Marine Conservation Society                            CAP0015

 

Written evidence submitted on behalf of the Marine Conservation Society

Call for evidence: The role of natural capital in the green economy


The Marine Conservation Society supports the response submitted by Wildlife and Countryside Link. We would like to supplement this response with our own submission specifically in the context of the marine environment. This document will therefore address the issues raised in the call for evidence from the perspective of marine natural capital and ocean recovery.

Summary

Background

The Marine Conservation Society works towards the ambition of healthier, cleaner and better protected oceans. In recent years, the charity has turned its attention to natural capital and blue finance. This reflects that marine natural capital plays a vital role in supporting the UK society and economy through the provision of valuable ecosystem services.

We are submitting this evidence because we see that protecting and enhancing our marine natural capital will increase the benefits that society derives from the marine environment while also unlocking sizeable economic and financial opportunities. Developing robust natural capital markets can help to realise these opportunities and to grow a sustainable blue economy that benefits both people and planet. Natural capital analysis is also an important tool for inform decision makers, as it provides a more holistic and long-term assessment of decisions impacting the marine environment. An economy underpinned by natural capital serves the ambitions of the Marine Conservation Society as the delivery of natural capital benefits is inextricably linked to the health of the marine environment. Healthier seas lead to to greater socioeconomic value delivered by our marine natural capital which in turn creates financial and economic opportunities to benefit the UK economy.

Introduction

  1. The Marine Conservation Society believes that private investment in natural capital has an essential role to play in ocean recovery. However, it should also be stressed that this needs to be complemented by government action, oversight and protection of marine ecosystems.

 

  1. In particular, key stressors such as water pollution, habitat destruction and overfishing need to be addressed if the ecosystem services delivered by our marine natural capital are to be protected and enhanced.

 

  1. Although private investment in marine natural capital (and the blue economy) has huge and exciting potential, these benefits should be seen as an additional bonus on top of existing measures to rectify the decline in ocean health and the benefits that our natural assets deliver if recovered and restored.

 

  1. Fundamentally, natural capital needs to be protected and enhanced regardless of whether it becomes financially profitable to do so, and the private sector should not be relied upon to address the UK’s environmental issues.

 

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

 

  1. Private capital investment can bridge the finance gap facing ocean recovery, unlocking a raft of nature-based solutions that enable nature recovery and help the Government to meet environmental and nature targets.

 

  1. Although the socioeconomic and natural benefits of ocean investments can far exceed the financial costs, a lot of this value does not currently link directly into financial markets. As explained in Deloitte’s A Drop in the Ocean report, the estimated fivefold returns on investment arrive mostly in the form of environmental and health benefits. Linking these benefits to financial markets could therefore be key to unlocking the greater levels of investment to address the finance gap around marine restoration.

 

  1. The United Nations Sustainable Development Goal SDG 14 – Life Below Water is the least funded of all of the development goals, and the oceans receive less than 0.1% of all climate-related finance. Scaling up both private and public finance is therefore fundamental to securing ocean recovery.

 

  1. Currently, ocean recovery projects rely on relatively small-scale philanthropic or public funding which will not be able to achieve the scale of ocean recovery that we need to meet the UK’s targets for nature and the climate. Simultaneously, recovery projects are costly and risky. With limited funding, this undermines the likelihood of long-term success for projects that deliver environmental gains. There is a gap between the current reality of projects (high costs, low funding) and the socioeconomic and financial gains that they could deliver at scale. Mobilising private capital could help to bridge that gap.

 

  1. In the 2021 Spending Review, the UK Government set out a target of mobilising private investment into nature recovery - £500m a year by 2027 rising to over £1 billion a year by 2030. This was reiterated in the 2023 Green Finance Strategy. It is unclear how much, if any, has been specifically targeted for the marine environment. However, given our fundamental dependence on ocean health and the scale of action required, much greater levels of financing will be needed than this.

