West Midlands Combined Authority                            CAP0036

Written evidence submitted by the West Midlands Combined Authority

 

Response to Natural Capital Consultation

 

ABOUT THE WEST MIDLANDS COMBINED AUTHORITY

The West Midlands Combined Authority was created through a devolution deal in 2016, where central government gave us powers and money to work to ‘propel the economy to further growth’ in the context of international, national and regional challenges and deliver a more prosperous and better-connected West Midlands which is fairer, greener and healthier. We work where we’re uniquely best placed to add value, through connecting others or through actions with regional scale.

Within the natural capital space, we see the role of Combined Authorities as key in aggregating opportunities to a scale to allow private capital investment.

 

RESPONSES TO QUESTIONS

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

and

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

There is a clear indication from the finance community that there is interest in investing in this space due to increased demand for the purchase of environmental outcomes (such as Carbon Credits or Biodiversity Net Gain) through both voluntary and mandatory offsetting schemes.  This is helpful as the current estimated funding shortfall for delivery of our Nature Recovery in the next 10 years is £56bn.

High levels of investment may be possible for nature recovery if investable projects can be developed to meet the demands of existing and emerging environmental outcome markets and standards. It will be essential that more work is put into developing metrics for measuring outcomes from a range of Nature Based Solutions that are beneficial in adapting to the effects of climate change (urban cooling and natural water attenuation for example) and for connecting people with nature (important for health and wellbeing). 

However, the minimum ticket price that investors are seeking can potentially exclude many smaller place based projects that could play a key role in the delivery of nature recovery and delivery of other key environmental outcomes.  Therefore, it is essential that regional scale investment opportunities are developed to aggregate such opportunities, as offered by Combined Authorities.

Such aggregation of projects is being tested through the Local Investment on Natural Capital programme of which the West Midlands Combined Authority is leading on in one of the pilot areas.

  1. 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? 

Standards and consistency are key to create a trusted high integrity markets.  Other factors that create confidence with investors are clear indications of the scale of the opportunity (demand and supply) and certainty around pricing (for Carbon and Biodiversity Net Gain, the most mature markets in the UK there is still a lack of understanding about these key factors).  As the market develops it will be essential that respected and secure organisations are encouraged to act as intermediaries between project owners, buyers and investors.  

This role would be suited to regional organisations, such as combined authorities, which can take a more strategic and regional view on the delivery of nature recovery and environmental outcomes aligning them to plans such as the Local Nature Recovery Strategies.   

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? 

The development of robust assessment metrics/standards and delivery mechanisms shall be essential to ensure such schemes maintain credibility, again the establishment of intermediary organisations that can act as an intermediary between investors, buyers and sellers would add credibility.  

Regional organisations such as combined authorities can provide a level of independent monitoring and oversight on what is currently a developing market.   

 

SUMMARY

We see this area as offering significant opportunity. To secure private investment opportunities, aggregation of smaller projects is often key in order to meet the minimum investable ticket price. This is where regional organisations such as Combined Authorities can play a crucial role. Additionally, standards and consistency are key to create a trusted high integrity markets. Again, the convening power of Combined Authorities offer a strategic view and the ability to act as trusted intermediaries.

The convening power of Combined Authorities therefore offers significant potential in this space.

We are leading on a pilot in the Local Investment on Natural Capital programme. Our team would be delighted to talk further with the Committee on this point.

 

FURTHER INFORMATION

For further information, please contact Frances Lasok

 

September 2023