Chester Zoo                            CAP0050

Submission by Chester Zoo to the call for evidence on the role of natural capital in the green economy

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

2.1 We believe that private sector funding and investment in our natural environment is vital if the UK is to meet biodiversity targets set under the Environment Act, the 15-minute access to nature target set out in the Government’s Environmental Improvement Plan, and the UK’s obligations under the post-2020 Global Biodiversity Framework (GBF).

2.2 Private capital investment can provide financial incentive for landholders to protect, enhance, and restore habitat and deliver nature-based solutions for problems such as water pollution and greenhouse gas emissions. These markets can also provide an efficient way for businesses to make a net positive impact for nature. However, if poorly designed they can also open the possibility of companies ‘greenwashing’ and/or using credits to offset environmental damage caused by other areas of their business, celebrating this as a win when in reality there is no net benefit from their action.

2.3 Businesses should buy units in nature markets to help meet their environmental commitments. This should not be at the expense of also taking action to minimise impacts from their own operations and supply chain or used as an excuse to justify ‘business as usual’ environmental degradation. We are pleased that this position is supported by the Government[2].

Closing the funding gap for nature

2.4 Through the Nature Markets Framework, the Government has set a goal to grow annual private investment flows to nature to at least £500 million every year by 2027 in England, rising to more than £1 billion by 2030[3]. However, as set out in the Wildlife and Countryside Link’s Nature 2030 report[4], of which Chester Zoo is a signatory, “there is a funding gap of more than £19 billion in the UK from 2022 to 2032 for biodiversity when comparing existing funds and Government objectives.” Furthermore, this “funding gap increases to more than £44 billion for all nature-related objectives.”

2.5 There must be a shared responsibility for the costs between public and private sector partners, and private sector finance will be essential to reach the scale of investment needed for nature’s recovery. We urge the Government, therefore, to increase the ambition of its target to increase annual private investment flows to nature.

2.6 There is also a role for the third sector, such as environmental NGOs, where significant knowledge and expertise exists to deliver recovery projects. However, the third sector often lacks the necessary funding or links to investment opportunities to establish the required large-scale recovery work. Partnering with the private capital market would help establish adequately funded projects underpinned by the third sector’s skills, expertise and delivery capabilities that are required to halt and reverse biodiversity loss in the UK. Not only that, but such collaboration has the potential to improve value for money, deliver more sustainable outcomes, and help the UK on its way to becoming a world leader in financing action on nature recovery.

2.7 The recent £38 million donation from Aviva to The Wildlife Trusts to restore Britain’s lost temperate rainforests is a good example of how a UK business can partner with an experienced environmental NGO to confidently invest in a nature-based project[5]. This project will help remove carbon dioxide from the atmosphere, provide a positive contribution to the nature and biodiversity crisis, and support flood protection and resilience. We need to see the private market support more of these projects, and at a greater scale.

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

Genuine environmental gain

3.1 We believe that any market-based mechanisms must incentivise action and be based upon a genuine environmental gain that addresses the root cause of the biodiversity and climate crises. This would include restoring lost biodiversity or the removal of greenhouse gas in the atmosphere, but not offsetting for a biodiversity or emissions loss elsewhere. We believe that an effective market must be based on the principle of net gain and the polluter pays principle.

3.2 It is encouraging that emerging carbon markets are currently stimulating tree planting projects across the UK, providing valuable carbon storage to address the climate crisis[6]. While this is a positive for reducing CO2 in the atmosphere, these projects must also consider their impact on biodiversity and ensure trees are only planted where is it appropriate to do so. For example, where a species mix is chosen for its high carbon storage potential (i.e., coniferous woodlands) there should also be consideration for the impact on native biodiversity.

3.3 Further, the Government could contemplate coupling investment with wider international standards that require impacts to be avoided or minimised before offsetting can be considered. For example, in relation to climate impact, organisations required to achieve a Science Based Target must decarbonise their operations by a minimum of 90% before offsetting, which can only be used to ‘neutralise’ residual emissions that cannot be decarbonised. This avoids the use of offsets being bought to compensate for continued pollution and forces the organisation to avoid or minimise emissions before considering investing in offsets.

An ambitious and transparent framework for scaling up private investment

3.4 We are encouraged that a framework has been published for scaling up private investment in nature recovery[7]. It is equally encouraging to see this Framework build on the work undertaken by the Financing Nature Recovery UK initiative[8], which was guided by scientists and specialists and informed by contributions from land management, business, finance, and environmental sector leaders from across the UK. We support this evidence-based approach.

