Country Land and Business Association (CLA)                            CAP0009

Written evidence submitted by the Country Land and Business Association (CLA)

The role of natural capital in the green economy  
Environmental Audit Committee  
Call for Evidence 

Introduction 

  1. The Country Land and Business Association (CLA) is the membership organisation for owners of land, property and businesses in rural England and Wales. We help safeguard the interests of landowners, and those with an economic, social and environmental interest in rural land. Our members own or manage around half the rural land in England and Wales and more than 250 different types of businesses. These include property lettings renewable energy, forestry, tourism, added-value food production and commercial lettings. 
     
  2. There is a huge opportunity for rural land-based businesses to provide solutions to many of the challenges the country faces in developing its green economy, including nature-based solutions to carbon sequestration, renewable energy generation, and low carbon farming. This will need government leadership to provide certainty in the marketplace with the right policies and incentives for investment.  
     
  3. The response focuses on the questions which are most relevant to the CLA and its members across England and Wales. 

Key points 

  1. Private capital investment in nature recovery will enable change at scale and pace. It will sit alongside capital and revenue funding from government and the third sector which will remain important for smaller projects.  
     
  2. The Defra funded British Standards Institute (BSI) Nature Investment Standard project is setting out principles for high integrity and market governance for different nature markets that, when applied, will underpin confidence in the market for buyers and sellers.  
     
  3. The Natural Capital and Ecosystem Assessment programme will not provide sufficient granularity to support decisions at a farm holding level. Funding for a farm level (or groups of farms) Natural Capital Baseline Assessment would support landowners and managers in their decisions on the environment and could provide valuable granular data for local and national government.  
     
  4. The UK Green Taxonomy has the potential to support high-quality investment and improvements in nature. In developing a green taxonomy for agriculture, which is a complex system, care must be taken to account for different farming systems, the need for transition and risks of putting climate mitigation as a priority. 
     
  5. There needs to be ongoing input and action from the government to ensure nature markets are operating as intended.   

Question 1: What potential contribution can private capital investment make to measures to secure nature recovery?  

  1. Private capital investment, for a return, will be an important part of the funding mix for nature recovery, particularly for larger projects and aggregated sites. It will sit alongside ongoing capital funding from government and the third sector that will be important for smaller projects.  
     
  2. Regulation on corporate reporting and increasing expectation of business environmental responsibility will be important to stimulate demand for ecosystem services to make the private capital investment a viable route.  
     
  3. Private capital investment in nature markets is crucial to enable change at scale and pace. Landscape scale ecosystem regeneration is highly effective a delivering nature recovery but it has high capital, management and transaction costs. Investment is often needed in land and capital works to establish woodlands, wetlands or other habitats. Government funding for capital investment is well placed to fund smaller scale interventions, but it is limited. Schemes such as the Defra England Woodland Creation Offer fund capital works for the trees, planting and fencing. Similarly, capital payments from Countryside Stewardship can fund peatland restoration work, creation of ponds, or establishing hedgerows. Charities, philanthropic funds and self-funding have a role to play, providing funding for small scale project on farm, but many have also been pioneers of landscape-scale restoration with land, capital, and expertise.  
      
  4. However, the Green Finance Institute report on The Finance Gap for UK Nature1 examined the funding required to meet the government environmental targets across the UK. They estimated a finance gap of up to £97 billion over the next 10 years to meet the UK net zero and nature positive ambitions. The largest gap is within climate mitigation through carbon removals and the protection and restoration of biodiversity.  
     
  5. Government and charity funding will continue to have an important place for smaller projects, but private capital investment, invested for a return (rather than purchasing services), is considered by the government and the emerging supply chain an important component of developing the private sector nature markets.  
     
  6. The structure of land ownership in the UK means that almost all, even the larger estates,  are small and medium sized businesses,  which do not have the scale to attract private sector capital investment.  As a result, intermediaries are needed in the market to ‘aggregate’ projects to an investible size and often have private capital backers. There are an increasing number of companies operating in this sector including Environment Bank, Palladium and the Big Nature Impact Fund.  
     
