The Rivers Trust CAP0029
The Rivers Trust Response: Environmental Audit Committee’s inquiry into “The Role of Natural Capital in the Green Economy"
The Rivers Trust’s experience of setting up private and blended finance schemes demonstrates how private capital can and must play an important role in helping to secure nature recovery. This approach helps ensure that polluters pay for the impact of their activities, helps the private sector reach their own climate and nature goals, and helps fill the gap in financing nature recovery.
Private capital investment into measures to secure nature recovery, when done well, should be:
High-integrity markets in ecosystem services need to be:
Please find our response to the inquiry’s questions below:
The Rivers Trust’s experience demonstrates that private capital can and must play an important role in helping to secure nature recovery. This will ensure that polluters pay for the impact of their activities, help the private sector reach their own climate and nature goals, and fill the gap in financing nature recovery.
The UK’s natural environment is in a dire state; species abundance has declined by 13% since 1970[1] and no English rivers are achieving overall good status.[2] To drive nature recovery, and in particular the recovery of our rivers, we need to reduce all types of pollution (e.g. plastics, nutrients, sewage, chemicals), increase biodiversity, and re-naturalise our environment (e.g. rivers need to be re-wiggled, reconnected to floodplains, and less disrupted by artificial barriers). The Rivers Trust and its 60+ member trusts deliver the measures necessary to secure nature recovery, prioritising nature-based solutions such as wetland creation, barrier removal and tree planting.[3] The Rivers Trust movement’s experience of delivering these measures has revealed their efficacy for nature recovery and their ability to provide multiple co-benefits to the economy and society, which can then feed into ecosystem services markets.
Responding to public demand for nature recovery action, the Government has set various targets to address the nature and biodiversity crisis. One of the most fundamental and wide-ranging of said targets is the 25 Year Environment Plan goal to leave the environment in a better state than we found it. Other Government targets include protecting 30% of land and sea for nature by 2030, halting the decline in species abundance by 2030, and reducing certain agricultural pollutants in the water environment by 40% by 2038. Additionally, the Government set out goals in its Storm Overflows Discharge Reduction Plan to reduce the impact of sewage on our water environment.
However, the Office for Environmental Protection has reported that Government’s progress on environmental improvement “falls far short of that required” to meet its own targets.[4] The Green Finance Institute has also revealed that there is a gap of at least £56 billion in the public funding required to meet nature-related targets in the next 10 years.[5] Therefore, there needs to be a step-change in the ambition and resourcing of efforts to drive nature recovery, and The Rivers Trust’s experience has demonstrated the pivotal role private capital can play in accelerating this progress.
Investment versus purchase of ecosystem services:
The Rivers Trust would like to start by highlighting a distinction between private capital investment and the use of private capital by businesses to purchase ecosystem services. The prevailing view at the moment is that significant amounts of private investment will support nature recovery. However, The Rivers Trust finds that investment into nature-based solutions that require a significant return (10-20%), will not necessarily be feasible or socially acceptable. Returns from nature-based solutions are not uniformly reliable and will often take longer to materialise. Therefore, The Rivers Trust would like to see a greater emphasis on identifying and marketing to buyers of ecosystem services. The private sector has an increasing need to buy ecosystem services, in order to pay for the polluting impacts of their activities or to help them reach stretching climate or nature targets. This available private capital must be captured and funnelled towards measures to secure nature recovery.
Buying ecosystem services is BAU
Buying ecosystem services should become part of business-as-usual activity (BAU) amongst the private sector; The Rivers Trust believes this would significantly accelerate nature recovery measures. The private sector has an increasing need to buy ecosystem services. Therefore, there is a clear opportunity to guide the private sector away from treating environmental spending as a charitable activity, and towards building it into core business planning. This would ensure that private capital availability is long-term and reliable, enabling more significant nature recovery measures.