 

  1. In most cases ocean recovery projects are competing against a number of other extractive activities in the marine space. Scaling up private investment and establishing robust natural capital markets can change the dynamic by showing that ocean restoration does not have to occur at the expense of economic gains and revenues. Instead, it would create a whole new sector for growth and employment that works with nature instead of against it. At the same time, this creates new financial incentives to safeguard the marine environment (and linked investments) which could deliver additional investment in ocean health.

 

  1. It should be stressed that we should not rely on private investment in lieu of public funding. It is in the public interest to protect natural assets that support our wellbeing and economy. This makes it the responsibility of the Government to preserve this value. However, public funding could be used smartly to leverage large scale private investment through blended finance. From speaking with members of the private finance sector, we know there is a great appetite for investment in the blue economy but a lack of investible projects currently in the UK. Most ocean-recovery projects are risky and do not offer attractive financial returns – even with access to natural capital markets. Blended finance here can de-risk projects for investors and bridge the finance gap so that projects can offer an internal rate of return that will attract investors. Public funding to grow project numbers and project size will also be necessary to develop a pipeline of ocean projects that is big enough to attract institutional investment. In short, public funding and blended finance can help to get ocean projects off the ground and to a point where they can attract larger-scale private finance.

 

Question 2: How can investment best be aligned with environmental benefits, so as to achieve or surpass the Government’s targets for nature recovery?

 

  1. As a first step, a common set of principles or guidelines should clarify what makes ocean investment sustainable and regenerative. The UN Environment Programme’s Sustainable Blue Economy Finance Principles provide an example of principles that could guide appropriate investments to achieve nature recovery targets. In particular, investment should be guided by scienced-led data and evidence demonstrating additionality, and should be directed towards projects that it will deliver benefits for nature and people in perpetuity.

 

  1. An independent advisory board made up of scientists and conservationists could be created to advise on whether investments are appropriate to deliver environmental benefits and meet the Government’s targets. This could act like a ratings agency that grades the environmental credentials of an investment proposal.

 

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? What confidence do investors currently have in the UK’s arrangements for these markets?

 

  1. According to the UK Blue Carbon Evidence Partnership, the requirements for growing markets and enabling investment in blue carbon projects are:

 

 

  1. These requirements should not necessarily be limited to blue carbon projects and could be applied to wider natural capital markets.

 

  1. The sentiment across various stakeholders involved in marine natural capital (NGOs, scientists, academics and policy makers) is that there is a need for a common language or translation between different stakeholders. Establishing high-integrity markets should involve all of these stakeholders but work in simple terms that everyone can understand. There are also various fora and projects looking at this same issue of developing natural capital markets. Establishing one focal point to lead progress on this matter could avoid duplicate efforts being made in isolation.

 

  1. It is too early in the development of marine natural capital markets to comment on the confidence levels of investors. Feedback received from the private sector is while there is a strong interest and appetite to invest in blue natural capital in the future, there are a lack of investible projects in the UK, and a lack of projects at sufficient scale to attract the larger institutional investment. The projects themselves face problems of scale, as they have high costs but limited revenues. Perhaps the greatest focus and development so far has been on building markets for blue carbon. In this case, there remains uncertainty on how to accurately measure, report and verify the outcomes of blue carbon projects. Measuring, reporting and verification (MRV) may be a logical area to focus our efforts to instil confidence in the markets, but also to allow projects to start accessing revenues from carbon markets. Additionally, it will be necessary to move beyond carbon to broaden revenue options for marine projects. Markets should be developed to allow revenues from a multitude of sources and ecosystem services. Carbon credits alone may be insufficient to cover costs of marine recovery projects, for example. New markets could also be designed to work alongside other government schemes such as biodiversity net gain and marine net gain.

 

  1. It may be necessary to accelerate progress on habitat codes or even consider one overarching natural capital code rather than developing one for each habitat separately. Currently, the UK saltmarsh carbon code is being developed, to be followed by a seagrass carbon code and kelp codes. However, these are only two or three habitats that occupy a small fraction of the UK’s total marine space. Furthermore, developing separate codes one-by-one could take several years and limit potential for investment and nature restoration.

