The landscape of natural capital investment is rapidly evolving, presenting both opportunities and challenges for landowners, developers and investors. As environmental markets become increasingly complex, understanding how to successfully navigate these spaces while ensuring investment in natural capital is for environmental gain over greenwashing is crucial.
Understanding the Carbon Investment Landscape
The current natural capital market faces significant hurdles, particularly around funding and market demand. With reduced grant funding and ambitious environmental targets, landowners are increasingly looking to alternative funding sources. The voluntary carbon market, in particular, remains sensitive to demand, with prices largely dictated by how carbon credits can be utilised.
Key challenges include:
- Limited upfront capital for establishing environmental projects.
- Variable project outcomes and long timelines.
- Uncertainty about market demand for voluntary natural carbon markets.
- Evolving regulatory environments.
- Ongoing updates to certification standard’s protocols.
- Nascent carbon standards that are less recognised and may not adhere to best practice.
- Ensuring permanence of carbon removal or emission abatement.
- Risks of greenwashing or exposure to being seen as such.
Peatland Restoration
Peatland restoration is a significant avenue for natural capital investment, typically for the generation of carbon credits.
Peatland restoration has the potential to abate extraordinary amounts of carbon emissions, and therefore help mitigate climate change. These reductions in otherwise foregone emissions, can be quantified as carbon credits, which companies can use to discount against their operational emissions to help meet internal Net Zero commitments – essentially doing more good within their own value chain.
For organisations mandated to report their carbon emissions to the UK government as part of Streamlined Energy and Carbon Reporting (SECR), these offsets can be disclosed, but will not be discounted from their gross emissions.
Guidelines, such as SBTi and The Oxford Principles for Net Zero Aligned Carbon Offsetting exist to guide organisations that choose to inset or otherwise disclose the use of offsets.
If an organisation would like to promote or make statements regarding their contribution to peatland restoration projects, in terms of carbon abatement, then the project must have generated verified Peatland Carbon Units, and the organisation must hold the rights to ‘retire’ these.
However, regardless of verified Peatland Carbon Units, an organisation is free to promote their investment in restoration or environmental initiatives, as long as this information is not misleading or unlawful.
The opportunities to invest in, generate or buy carbon credits must be defined by individual objectives. These can be various, and we are working with landowners and organisations on carbon credit generating projects to meet their specific needs. Critical infrastructure and windfarms are looking to invest for anticipated planning considerations or to co-generate benefits with neighbours.
Objectives for any organisations’ claims must be defined at an early stage, to avoid causing issues when they come to promote their restoration work. For organisations such as whisky distilleries, who may use extracted peat in their production process, but who are also increasingly investing in restoration projects, avoiding misleading environmental claims is a critical consideration.
Biodiversity Net Gain
Biodiversity Net Gain (BNG) has become a critical consideration for developers, as well as for landowners who are establishing habitat banks to provide an off-site BNG solution. The recent budget has pushed for increased housing development, which in turn is expected to increase off-site BNG requirements across the UK. However, implementing BNG is not without its challenges.
Specific barriers for establishing habitat banks include:
- Capital investment requirements
- Tenure and occupation
- Long-term commitment (30-year scheme)
- Ensuring tangible and quantifiable environmental outcomes
Nevertheless, the BNG market can be lucrative and presents an attractive opportunity for landowners able to commit significant areas to nature recovery. The market is still growing and where a habitat bank is in a region without competition, biodiversity units are trading between £30k-£40k per unit which can result in gross revenues of c. £180k/ha for arable reversion to a grassland scrub mosaic.
There are certain characteristics that make a site well-suited for BNG:
- Ecologically strategic location
- Significant opportunity for biodiversity uplift
- Potential to create a range of habitats
- Low alternative use value
- Ability to dedicate over 20 ha to habitat restoration
- In a region with development pressure
- Availability of management resource
We are working with numerous private landowners, estates, institutions and environmental investors to establish credible, high-quality habitat banks across England. Many are ecologically strategic, landscape-scale schemes that maximise environmental outcomes and benefit from economies of scale to deliver cost-effective BNG solutions for developments.
Practical Advice for Success
To successfully navigate natural capital markets, seek expert guidance early in the process. It is important to develop clear environmental objectives and outline long-term commitments. Thorough due diligence is essential, particularly in order to secure funding, support wider business initiatives and ensure any business claims are robust and transparent.
Whether you're a landowner exploring BNG or a developer seeking sustainable investment strategies - the path forward requires collaboration between parties to innovatively combat the impact development has on the environment, and an understanding of the complex environmental markets that continue to evolve.