  7. Nature recovery in the UK will only happen if landowners and land managers are comfortable with the financial arrangements, and it offers them a viable economic return that recognises the long-term commitment and risks. Many landowners and land managers are familiar with investor models and project developers through renewable energy projects. However, there is lack of clarity in nature market supply chains on investors, intermediaries (such as project developers) and buyers, and who is responsible for the delivery of the service. The Defra Landscape Recovery Pilot scheme is aimed at large scale collaborative projects with a mix of government and private funding, and will provide valuable insights into how to address these issues. 

The CLA recommends that: 

  1. The government should continue to prioritise funding for the farmed environment in the short-medium term while the nature markets become established, as this will be the main route to nature recovery and climate action for many landowners and managers. This means a significant increase in the current agriculture and environment budget for the Environmental Land Management schemes and other programmes. 
     
  2. There must be greater policy certainty to maintain investor flow, and buyer interest – the recent legal and policy discussion on nutrient neutrality, risks a negative impact on confidence in nature markets from investors, buyers and suppliers. 
       
  3. The government should share the emerging learning from the Landscape Recovery pilot scheme to inform future project funding design.  

Question 3: What measures are necessary to (a) establish and (b) maintain the high-integrity markets in ecosystem services which are expected to attract private investment?  

  1. The Defra funded British Standards Institute (BSI) Nature Investment Standard project is setting out principles for high integrity and market governance for different nature markets that, when applied, will underpin confidence in the market for buyers and sellers.  
     
  2. There are still market operation gaps that will need to be addressed. 
     
  3. There are already established international principles through the Integrity Council for the voluntary carbon market (ICVCM). The 3-year Defra funded BSI project on Nature Investment Standards started in March 2023 and is investigating the establishment and high integrity markets. The project intends to align with and build on what is already available such as the Woodland Carbon Code, Peatland Code and Biodiversity Metric, all of which have had some degree of government involvement. Similarly, the Natural Environment Investment Readiness Fund (NEIRF) has been crucial in investigating and developing potential new standards such as for Hedgerow Carbon, Saltmarsh Carbon, Soil Carbon and others.  
     
  4. The BSI project will look at principles for all nature markets and for specific themes on carbon, biodiversity, nutrients and market governance. It will consider and make recommendations on the accreditation of standards. The CLA is supportive of the project and the way it is being delivered.  
     
  5. There are other areas of market operation that may need government intervention to maintain a functioning and fair market, that could be included in an expended remit of the BSI project.

Key areas of concern for the CLA are: 

  1. The development of a standard to define a high integrity buyer to provide confidence to suppliers of ecosystem services, building on work by the Science-based Target Initiative. 
     
  2. The need to review and update standard/code verification methodology to ensure it is accurate and cost effective, for example, using remote measurement of carbon in trees.  

Question 4: What contribution will data from the Natural Capital and Ecosystem Assessment (NCEA) programme make to the objective measurement of changes in environmental outcomes?  

  1. The Natural Capital and Ecosystem Assessment programme is an important means of robust, long-term assessments to monitor change, but it may not provide sufficient granularity to support decisions at a farm holding level.  
     
  2. Funding for a farm level (or groups of farms) Natural Capital Baseline Assessment would support landowners and managers in their decisions on the environment and could provide valuable granular data for local and national government.
      
  3. The Natural Capital and Ecosystem Assessment (NCEA) will provide reliable data on carbon stocks and ecosystems and improve the quality and access to the data including new tools. The data will support decisions on future policy on terrestrial and marine habitats, and enable an improved understanding of changes, and efficacy of policies.  
     
  4. From a landowner and manager perspective, lack of access to local, reliable, trustworthy data can be a barrier to taking action to improve the environment through changes in land use and land management. The NCEA data will be a helpful addition, but it is unlikely to be specific to a landholding as it is based on earth observation data and surveys.  

The CLA recommends that: 

  1. The government provides funding for Natural Capital Baseline Assessments for individual holdings (or groups of holdings) as part of the Farm and Countryside Programme. This could include a map of natural capital and a condition assessment based on local data and a carbon audit A holding or group plan will instil responsibility and accountability, and motivate change in support of government environmental targets. It could also provide valuable data for local and national government.  
     
