RSPB (Royal Society for the Protection of Birds) CAP0034

Written evidence submitted by the RSPB (Royal Society for the Protection of Birds)

How will the UK attract investors to support its nature positive future?

Parliamentary Environmental Audit committee - Call for Evidence

22 September 2023

Submission from RSPB

Summary

I) Private capital investment has a central role in securing nature recovery; we cannot achieve nature recovery without it. This must, however, be coupled with increased public sector investment.

II) A significant level of regulation is needed to incentivise private investment in nature; current environmental regulation is inadequate to ensure consistently additional and high-integrity outcome comes from private investment.

III) To secure sufficient investment into the UK, we need to deliver large-scale projects with economies of scale. With extensive experience in delivering natural capital at reserves and with our partners, the RSPB has a key role to play in these markets.

IV) As a leading international finance centre, the UK has a crucial leadership role in designing and establishing standards that are compatible and easily integrated into existing international frameworks. This role extends to demonstrating how nature-related financial risks can be assessed and addressed across the finance system.

Introduction

We welcome this Environmental Audit Committee inquiry on the role of natural capital in the Green Economy. The Royal Society for the Protection of Birds (RSPB) is the largest wildlife conservation charity in Europe. We work with over a million members to give nature a home, putting nature and the environment at the top of the agenda across everything that we do.

The RSPB already works in environmental markets at scale and sells carbon credits in the UK and overseas. For example, in the UK our high integrity Peatland Code registered projects support us to scale our ambitions to contribute to the restoration of degraded Peatland in the UK, focusing initially on 4000ha within our own estate. In Sierra Leone, we support the Gola Rainforest Project partners to protect the 70,000-hectare national park and support the livelihoods of over 120 communities in and around the area. Much of the income for this project comes from carbon credit sales.

Furthermore, the RSPB is supporting the development of the Saltmarsh Carbon Code and a voluntary biodiversity credits programme. The RSPB also has a dedicated Conservation Investment team which draws on the expertise of RSPB colleagues and partners to find innovative financing solutions for businesses.

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

According to the RSPB’s 2019 State of Nature Report, 41% of species have declined in abundance since 1970 and 15% of species are now threatened. The loss of species threatens our food security, climate change resilience, disease resilience and well-being. [1]

England’s biodiversity targets include to halt species decline by 2030, to raise £1 billion per year in private finance for nature recovery and to be the first generation to leave the environment in a better state than we found it. The devolved nations are currently working up plans for more specific targets but have all agreed to protect 30% of our land and seas for nature by 2030.[2]These targets are ambitious but necessary given the scale of the problem.

The Green Finance Institute has estimated that the combined public and private finance gap to meet the UK’s nature related outcomes is just under £6bn a year over the next ten years. [3] While this is an estimate, it is unquestionable that there is a finance gap. Commitments from the public sector will not be sufficient to bridge it.

At the last World Economic Forum, six out of the top ten business risks in the 10-year outlook were identified as environment and climate risks with biodiversity loss one of the top four risks to the global economy. [4] Businesses can and must play a critical role in reversing this trend by supporting conservation efforts, investing in supply chains, monitoring nature impacts, and implementing sustainable practices in their operations. They can also use their influence and resources to raise awareness about the importance of nature conservation, and to lobby for policies that protect the environment. [5]

Dasgupta states that a significant portion of the responsibility for helping us to shift course will fall on the global financial system.[6] The sector needs a higher level of understanding and awareness of Nature-related financial risks, learning, and building on the advances on climate-related financial risks.

Private capital investment has a central role in securing nature recovery; we cannot achieve nature recovery without it. As part of this the public sector must act to facilitate and expediate private investment and step in in areas where private investment is unlikely to deliver for the public.

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

The UK Government has committed to raising £500m in private finance for nature each year by 2027, increasing to £1bn by 2030. Even if private finance in devolved nations increases in proportion with this ambition, the size of the finance gap will still be in the billions. (In terms of public funding, the Government is largely silent; there are no targets, nor any tracking of progress or spend ).[7]

Investment can align with benefits through emerging environmental markets. However, these markets are in their infancy and not yet lined up with UK conservation priorities. For example, at present there is no strategic, cost-effective plan for the delivery of the species abundance target or for monitoring progress. Current standards for the Woodland Carbon code are lower than other high-quality conservation ones. The Biodiversity Net Gain policy (BNG) puts a low value on creating many of Governments priority habitats.

A significant level of regulation is needed to incentivise private investment in nature, while ensuring additionality and environmental integrity: current environmental regulation is inadequate to ensure consistently additional and high-integrity outcome comes from private investment.

