 10% BNG compared to the pre-development biodiversity of the site becoming mandatory from 12 February 2024 for all but small schemes (which will have a later commencement date of 2 April 2024) and Nationally Significant Infrastructure Projects (for which the intended launch date is currently from November 2025). From this date forward, developers will have to demonstrate how they will meet this requirement within a biodiversity gain plan, which must be approved by the relevant planning authority before development can begin.  

The new “biodiversity gain hierarchy” introduces a sliding scale of priority starting with avoiding detriment to existing biodiversity, mitigating biodiversity losses through the design of the development, enhancing and then creating biodiversity on-site, looking to off-site registered biodiversity gain to fulfil the BNG condition and, as a last resort, committing to buying statutory biodiversity credits. As ever, the devil is in the detail of the new regulations and there are exceptions and modifications for some types of development and indeed certain irreplaceable habitats which would be affected. 

Meanwhile, landowners still have little clarity on whether entering into long-term schemes is going to be financially prudent from both a tax and an income perspective. The Government’s ‘Taxation of environmental land management and ecosystem service markets’ consultation closed in June 2023 and we are expecting further guidance to be published by DEFRA in Spring this year, so keep an eye on news channels and social media for updates. Time will tell as to whether creating new habitats and generating BNG units will be more lucrative than food production or other forms of diversification as unit pricing, driven by supply and demand, inevitably settles over time. 

Nutrient neutrality schemes looked set to be de-railed towards the end of summer 2023 when the Government proposed to ‘unblock’ the development process in nutrient neutrality catchment areas by removing the obligation on developers to consider the impact on nutrient levels of urban wastewater from proposed schemes. However, following a robust outcry from a multitude of different channels including many non-governmental organisations, the House of Lords intervened and voted to reject this bid to dilute the relevant provisions of the (the Levelling Up Regeneration Bill). Nutrient neutrality is therefore very much still a requirement in the relevant catchment areas. We have been involved in documenting a range of creative ways to assist developers in meeting their obligations, so it is worthwhile for landowners to consider whether or not it may be possible to capitalise on this opportunity.  

As for the world of carbon, businesses appear to be looking inwardly at this stage at how they can reduce their own carbon footprint before considering how they can provide offsetting opportunities for other entities. As lawyers, we envisage our input for the next couple of years involving documenting land-based schemes and advising on the terms of commercial contracts between companies who are aiming for net zero and those providing solutions for them to achieve it.  

Alongside dealing with BNG, nutrient neutrality and carbon matters, we are also helping clients with Landscape Recovery projects and have been advising on title, planning and environmental issues which need to be considered and dealt with to deliver these schemes. Each proposal is different in nature and requires input from a variety of advisers from funders, solicitors and agents through to ecologists, planning consultants and local authorities. 

Looking ahead, we suspect that the next general election may cause a bit of a bump in the road in terms of certainty for those looking to involve themselves with the opportunities that the Natural Capital market presents. However, even for those who are hesitant to commit to anything long term just yet, there is plenty to do to stand oneself in good stead for the future and the point at which we gain further clarity on some of the fundamentals.  

Landowners would be wise to speak to an ecologist and a land agent about what and where might be appropriate for a Natural Capital project on their property and to arrange for their baseline survey to be carried out if this has not already been done. Accountants should also be consulted regarding how a change in the use of such an area could affect their tax and financial affairs and how this should be managed to minimise any losses of reliefs and exemptions. Advice should also be sought from a solicitor as to any title issues which may need to be dealt with (such as a lack of access rights, bank restrictions and occupational tenancy matters, to name a few key ones) and also before signing any agreements which are offered up. We have seen some very innovative drafting in circulation, not all of which is very landowner-friendly, so please consult your solicitor before signing anything.