CASE STUDY: The Rivers Trust’s Water Stewardship Service[6]
Through our Water Stewardship Service, The Rivers Trust connects businesses to 100+ Catchment Partnerships, to implement on the ground activities that improve the sustainability of both the water environment and the businesses involved. The Rivers Trust and other partners have been working with Coca-Cola to help them meet their global Replenish commitment, to safely return to communities and nature the same amount of water it uses producing its drinks. Coca-Cola has financed the creation of wetlands, restoration of flood plains, trialling of new pollution-capture technologies and engagement with farmers. This has resulted in 1.8 billion litres of water Replenished and many large natural areas restored. This is not merely a one-off investment opportunity, but rather a long-term commitment to financing natural capital in order to meet core business needs and thereby support real-world nature recovery.
Blended finance to maximise impact
The Rivers Trust sees an urgent need for blended finance models, involving both public and private finance, from various sources, which can maximise overall impact and results for nature. Public finance will continue to play a critical role in funding measures for nature recovery, by acting as seed finance to attract private investment and by supporting natural capital markets where business drivers are lacking. For example, The Rivers Trust expects public funding for projects involving the upland farming sector to continue to be vital, as this sector can offer fewer ecosystem services that benefit businesses. Public funding can then be augmented by private input, to maximise taxpayers’ value for money, invest in varied ecosystem services, and reduce individual risks.
Private finance will be required to plug the £56 billion finance for nature gap identified by the Green Finance Institute. Due to the combined climate and nature crises, and their increasingly significant impacts on our environment and communities, nature recovery measures will need to be large-scale and long-term. The high level of ambition clearly demands high levels of investment, so will need to be supported by blended, collaborative, and innovative finance models.
Along those lines, multi-source funding models are key to unlocking the measures necessary to deliver true nature recovery at pace. While publicly funded grants, occasional charitable investments, or contributions by a single business are welcome and have enabled a variety of nature recovery measures to be implemented, we need to harness the opportunity to deliver large-scale, long-term initiatives through multi-sector, multi-party finance models. The Rivers Trust has already started building experience of natural capital projects that involve both investors and buyers of ecosystem services.
CASE STUDY: The Wyre Catchment Natural Flood Management Project[7]
The Wyre NFM Project primarily addressed flood risk, which poses a significant economic risk to many businesses in the catchment. The project delivered Natural Flood Management alongside nature recovery benefits such as increased biodiversity, carbon sequestration and improved water quality. The project was funded by capital investment from both private loan and public grant, and also through payments by businesses for ecosystem services. United Utilities paid for NFM benefits, but could not cover full project costs, therefore other beneficiaries were identified including Floor Re, Wyre Council, and the Environment Agency. Further along in the lifecycle of the project, new buyers are being identified, for example Sainsburys, who are purchasing water quality benefits to reach their water neutrality target. The use of blended private and public finance allowed for the piloting of this ambitious, world-leading project. Risks were shared amongst various stakeholders, contracts were adaptive, and ecosystem benefits are secured for the long-term. Additionally, this project is the first nature-based investment project to make use of Social Investment Tax Relief,[8] which attracted investment from high-net-worth individuals. The project has delivered various environmental improvements, such as re-naturalised rivers, wetlands, tree planting, peatland restoration, and fencing to protect rivers from livestock interference, all of which contributes significantly to nature recovery in the catchment.
The Rivers Trust firmly advocates for a strategic approach to natural capital investment if it is to truly contribute to nature recovery. Otherwise, private investment into nature recovery measures will be increasingly siloed and ad-hoc. By taking an ecosystem- or catchment-scale view and assessing the varied stressors affecting environmental health, it is then possible to identify the most impactful interventions to deliver multiple benefits and contribute significantly to nature recovery.
The UK Government must deliver on its promises to publish a Land Use Framework, which is informed by locally-owned and evidence-based plans such as Catchment Based Approach (CaBA) plans, Local Nature Recovery Strategies and Environmental Land Management scheme initiatives. A strategic framework, supported by good governance systems, would direct and drive private sector investment in a way that supports wider action towards nature recovery. Additionally, such a framework would reveal overlaps between the Government’s nature recovery targets and corporate environmental commitments, which offer clear opportunities to attract private investment into nature recovery measures.