  2. The Countryside Stewardship Facilitation Fund is developed to provide a means to build larger group or collaborative projects, fund group natural capital assessment and action, and identify funding sources. Changes could be made to the administration – application windows, drawing down of funding etc – as well as size of the fund and duration of funding.   

Question 5: How can the proposed UK Green Taxonomy support high-quality investments which deliver genuine benefits to nature?  

  1. The UK Green Taxonomy has the potential to support high-quality investment and improvements in nature, by making consideration of environmental impacts a key part of business investment. 
  2. In developing a green taxonomy for agriculture, which is a complex system, care must be taken to account of the heterogeneity of farming, the need for transition and step by step improvements and the risks of unintended consequences for food production and biodiversity if climate mitigation as the main priority.  
     
  3. The Green Finance Institute is currently running a project to develop the UK Green Taxonomy, including for agriculture. Its focus is on the net zero transition. This green taxonomy will provide clear guidelines for what constitutes a sustainable investment, and will encourage businesses and organisations to examine their investment strategies.  
     
  4. It is essential that the green taxonomy helps support businesses to make incremental change – an improvement is better than no change.  
     
  5. There are challenges in defining sustainable agriculture systems, including availability of data, heterogeneity of farms and systems, and the interactions between environmental outcomes. A holistic approach is needed. There are risks of skewed investment where climate change mitigation is the driving priority.  

The CLA recommends that: 

  1. The green taxonomy for agriculture is outcome-based to allow for different approaches and farming systems, encourages stepwise transition to more environmentally sustainable practices (i.e., improvements are included even if they are not perfect), and that consideration is given to the risks of carbon being a dominant driver which could negatively affect biodiversity.   

Question 6: How can the operation of natural capital markets ensure genuine net gains for nature? How do such markets address the risk of ‘greenwashing’ of investments and the offsetting of natural recovery in the UK against environmental degradation elsewhere?  

  1. High-integrity standards/codes are a key requirement for the UK market to build confidence of buyer and suppliers and compete internationally. The Defra funded BSI Nature Investment Standard project is providing a highly valuable discussion, analysis and recommendations on these issues, but there are areas outside the scope of the project that will need to be addressed.  
     
  2. All parties in nature markets, including landowners, have concerns about charges of greenwashing that could damage confidence in nature markets, discredit deals that have been done, and damage their own business reputation.   
     
  3. The Defra-funded BSI project on Nature Investment Standards (as covered in question 3) is addressing these issues.  
     
  4. Many risks can be addressed by government through good policy design and a willingness to adapt when problems arise. For example, the delivery of Biodiversity Net Gain (BNG) objectives could be affected by the real and perceived inconsistencies in treatment of onsite and offsite BNG, which favours onsite. This could be addressed by Government guidance on how Conservation Covenants can be used to secure offsite BNG for the long term.  Similarly, government needs to set out clear rules for stacking and bundling of ecosystem services, which will unlock the uncertainty and bring confidence to the market.  
     
  5. With net zero a priority for many organisations, there is a risk of a single-issue focus on carbon. There are particular risks in agriculture and land use that actions to address carbon have a negative impact on  food production and suboptimal outcomes for biodiversity.  An example is planting large numbers of trees on species-rich grassland, or favouring indoor livestock systems over grazing systems which can have a positive impact on biodiversity and soil health. Fortunately, actions which deliver most for carbon tend to also produce good outcomes for biodiversity, though they can take longer to establish than policies focused solely on carbon. Regenerative agriculture can sequester carbon and improve biodiversity whilst producing food. Government policy can be designed to mitigate these risks, and acknowledge trade-offs, and the Land Use Framework will support these assessments.  

The CLA recommends:  

  1. An accreditation system for nature investment standards  
     
  2. Clear statement in government and private schemes   that set out what can be done and any restrictions on stacking, bundling and blended private and public funding. 
     
  3. Flexible and adaptable policy design to correct emerging market issues, for example: 

 

September 2023