 

  1. From an investor’s perspective, marine natural capital shows great potential but remains nascent and unproven. The delivery of successful case studies, where projects have delivered both environmental gains and returns on investment, will help to bring investors to the market. In the first instance, funding could be concentrated into a small number of flagship projects. Proving proof of concept will enable greater market confidence. Once investors in the market have seen strong evidence of investible projects that are successfully delivered returns, further investment should follow.

 

  1. Blended finance can play an important role in securing investor confidence by removing some of the uncertainty associated with projects and helping to secure longevity. Public funding in specific areas like Measuring, Reporting and Verification – that present a costly barrier to many projects – could help to remove these blockers. It is arguably too much to expect a private investor to do all the leg work to get a project off the ground. More realistically, a blended approach with pooled funds could bring a mixture of philanthropic, public and private funding to the early stages of projects. In these early stages, catalyst impact products could be created to finance the development of projects while the markets are still being established.

 

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. It is not known exactly what data NCEA will provide for marine natural capital, specifically. However, the contribution of NCEA is welcomed, especially as it can help to inform decisions impacting the marine environment with socioeconomic natural capital analysis.

 

  1. For example, recent research by the Marine Conservation Society has found that by allowing marine ecosystems to recover from bottom-contact fishing disturbance, the value of ecosystem services delivered by natural capital assets within the UK’s offshore benthic MPAs would increase substantially. This could deliver several billions of pounds in socioeconomic benefits to the UK over 20 years, even after accounting for costs and displacement effects.

 

  1. For too long, the ocean has been seen as largely separate from our lives and decision-making on land. This “out of sight, out of mind” approach has seen ocean habitats become overexploited. However, a better understanding of marine natural capital can shine a spotlight on the value of marine habitats. The more data that is available, the more analysis can be done to inform decision makers of the longer-term benefits to society and enable them to be realised and maintained. Such analysis can guide decisions and allow the Government to direct spending to where it can achieve the greatest socioeconomic impacts.

 

 

Question 5: How can the proposed UK Green Taxonomy support high-quality investments which deliver genuine benefits to nature? What financial disclosures should the taxonomy require?

 

  1. It is crucial that this taxonomy is also a blue taxonomy. Regardless of how the taxonomy is labelled, ocean ecosystems and the blue economy need to be a focus area and not a footnote. The marine environment is complex and dynamic, with a lot of unknowns still to be understood. Caution should be taken when endorsing any activities or investments where the impact on the marine environment is unknown. A lack of evidence of an impact does not mean there is no impact, it means that it has not been sufficiently researched yet.

 

  1. Special care needs to be taken when approaching activities that are intended to serve net-zero targets but could have unintended consequences on biodiversity or carbon stores. For example, offshore energy infrastructure can play an important role in decarbonising our economy, but site selection is paramount to ensure long-term stores of carbon are not disturbed and negative impacts on key habitats and species are avoided. A case-by-case approach may be needed rather than broad recommendations.

 

  1. In line with the Taskforce for Nature Related Financial Disclosures (TNFD), financial disclosures should reflect impacts and dependencies on marine natural assets and ecosystem services. Where company activities are directly or indirectly reliant upon the marine environment, or have an impact on it, everyone stands to benefit from understanding those links. There are many man-made stressors that negatively impact the marine environment and, by consequence, undermine the chances of proposed investments delivering ecological and financial returns. For example, poor water quality is a universal stressor that threatens the success of habitat restoration projects and the extent to which marine habitats can deliver several marketable ecosystem service benefits. There are lucrative areas of the blue economy, such as the tourism and recreation sector, with strong potential for growth that will depend on good water quality. The taxonomy should therefore require the identification of dependencies on the marine environment and any impacts on those dependencies. When companies are encouraged to identify their reliance on the natural world, they will see that it is in their best interests to protect it. It will also help companies to manage risk in a changing environment and increase the financial security of the UK economy.