A strategic framework must be underpinned by clear guidance from the Government regarding additionality and the scope of services that should be delivered via regulation. At the moment, there is some reluctance in the market due to uncertainty around which ecosystem services the Government expects to fall under a regulatory approach, whereby polluters are paying for the impacts of their activities. Understandably, potential buyers of services are not willing to pay for benefits that should be being delivered via regulation. Along that vein, the Government must clarify how the principle of additionality[9] will function amongst the range of ecosystem services markets that are arising, including the delivery of Environmental Land Management schemes. The Government needs to clearly define which services can be bought that lie beyond the regulatory baseline and are additional, meaning they would not have occurred otherwise, in order for private investment to drive nature recovery towards or to exceed the Government’s targets.
Consistency
The Rivers Trust firmly believes that the essential ingredient to a high-integrity market in which investors have confidence is consistency of Government policy. Ecosystem services markets take time to establish, as many nature-based solutions must mature before benefits are delivered. Therefore, investors in these markets must have confidence in the markets’ long-term viability. For example, recent Government pull-back on nutrient neutrality rules has caused uncertainty and disruption in the young nutrient mitigation scheme market,[10] while moves to reduce environmental ambition in the water sector shook markets involved in carbon sequestration, biodiversity net gain and nutrient mitigation.[11] These moves prompted outcry from parties involved in developing these markets, for example nutrient mitigation scheme developers and the water industry.[12] Moving forward, the Government must take a committed approach to ecosystem services markets in order to establish and maintain investor confidence.
Standardisation
Critically, high-integrity markets in ecosystem services need to adopt standardised approaches to attract investment and build confidence. There are various codes in existence or development, for example the Woodland Carbon Code and Peatland Code, and it is essential that these and any new codes are equivalent, evidence-based and cover the range of ecosystem services that exist. The assessment, delivery, maintenance and reporting of nature-based solutions must be standardised and accredited, in order to grow investor confidence. Standardisation would also encourage the mainstreaming of nature-based solutions within the regulatory framework as well, which would further boost private sector confidence, attract larger-scale investment, and could deliver significant nature recovery outcomes beyond the regulatory baseline.
CASE STUDY: Mainstreaming Nature-Based Solutions Project[13]
The Rivers Trust is co-leading the Mainstreaming Nature-based Solutions (NbS) Project, funded by the Ofwat Innovation Fund. The project aims to remove barriers to large-scale implementation of NbS through developing standardisation and accreditation systems. Through this project, The Rivers Trust wants to see NbS integrated into the regulatory system, whereby regulators are confident in the reliability and efficacy of these solutions, and move away from their reliance on engineered solutions. By making NbS a standardised, transparent, and reliable option, integrated into the regulatory system, The Rivers Trust believes investors will have high levels of confidence in natural capital markets, and will support the delivery of large-scale NbS projects.
Monitoring
High-integrity markets in ecosystem services also require consistent monitoring and data collection, in order to assess the value and efficacy of the services on offer. Catchment-wide data is often outdated, fragmented and unstandardised, leading to a high level of uncertainty, and resulting in burdensome monitoring requirements at project scale that can render ecosystem service costs too high. Therefore, it is essential that more thorough and cost-effective catchment-scale data is captured to support high-integrity ecosystem services markets.
Critically, these monitoring requirements cannot be disproportionate, as this will stifle the market. For example, The Rivers Trust has found that the monitoring requirements underpinning the Woodland Carbon Code can render it prohibitively expensive to register woodland areas under 5Ha, resulting in a barrier to woodland creation, especially in marginal areas. It will be necessary to develop more innovative and collaborative monitoring and data-capture approaches to achieve the right balance between rigour and cost; The Rivers Trust has been playing a leading role in this area as part of the development of the Catchment Systems Thinking Cooperative.
CASE STUDY: Catchment Systems Thinking Cooperative[14]
The Rivers Trust is working alongside United Utilities and over 20 other organisations to develop the first national framework for the collaborative governance and standardisation of cost-effective catchment monitoring, management and sharing of data. This project aims to demonstrate how catchment-wide data can be captured cost-effectively to support and boost the reliability of nature-based solutions and their ecosystem services.
