As the Planning & Infrastructure Bill enters its Committee Stage in the House of Lords, Guy Thompson, Managing Director of EnTrade, reflects on the potential impact of the Bill on private investment in nature recovery, the tension between the Bill and wider Government policies for environmental improvement and the pathway to a regulatory solution that delivers both economic development and nature recovery.
Continuing his look at the implications of the Planning & Infrastructure Bill, Guy Thompson, Managing Director of EnTrade, turns his attention to the question of how government can build trust and confidence in the integrity of nature markets and create long-term certainty for buyers and investors in nature markets.
Business and financial institutions want to invest in nature. This point was made abundantly clear to Ministers by investors and financial institutions at the City roundtable last month, where the Government launched its Call for Evidence on how to expand the role of the private sector in nature recovery. However, the finance and business sector has been equally clear that, in the shadow of the failings of the Voluntary Carbon Market, lack of trust and confidence in nature market integrity is a fundamental barrier to their investment.
Last month, I also attended a Broadway Initiative roundtable with the Nature Minister, where representatives from across the economy made it clear that they want to see government giving a "long, loud, local and legal" signal to establish this market (a twist on the maxim adopted by advocates of the renewable energy industry in the early days of this market).
This will be essential if government is to achieve its growth and environmental ambitions. With Defra facing a 2.3% cut following the Spending Review and the farming industry still smarting from the Inheritance Tax reforms, Steve Reed needs to think big about how to harness the private sector to grow farm incomes and deliver nature recovery. The recent pause on applications to the Government’s flagship agricultural scheme illustrate the risks of relying solely on state-administered grant schemes to fund environmental improvement.
The UK is well positioned to harness the power of markets and private investment in nature-based solutions like woodlands and wetlands. UK markets for private investment and finance are mature and capable of funding nature recovery projects, provided there is sufficient confidence in the cashflows available. Across the country, innovative mechanisms are being developed by the private sector in partnership with the farming industry, Local Authorities and NGOs, that will help unlock private investment in nature recovery without taxpayer funding and speed up project delivery. For example, EnTrade has already piloted two landscape-scale nature markets in the West of England, driving over £1.5 million private investment in nature-based projects, including the first on-farm wetlands established in the UK specifically to reduce nutrient pollution funded solely from SME developer contributions through the Somerset Catchment Market.
Reform is undoubtedly needed. The current regulatory framework is complex and places the burden on developers to source environmental mitigation and prove that it meets the high legal bar required under the Habitats Regulations. However, the barriers to supply of high-quality environmental mitigation are the same barriers to building the finance and business sector’s trust and confidence in nature markets. Investment at scale is being hindered by the lack of coherence between environmental regulation, grant schemes and new incentives for private investment. This substantially increases the cost of developing and aggregating nature-based projects to investment scale.
The same issues are major barriers to the development of a reliable and cost-effective supply of nature-based projects that can deliver environmental mitigation for housing development. Different regulators issue their own guidance and this in turn is subject to significant variation in local interpretation. EnTrade has been running the Somerset Catchment Market to deliver nature-based mitigation for nutrient neutrality for the last three years and have grappled with the same challenges as developers on the cost of quantifying and reducing scientific uncertainty, along with the time and cost of obtaining regulatory approvals. Whilst the Planning Bill may ease the pressure on the planning system, the reforms will not on their own speed up project development and delivery, nor generate the funding needed to finance nature recovery. Solutions involving significant complexity and uncertainty are delivered at scale in other areas of the economy through markets that are underpinned by robust governance frameworks. Well-designed nature markets supported by a robust governance framework therefore have the potential to speed up and reduce the cost of project development, financing and delivery – as well as fund nature recovery at scale.
The answer is a coherent regulatory framework of legally enforceable market rules, standards, metrics and a system of independent oversight to ensure market integrity and provide investment certainty. Across the world, well-designed markets have achieved public policy goals for environmental improvement in air quality, renewable energy and energy efficiency. All of these have been underpinned by robust market governance and regulation. Effective market governance is essential to deliver the investment certainty needed to unlock the social, economic and environmental benefits of investments in nature. This is why, in the absence of a market governance framework, we have established the Environmental Markets Board to oversee EnTrade’s market operations and provide scientific oversight.
Over the last fifteen months, the UK Nature Markets Dialogue facilitated by The Broadway Initiative has worked with 169 specialists from 147 business, government and third sector organisations to develop a proposal to government for a Nature Market Governance Scheme. EnTrade has been a participant in this dialogue and we hope that the Government will adopt and test the proposed governance scheme in the Nature Markets Accelerator recommended by Dan Corry in his independent review of Defra’s regulatory landscape.
Nature-based environmental services can become a major driver of nature recovery and economic growth across the UK. The Government needs to reconcile the tension at the heart of its environmental and planning policies. In the short term, it needs to amend the Planning & Infrastructure Bill to avoid crowding out private investment and the embryonic nature market. It then needs to support the establishment of a robust governance framework and strong regulatory drivers that ensures nature markets can deliver nature recovery. With these conditions in place, there is an opportunity for the UK to develop a blueprint for a modern environmental strategy that we can export to the rest of the world.
