Climate Impact Partners                            CAP0028

Written evidence submitted by Climate Impact Partners

RE: Call for Evidence on “The role of natural capital in the green economy”

To whom it may concern,

Climate Impact Partners welcomes the opportunity to provide comment on the review of the Environmental Audit Committee’s Call for Evidence on “The role of natural capital in the green economy”. Climate Impact Partners builds on the expertise, integrity, and innovation of two companies that have led the voluntary carbon market – Natural Capital Partners and ClimateCare – for more than 20 years. We are proud to be a leader in developing and delivering high-quality, high-impact carbon market solutions that transform the global economy, improve health and livelihoods, and restore a thriving planet.

Having worked with climate-leading businesses to support more than 600 carbon removal, reduction and environmental improvement projects in 56 countries, including the UK, we are committed to delivering 1 billion tonnes of CO2 reductions and removals by 2030, and we are continuing to work across the spectrum of natural capital. We strongly believe in the power of natural capital markets, and specifically the voluntary carbon market and the use carbon credits for carbon offsetting, in supporting decarbonisation and driving climate finance towards the communities in the developing countries Global South which are most vulnerable to climate change, and in securing nature recovery.

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

Private capital investment, through mechanisms such as the voluntary carbon market, can provide significant contributions to living in a nature positive world. Nature-based solutions carbon credit projects include afforestation, reforestation, forest conservation, peatland restoration, restoration of blue carbon ecosystems, and improvements in soil carbon. These cover both nature conservation and nature restoration, across a range of ecosystems – private capital investment is thus an important additional tool to fund nature recovery, in addition to government funding of protected areas such as national parks, AONBs, NNRs and SSSIs, as well as agri-environment schemes. High-quality carbon credit projects can attract a price premium when they include significant biodiversity co-benefits, as signified through initiatives such as Verra’s CCB Standard. The nascent voluntary biodiversity market can also provide a route for private capital investment into nature recovery, and this will be particularly beneficial for projects which could fall outside of the traditional voluntary carbon market, such as development bonds focused on species-specific conservation/restoration projects, for example the Rhino Bond, as well as rewilding projects and those projects which fall outside of the traditional aforementioned public funding routes. It is important that a holistic approach to nature recovery is taken, and that, whilst it is scaled up appropriately, private capital investment is not a substitute for other forms of funding.

To fully embrace the role of private capital investment, strong demand signals are needed so that corporates can be confident in the business case that is needed to take climate action. The stronger that this business case is supported by robust regulation, the better. This strong demand signal would make natural capital markets, such as the voluntary carbon market, a powerful tool in funding nature recovery.

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

Investment in nature-based solutions is a complement, not a substitute, for internal reduction of environmentally detrimental activities within corporate operations, such as decarbonisation or halting the degradation of ecosystems. Internal reduction is always a priority for companies to drive real environmental benefits and, whilst they are performing this reduction, investments using frameworks such as the voluntary carbon and the emerging biodiversity markets can provide a mechanism to compensate for those damaging activities that they are working to reduce through R&D, training, capex and private equity investment. Reducing the negative impacts and compensating for those impacts drives more environmental impact than reductions alone and, given the scale of the crisis that we face, we must use all options available to us.

In order to align with environmental benefits, this investment should focus on credible, high-integrity standards, and science-backed methodologies, in order to get robust baselines and monitoring, and transparent reporting through publicly accessible registries, so that it is possible to record both the positive impact of the investment as well as evidence of the financier of the impact

Investment should also be aligned with national and international policies, such as Nationally Determined Contributions, national adaptation plans, and national biodiversity strategies and action plans, so as to avoid non-additionality of activities.

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?

Natural capital markets, such as the voluntary carbon market, require a minimum threshold for quality and integrity, in order to be transparent and to avoid greenwashing. This applies to both the supply-side, such as the quality of the carbon credit projects, as well as the demand-side, such as the validity and accuracy of claims that companies make about their climate strategies. Additionally, strong demand signals, ideally backed by strong regulation, are needed to provide confidence for private capital investments.

With regards to supply-side integrity, as an example we recommend following the requirements as set out by the International Carbon Reduction and Offsetting Accreditation (ICROA), a leading industry accreditation program committed to enhancing integrity in the voluntary carbon market. ICROA’s Code of Best Practice requires that companies use carbon credits that are: real, measurable, permanent, additional, independently verified, and unique. The recently published Core Carbon Principles from the Integrity Council for the Voluntary Carbon Market (IC-VCM) build upon these, identifying ten key principles for high-integrity carbon credits: effective governance, tracking, transparency, robust independent third-party validation and verification, additionality, permanence, robust quantification of emission reductions and removals, no double counting, sustainable development benefits and safeguards, and contribution towards net zero transition. Following both ICROA’s and IC-VCM’s guidance should enable companies to use only high-quality carbon credits in their carbon offsetting programmes. Alongside these criteria, verified standards and methodologies, such as those provided by Verra and Gold Standard, are necessary in natural capital markets. The Woodland Carbon Code is a good example of a supply-side integrity initiative, and similar initiatives should be expanded.