For private investment to scale up, environmental markets need to be operating well. A key challenge for almost all privately financed projects is who pays for the initial inception and scoping work. This matters when change is needed at scale, projects need to be environmentally credible, and provide a financial return. There is undoubtedly a role for government to improve information around these markets, increasing understanding of the benefits of investment in nature, de-risk emerging markets for investors, set standards, and if necessary, regulate.[8]

The UK Government updated the Green Finance Strategy and published the corresponding Nature Market Framework this spring. They have commissioned the British Standards Institute (BSI) to support in providing consistent standards and principles across markets. We welcome this development, while stressing the urgency of this work and the complexity of the issues - time is of the essence if we are to meet COP15 2030 commitments on nature.[9]

The Scottish Government is designing a new biodiversity framework made up of a suite of policies and a Natural Environment Bill, expected in 2024, that covers a range of topics relating to the protection and restoration of nature. This includes setting legally binding nature recovery targets. The proposals could signal a step change from just protecting the nature we have left, to promoting the renewal of nature across Scotland. The RSPB welcomes the recent consultation from the Scottish Government and will be responding in due course. [10]

At present there are limited links between environmental markets and local democratic processes. Local government has few powers to guide or direct investment at a project/site level, as many of the relevant land management decisions sit outside the planning system and the key English compliance systems (e.g., biodiversity gain) have been established as private markets in which planning authorities do not have their historic role of coordinating planning gain. This makes it more difficult for government to guide investment into its priorities and targets, and risks creating tensions within local stakeholders and emphasises that sustainable solutions require full engagement with local communities.[11]

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?

The measures necessary to establish and maintain high-integrity markets include:

A sound regulatory baseline is needed for land management to prevent investment being undermined by outside pollution and/or substitution impacts.
High delivery standards and accreditation for environmental market participants, which in practice will need to be monitored and enforced by a government agency, as private outcome buyers and planning authorities will often lack capacity or incentive to follow up delivery. The Government has recently delivered the Nature Market Framework and has committed to developing standards with the BSI. However, this work needs to be delivered at pace to ensure markets can attract private finance. As noted above the largest UK environmental markets do not currently demand the highest conservation standards.
Regulatory support is needed for nature-based financial disclosures and green taxonomies, which can be expected to increase environmental market demand. A new dedicated regulatory body could be established to this end.
Demand Creation: Create demand through placing nature obligations on purchasers, use of government purchasing power, support of land aggregation for priority environmental projects. (For more information on this please refer to the response to this call for evidence from LINK, of which RSPB is a member).
Baseline: There is a requirement to understand the UK baseline of biodiversity better than we do currently. This will support the measurement of progress of environmental commitments moving forward.
Scaling up: The Green Finance Institute outlined that many individual nature-based projects, even those delivered at a landscape scale, are not of sufficient financial value to attract institutional investment.[12]
Review of taxation treatment and agricultural subsidies to reduce perverse incentives to not engage in environmental markets.

Current levels of confidence are low due to:

Inconsistent policy approaches: There is a lack of consistent approaches to environmental markets, for example it is not clear if all devolved nations will sign up to BSI standards and if this will be adopted as a benchmark across all environmental markets. The UK Government are delayed in laying the statutory instruments and regulations for biodiversity net gain.
Managing risk: Currently there are no standardised risk management approaches to ensure that private finance money makes it to environmental projects on the ground.
Place: We need to be able to manage issues of place and link this to priorities for species and nature. The mechanisms in place are quite weak (as a technical example the ‘strategic significance’ multiplier that is intended to do this job in the biodiversity gain system is considerably weaker than the other multipliers of the biodiversity metric).
Lack of scale: Markets are currently uncoordinated, for example with multiple standards emerging across diverse types of markets. Processes needed to create larger, liquid markets are important.

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

The fact that NCEA has been set up to collect data on the extent, condition and change over time of England’s ecosystems and natural capital, and the benefits this brings to society is a welcome step. However, it is also critical our policy decision making processes are improved to reflect the findings and that the information on the condition of our natural capital informs our choices about how we invest public (and private) funds and how we properly assess the benefits of such decisions. Undertaking the programme is necessary but not sufficient to achieve a nature positive future.

We already know for example, that investment in natural capital enhancement represents value for money and can “yield rates of return which readily outstrip those afforded by public spending elsewhere”[13]. IMF also estimate that they are also high impact as green spending typically have economic multipliers that are higher than one and relatively greater than multipliers for non-eco-friendly expenditure [14]. The UK natural capital accounts show that the health benefits from recreation in nature in the UK has an asset value of £600 billion, similar in size to the benefits from tourism and recreation in the natural environment. In addition, air pollution removal services provided by nature led to the avoidance of an estimated 2,001 deaths annually. The economic benefits of investing in nature-based solutions to mitigate the impacts of climate change can be substantial. Conservative estimates suggest that for peatland restoration, £4.62 of economic and social benefits can be expected from each £1 invested; for woodland creation, the return would be £2.79; while for saltmarsh it is up to £1.31 [15].

