New Year, New Directions for Natural Capital
As we settle in to 2025 (I fear it’s too late now to wish you a happy New Year), new directions are emerging for natural capital markets and it is more important than ever that farmers and landowners are ready and prepared to be able to take advantage of them.
Two developments in particular have caught my eye over the past month:
- A more strategic approach to delivery of nature recovery projects from the Government
- More money coming through the supply chain to support more resilient farming systems
Getting strategic for nature
The first hints of a more strategic approach came soon after the July 2024 election in a letter to ENGOs, but it wasn’t until December that we saw more detail with the publication of the Planning Reform Working Paper. It proposes moving from a system where developers are responsible for environmental mitigation on a site-by-site basis, to one which requires developers to pay into a fund which then allocates the money to strategic habitat or species projects to compensate.
Such schemes already exist – the Great Crested Newt District Licensing Scheme seems to be working well in delivering better newt habitat in suitable locations – and the Working Paper proposes to extend the concept to cover other environmental issues, including nutrient neutrality. A strategic approach has already been trialled for this in the Tees catchment, but some of those who have been involved in the private markets for nutrient neutrality elsewhere in England have expressed concern that, with Natural England in control of the money, prices for nitrate and phosphate credits will be set at lower levels, favouring conservation charities over private landowners.
The latest steer in this new direction is for infrastructure projects. A new Nature Restoration Fund will be funded by developers of infrastructure and managed for the Government by a “delivery body” (probably Natural England) to spend the proceeds on strategic projects which might address water quality, species recovery or habitat enhancement. This could present real opportunities to farm clusters who are currently working through NEIRF and Landscape Recovery pilots to find ways to attract private finance. Where those groups have established their baselines and worked up their plans for how they could enhance their local environment, they could be well placed to bid for Nature Restoration Fund money to deliver their projects. We await further detail on how all this would work in practice – how close to the infrastructure project will the environmental works need to be? What will the bidding arrangements be? And how will funds be paid – as lump sums or annual maintenance payments? But this could be a better way to deliver environmental improvement and farm clusters will need to keep a close eye on the developing policy.
It is worth noting that the Working Paper indicates that the existing arrangements for statutory Biodiversity Net Gain will be unaffected by these proposals, but if the strategic approach is proven to speed up delivery of development while improving outcomes for nature, that would surely be up for review?
Supply chain funding
The food and drink supply chain is well aware that it has an important role to play in decarbonising agriculture and helping it to deliver more for nature. Many retailers and food businesses, from Morrisons to Nestle, have already developed ways to support farmers who are prepared to change their practices to deliver measurable benefits for nature and climate. In the past few weeks, The Co-op has become the latest retailer to launch a dedicated scheme to support farmers in its supply chain, with £820,000 of funding for its dairy and beef suppliers to reduce their carbon footprint and improve sustainability, working with Soil Association Exchange.
Meanwhile Mars Petfoods recognises that almost 60% of its greenhouse gas footprint comes from agricultural ingredients, so as part of its Net Zero Road Map it is aiming to deliver more than one million acres of regenerative agriculture practices across the globe by 2030. In Europe it is working with Soil Capital to fund more regenerative arable farming through the sale of carbon certificates as one way to drive change.
These are examples of ecosystem services being embedded into agricultural produce, enabling food production and environmental benefit to be delivered together. This model will suit some farmers better than the “land sparing” options which require less or no farming activity, but it will be essential to ensure that the additional value of those ecosystems services is recognised and paid for. Ultimately the consumer will have to pay something close to the true cost.
Where next?
These two pathways might offer very different opportunities to farmers in the short to medium term, but that is just what is needed: a variety of different ways to access markets in natural capital so that farmers in the uplands of Cumbria, the chalk downlands of Wessex or the fens of Lincolnshire can all find ways to get involved. In the world of natural capital, 2025 is off to speedy start.
Kate Russell
Chief Operating Officer
January 2025