With regards to demand-side integrity, The CarbonNeutral Protocol is best practice guidance and has played a critical and evolving role, for over two decades, in enabling companies to make clear, credible, and defensible claims about their climate strategies to their key stakeholders. Four of the 50 highest-ranked companies in the Fortune 500 have used the Protocol over the last five years, including Microsoft and UPS. We have previously contributed our experience in developing and applying the guidance in The CarbonNeutral Protocol to the work of the International Organization for Standardization (ISO) to establish an independent, internationally recognised standard for carbon neutrality; we participated in that initiative as an appointed market expert to British Standards Institute (BSI).

We recommend following the guidance in The CarbonNeutral Protocol in order to navigate the complicated landscape of voluntary climate action. This can then be subsequently demonstrated through the associated CarbonNeutral certification. The CarbonNeutral Protocol has five steps for making clear and credible claims: (1) define, including giving a clear description of the subject that will be certified; (2) measure, including providing a complete and accurate account of the greenhouse gas emissions of the subject; (3) target, including setting goals to reduce the measured emissions and offsetting all remaining emissions through verified environmental instruments; (4) reduce, including delivering internal reductions and offsetting all remaining emissions by retiring verified environmental instruments; and (5) communicate, including providing accurate and transparent information on the actions taken. The CarbonNeutral Protocol is in addition to the Voluntary Carbon Market integrity Initiative (VCMI)’s Claims Code of Practice, which has set out four steps for credible claims: (1) meeting certain prerequisites including net zero emissions by 2050; (2) identifying the scope of the claim; (3) only using high-quality carbon credits; and (4) reporting transparently on the usage of carbon credits. Following both The CarbonNeutral Protocol and the VCMI’s Claims Code of Practice should enable companies to use clear and credible claims about their climate strategies. Similar supply-side and demand-side guidance should be produced for voluntary biodiversity markets, with acknowledgement that biodiversity projects are very spatially-specific, with this factor needing to be incorporated throughout any guidance.

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

The NCEA programme has the potential to contribute high-quality, easy to access, relevant, accurate and up to date data for nature-based solutions projects, for example for peatland restoration projects utilising data from the England Peat Map project. It is important that these data are easily accessible, and in a format that aligns with multi-stakeholder use, in order that they can be used for robust baseline setting and ongoing monitoring, reporting, and verification of projects. It is also important that the NCEA is continually updated; projects in the voluntary carbon market are often on timescales of ~30 years, and the data requirement for these projects continues from the initial project design through to project implementation and project monitoring and evaluation. In addition to the Natural Capital and Ecosystem Assessment programme, we also encourage investment in similar initiatives to provide robust and high-quality data for natural capital projects, such as the UK Blue Carbon Mapping project, run by the Scottish Association for Marine Science.

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?

High-quality carbon projects can also be beneficial for nature, in both the UK (for example, afforestation and peatland restoration), as well as internationally – this includes nature-based solutions projects as well as other carbon emission reduction projects such as cookstove projects, which reduce deforestation by limiting cooking with biomass. Encouraging investment from the UK into international projects would therefore encourage international nature recovery. Mechanisms such as carbon border adjustment mechanisms and sustainability standards for products can also stop leakage of environmental degradation elsewhere, and all projects need robust baselines and methodologies, as well as tests for additionality. Transparency is a key component for natural capital markets, of both supply and demand-side activities, and it is critical in avoiding greenwashing. This is particularly important for claims; greenwashing can come about by claiming a greater impact than is actually achieved, and therefore a mechanism for ensuring that claims are proportionate to the impact, whilst also avoiding double counting, is key.

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?

There is an opportunity to help turn the City of London into a world-leading ‘City for Natural Capital’ – the ecosystem of stakeholders for this to happen already exists, and additional top-down guidance from Government is now needed to consolidate these stakeholders. Specifically, this guidance should include strong demand signals for financial institutions and corporates. This would mean the positive alignment of financial flows with natural capital, as well as the elimination of flows of capital towards environmentally damaging activities, and it would encourage further experience of risk management, bonds and debt-for-nature swaps to help make international capital flow.

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

Proactive, progressive attempts to establish standards in natural capital investments in the UK could be replicated and scaled up internationally. It is, however, also important that there is alignment with other international initiatives that already exist. For example, in the voluntary carbon market there are quality and integrity initiatives that already exist from ICROA, the VCMI and the IC-VCM, as well as the corporate net zero and beyond value chain mitigation guidance from the Science Based Targets initiative (SBTI).

In summary, we thank you for the opportunity to input into the Environmental Audit Committee’s Call for Evidence on ‘The role of natural capital in the green economy’. We regard high-quality natural capital markets, such as the voluntary carbon and biodiversity markets, as vital tools in the fight against climate change and nature recovery. These markets require the use of guidelines of best practice, as described here, and deviating from these guidelines would risk negatively impacting the environment at a pivotal moment where rapid climate and nature action is needed. Climate Impact Partners would welcome further opportunities to engage with the Environmental Audit Committee’s inquiry on ‘The role of natural capital in the green economy’.

September 2023