Incentives
The Rivers Trust has taken advantage of existing incentives to attract private finance to projects and sees additional opportunities to further incentivise the establishment of private capital markets.
The Rivers Trust is not able to answer this question at this stage, as the NCEA programme has not get defined the timescales of its outputs or whether these outputs will become the acknowledged statutory metrics by which Government will measure progress. However, it does have significant potential, particularly if its objectives include defining the natural capital standards by which industry-level plans are assessed e.g. water company plans under the Water Industry National Environment Programme.
The Rivers Trust believes that a taxonomy will be essential to ensuring consistency and rigour for investments. It is essential that the UK’s taxonomy mirrors those in Europe, so that the UK does not miss out on investment opportunities from international corporations. The taxonomy should reflect current best practice approaches, such as those defined by the Carbon Disclosure Project[16] and the Science-Based Targets Initiative.[17] Additionally, the taxonomy must use monitoring and evaluation criteria that are practical and proportionate, and based on current technologies, so that monitoring requirements do not render actual delivery unviable.
The Rivers Trust believes that the risk of greenwashing is minimal if there is confidence that the funding is investing in the right nature-based solutions in the right places for the right reasons. Therefore, markets must feed into a strategic approach to land use (i.e. a Land Use Framework) and investment must be directed through reliable, locally-informed and evidence-based frameworks, such as the Catchment Based Approach plans and Local Nature Recovery Strategies. Reinforcing this approach, codes or principles behind these markets, backed up by accreditation and monitoring requirements mentioned above, must prioritise what the catchment and wider environment needs.
Additionally, rigorous yet proportionate monitoring and reporting requirements must be built into any codes or accreditation schemes for natural capital markets. These markets must operate transparently, with data accessible to the public and the Government, so that potential greenwashing can be identified, and confidence built in effective, nature-positive markets. However, as mentioned above in regard to standardisation/accreditation, it is essential that monitoring requirements are proportionate, in order to support rather than hinder these markets.
Most importantly, The Rivers Trust would like to see the UK’s financial markets making early investments to support the proof-of-concept of the UK’s natural capital. This will also help build case studies and feed the evidence-base, which can be used to grow confidence amongst international investors in UK opportunities.
In a similar vein to the answer to Q7 above, The Rivers Trust sees the UK playing a key role in building case studies and contributing to the evidence based around natural capital investment standards. The Rivers Trust has significantly contributed to the range of UK-based projects that have already effectively engaged with private capital and started building best practice guides to this work. The UK Government should engage with those of us who have been active in this space and take a convening/coordinating role in synthesising our learnings regarding standards, monitoring, and reporting.
About The Rivers Trust:
The Rivers Trust is the umbrella organisation for our 65 member Rivers Trusts across Britain, Northern Ireland and Ireland. We are river and catchment conservation experts with a wealth of data and expertise at our fingertips. We work with our member trusts to make our shared vision a reality: wild, healthy, natural rivers, valued by all.
For further information, please contact:
Kezia Saunders
Advocacy and Parliamentary Liaison Officer
The Rivers Trust
September 2023
[1] RSPB’s ‘State of Nature’ Report 2019
[2] The Rivers Trust’s ‘State of Our Rivers’ Report 2021
[3] The Rivers Trust’s ‘Impact Report 2022-2023’
[4] OEP’s Progress Report 2021/2022
[5] GFI’s ‘Finance Gap for Nature’ Report
[6] The Rivers Trust’s Water Stewardship Service
[7] The Wyre Catchment NFM Project
[8] Government Guide to Social Investment Tax Relief
[9] Additionality - Carbon Offset Guide
[10] Government announces nutrient neutrality changes
[11] https://www.endsreport.com/article/1833494/will-coffeys-steer-water-companies-throttle-environmental-ambition-sly
[12] Coffey gives water companies steer to defer climate and nature initiatives to find savings (endsreport.com)
[13] The Rivers Trust’s Mainstreaming Nature-Based Solutions project
[14] The Rivers Trust’s Catchment Systems Thinking Cooperative
[15] The Rivers Trust’s response: Consultation on taxation of ELM and ecosystem services