One Year Old

We recently celebrated Tellus Natural Capital’s first anniversary, which seems an appropriate moment to take stock and review what we’ve done over the past year. Here’s our Top 5 lessons learned:

1.         Natural capital markets are coming – sometimes from unexpected quarters

While the market for carbon credits has been struggling to find its way forward for several years, the market for nutrient credits in catchments affected by nutrient neutrality has leapt ahead after the number of local planning authorities affected more than doubled in March 2022 (see our blog: Too much of a good thing: The relentless rise of Nutrient Neutrality).  We expect a similar response for biodiversity credits when the legislation comes into effect in autumn 2023. The difference, of course, is that carbon remains a voluntary market and buyers can source their requirements overseas at much lower cost than UK projects, whereas nutrient neutrality and biodiversity net gain have very site-specific or statutory requirements, leaving buyers with much less choice about what they acquire. We addressed some of those issues in a report we were commissioned to write earlier this year for the Environment Agency on its biodiversity net gain strategy. A challenge for sellers is to understand the full costs of delivery for long term land use change – something we are now discussing with private sector clients.

It would be brave to predict what the next natural capital market will be, but we’re keeping a close eye on water quality and air filtration capacity.

2.         Farmers and landowners are willing to collaborate

For many years it has been accepted wisdom that British farmers and landowners won’t collaborate, but the GWCT has been busting this particular myth for years with its successful farmer clusters. The largest and latest of these, the Environmental Farmers Group, was launched in May, but there are groups of farmers coming together all over the country, from Norfolk to Northumberland, to deliver landscape scale environmental improvements.

It takes time and effort to build the relationships on which farmer and landowner groups depend and there are inevitably costs involved in bringing a new group together. In National Parks and AONBs the Farming in Protected Landscapes fund is one source of pump-priming finance to help get new groups off the ground and we are currently working with a couple of new farmer groups to investigate this avenue.

3.         Defra’s investment in pilots and trials is helping

Government departments are an easy target for critics, but in England, Defra is working hard to help the private sector find new markets for a range of ecosystem services, including through its Landscape Recovery tests and trials and the Natural Environment Investment Readiness Fund. This approach is helping lots of projects to test their ideas and we will all benefit from their learning in doing so. We have been contributing to Southern Water’s Landscape Recovery test and trial, advising on the many technical issues which need to be considered in devising long term land management agreements.

4.         Policy is behind the curve

As the private sector surges ahead with ideas and pilot schemes, wider Government policy on land management can get left behind. We see this most clearly in relation to the definition of agriculture for tax purposes: the risk of losing valuable tax reliefs if land is no longer considered to be “agricultural” is deterring some from involvement in environmental schemes. Our COO, Kate Russell, raised this with the then Chancellor, Rishi Sunak, in May and offered a relatively simple solution, as reported in our blog, Inheritance Tax and Agricultural Land in Environmental Agreements.

5.         Now is the time to plan and prepare

British farmers and landowners are far from homogenous, so while some are keen to engage as early adopters, others are taking a wait-and-see approach. Many are curious about the natural capital approach, how it might develop and what it will mean for their businesses, so we are working with a number of private estates across the country to help them to understand the bigger picture. As we move through the agricultural transition away from the old system of farming support, now is the time to start to understand what natural capital assets you have, whether there are emerging markets from which you might benefit and what you need to do to be ready to take advantage of those opportunities.

If you would like to discuss your natural capital questions, issues or opportunities, please contact Kate Russell at kate@tellusnatcap.com. If you are active on social media, please do follow us on LinkedIn or Twitter @tellusnatcap.

18th July 2022