 

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. The above response to question 2 could also be applied here, particularly the use of principles for sustainable investment and the potential creation of an advisory body to assess the green credentials of investors and investments. Similarly, as alluded to in question 5, investors should be required to disclose the environmental impacts across their value chain and portfolios. Companies should be asked to prove that natural capital investments are in addition to their own reductions in emissions and environmental impacts, and not a substitution for this. This requirement could be framed around science-based targets implemented within the market.

 

  1. To ensure net gains and avoid the misuse of ecosystem service credits, limits could be placed on the eligibility of buyers. This could be an intervention that precludes buyers or investors who are not demonstrably on a path to net-zero, for example, to avoid investments being solely for offsetting, but not backed by behaviour change.

 

  1. As well as guidelines for vetting investors, projects themselves need to be quality-checked, potentially certified to recognised standards or verified by a third party. Adoption of guidance such as the High-quality blue carbon principles and guidance can increase the likelihood that investments (and projects invested in) deliver on their intended environmental outcomes. Transparency is required from the project side around costs, revenues, risks and impacts. Clear transparency between both project owners and investors can ensure that investments are robust and more likely to achieve their intended environmental targets.

 

  1. Finally, mechanisms should be in place to safeguard from the risk of speculative trading on ecosystem service credits. Examples have been observed where local projects have sold credits for a minimal sum compared to prices traded on the wider markets or bilaterally. Blockchain technology could be used to ensure high transparency markets with traceability across all transactions.

 

 

Question 7: What role can the UK’s financial markets play in developing the flow of international capital into the development of the UK’s natural capital?

 

  1. There is an absence of developed financial markets globally that link investment to natural capital recovery. Being one of the first to establish robust, secure and liquid markets could therefore draw in international capital. Once the markets have delivered some successful examples (likely to be domestic capital initially), international capital may follow.
     
  2. The challenge is whether there is a sufficient supply of natural capital projects to support this demand. The supply of natural capital projects is currently limited by the state of the environment. This may be beyond the control of the financial markets but very much achievable for the UK Government.

 

  1. Beyond establishing the markets, attracting international capital depends on the quality of natural capital in the UK. The UK would need to be seen as a safer bet for natural capital investments than areas in other nations. As things stand, issues such as poor water quality and lack of adequate protection for habitats are eroding the value of our marine natural assets and increasing the risk attached to natural capital projects. Conversely, a healthy marine environment that benefits from meaningful protection and a demonstrable track record for addressing environmental stressors would elevate the UK above other nations for potential investment.

 

  1. For example, previous analysis by the Marine Conservation Society found that bottom-contact fishing occurs in 98% of the UK’s offshore MPA network designated to protect valuable seabed habitats. If the UK’s MPA network were to be regarded internationally as one of meaningful protection that preserves the value of natural capital within it (rather than being considered ‘paper parks’), investors outside the UK would have more confidence in directing their money towards marine natural capital in the UK.

 

  1. Similarly, demonstrating global leadership on tackling water pollution and poor water quality could set the UK apart and unlock huge potential and investment opportunities within the UK’s blue economy, including nature-based solutions.

 

  1. With meaningful action, the UK could therefore leverage its position as a global financial leader with vast areas of ocean territories to become an international focus area for investment in natural capital.

 

Question 8: What role does the UK have in establishing international standards for natural capital investments, alongside other jurisdictions and financial centres?

 

  1. The UK has one of the world’s largest Economic Exclusion Zones (ocean territories) and is home to one of the world’s major financial hubs which puts it in a position of influence. The Office for National Statistics estimates the value of our marine natural capital to be £211 billion, which is likely a very conservative estimate as it does not account for the full array of habitat types present in our waters that deliver valuable services such as carbon sequestration.

 

  1. If the UK can establish operational natural capital markets that deliver a string of successful investments, this will set a precedent elsewhere. There is an absence of any one single set of standards to adopt, so it is possible that the first standards to be proven to work effectively could set the standard elsewhere as other jurisdictions look to replicate this.

 

  1. The UK therefore has the conditions available to play a leading role and to set replicable standards for the rest of the world to adopt.

 

September 2023