The UK has the most detailed and complete natural history record of any country, and this should provide us with a head-start and competitive advantage in generating and selling environmental credits; we have the potential to understand our current nature baseline and restoration potential better than any comparator country. The NCEA should be tasked with realising this potential by providing a single source of reliable information on environmental quality, overcoming the problems of proprietary paywalls, and incomparable and confidential data, that prevent this currently.

The NCEA should also track the delivery of environmental benefits claimed and sold via credits, to allow for policy evaluation and improvement. There is no process for this at present despite the major policy interventions in biodiversity gain and voluntary carbon code development.

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

Green taxonomy is a system that aims to determine whether an investment is sustainable or not. To date, green taxonomy globally is primarily being used to support various aspects of disclosure regulations or standards. The UK is committed to align to the EU taxonomy’s six environmental objectives, one of which is to aim for the protection and restoration of biodiversity. It is important that the Government works to ensure that the UK’s approach is harmonised and in line with other international approaches. The Skidmore report concluded that standard setting, including taxonomy, was a key component to deliver net zero climate goals.[16]

We recognise that this is still emerging, but it is critical that disclosures are at a high-level and, in time, become mandatory.

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?

In our experience current markets still allow for greenwashing, and we have developed our own internal policies to mitigate this risk. The organisation has incurred transaction costs as a result. This highlights the gap between the current standards and what is required moving forward.

To ensure genuine gains for nature, we need to have:

Common standards and principles across natural capital markets, with consistent guidance and registration. Interaction with other environmental policies, such as the Environmental Land Management Scheme (ELMS) needs to be clear. [17]
All markets need to have high nature and community standards, to ensure high quality projects and local stakeholders are brought in.
An accreditation process for contractors and counterparties involved in natural capital markets.
Legal agreements are in place, standardardised and enforceable.
Regulation is needed for businesses. Currently the TNFD (Taskforce on Nature related Financial Disclosures) has developed a set of disclosure recommendations and guidance for organisations to report and act on evolving nature-related dependencies, impacts, risks and opportunities. This is currently a voluntary code only. [18]
Markets need to be linked to strategically important UK wide conservation priorities (for example through the design of metrics, trading rules etc)
Public money needs to be directed at investing in or purchasing high quality outputs through environmental markets. Having a major buyer/financer for projects will lead the way in shaping markets.

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

To secure sufficient investment into the UK, we need to deliver large-scale projects with economies of scale. Without this UK projects will be uncompetitive in comparison to other regions where land acquisition is cheaper. The RSPB has been involved in large-scale investable propositions through its own East Coast Wetlands programme, and in partnership with Nature North in the North of England. [19]

Alternatively, we need to create large UK based demand, for example through incentivising UK businesses to purchase credits.

The potential for UK Overseas Territories to develop environmental markets and attract international investment could be explored.

There is insufficient early-stage funding to develop natural capital markets. The UK Nature Impact Fund aims to do this, but there is a broader question for the UK finance sector.[20]

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

The UK has a leadership role in designing and establishing standards that are compatible and easily integrated into existing international frameworks.

The UK biodiversity net gain policy will be revised in 3-5 years. Currently, the system is not suitable to be a template for international markets. It is very UK focused, it does not prioritise high-conservation landscapes and it doesn’t create tradable units – it is not a credit system that creates new assets. (Units only exist at the planning application stage). It could be revised to be more suitable internationally.

The new UK-French Global Biodiversity Credits Roadmap, launched in June 2023 sets out a plan for scaling up global efforts to support companies buying credits that contribute to the recovery of nature in a credible way.[21] The larger the market, the more liquid it is.

The Central Banks and Supervisors Network for Greening the Finance System (NGFS) concluded that biodiversity loss poses a significant and under-appreciated threat to financial stability, and central banks and financial supervisors should act to confront nature-related risks in a similar way to climate risks. It calls for collaboration between central banks and financial institutions. [22] The Bank of England has already started work in this area and early findings suggest that nature loss can lead to financial risks but more work is required to determine their materiality to the financial system. The Bank plans, through work with DEFRA and others, to build a clearer picture of the nature-related financial risks facing the UK and this should be encouraged with pace, to help the UK show real leadership on this vital issue [23].

The RSPB are supportive of the separate Wildlife & Country LINK submission to this call for evidence.

Nature Positive Economy Team

Douglas Peedle

Jenna Coull

September 2023