3.5 We would highlight the Science Based Targets initiative (SBTi)[9] as a successful model for aligning a framework with international scientific consensus. We encourage the UK to explore aligning nature market mechanisms with the science behind the post-2020 Global Biodiversity Framework (GBF) to enable the best outcomes for nature.

3.6 For private investment to be properly aligned with environmental benefits, any framework must: be ambitious, rigorous, and transparent; set out the key elements needed to establish high-integrity markets for nature in the UK; and provide strong, well regulated, standards to effectively structure investments for the greatest genuine environmental return. It should also be transparent about how parties benefit from investment and the environmental returns to demonstrate that the investment is funding genuine nature recovery and not covering for environmental degradation elsewhere.

3.7 While the Government’s Framework has sought to do this, we would like to see how markets continue to develop before passing judging on its suitability. We are encouraged that the Government has committed to “taking a learning approach as markets establish and grow” and will “adapt policies and rules where needed as new evidence emerges.” We believe learning from the development of carbon markets could provide valuable insight for how to develop nature markets.

3.8 In pursuing achievement of its nature recovery goals, the Government could adopt an approach like that used to monitor the UK’s legislative commitment to Net Zero by 2050, which is supported by a series of interim performance indicators aligned to the ultimate goal (through the Carbon Budgets), annual quantification of greenhouse gas emissions, and monitoring and evaluation of actions and progress towards Net Zero. Critically, all of this is underpinned by the scrutiny and guidance provided by the well-resourced, independent, and expert UK Climate Change Committee.

A local, collaborative approach to recovering nature

3.9 The Financing Nature Recovery UK initiative[10] highlights that “markets for nature need to be set within a local delivery framework because, aside from the global challenge of climate change, the environment is inherently place-based.” It also states that “mechanisms are (also) needed to integrate public and private funding at a local level to identify and deliver a suite of projects that maximise overall environmental benefits.”

3.10 While there is a need for large landscape scale projects, place-based local community projects also have a significant role to play in recovering nature at the scale needed. Chester Zoo’s 10-mile Nature Recovery Corridor project – financed by the Government’s Green Recovery Challenge Fund – is an example of how local, community action for nature recovery can succeed in restoring nature, while supporting local people to connect with, support, and improve their natural environment[11]. We are excited to be leading on developing the Nature Recovery Corridor into the next phase of the project.

3.11 We would like to see the Government enabling collaborative projects like this across the UK, backed financially by businesses and private investment, which allow local people to take ownership of local nature restoration. These projects should also be established in partnership with environmental NGOs and voluntary groups to benefit from their knowledge and expertise. This approach would ensure that any initiative or project funded by the private market would utilise the data, knowledge, and expertise of local environmental NGOs, such as Chester Zoo and, as a result, help investment be best aligned with environmental benefits at a local, regional, and national level.

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?

4.1 There must be a science-based approach to establishing and maintaining any markets that aim to recover our natural environment. These markets should be delivered based on independently assessed evidence and analysis to ensure that they have a reliable evidence base to achieve nature recovery and meet the UK’s international obligations. As above, we would encourage future markets in ecosystem services to partner alongside environmental NGOs, such as Chester Zoo, who have substantial specialised knowledge and considerable experience collaborating with local and regional partners to recover, restore, and reintroduce nature.

4.2 Adopting robust standards and regulation of markets will also be essential to provide confidence to investors, supported by evaluation of their effectiveness at regular intervals by a trusted independent expert body. A high-integrity market must also have a net gain/positive outcome for nature at its heart.

4.3 A robust, transparent, well-regulated nature recovery market does not yet exist in the UK; however, any future market must be underpinned by clear, robust, and stable policy to provide certainty and confidence to businesses when investing.

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?

5.1 Any natural capital markets should be designed to be evidence-based initiatives founded on a consistent and robust international standard to ensure environmental degradation is not displaced to countries with poorer environmental protections. Market mechanisms must be based upon genuine environmental gain, not focussed on compensation for loss or damage, and be clearly regulated and supported by advice and guidance from a body with appropriate experience and expertise. This body could, for example, be a financial institution working in partnership with already existing public bodies such as the Office for Environmental Protection.

5.2 Biodiversity loss and the potential benefits of natural capital markets should be considered as a global issue. Some companies have overseas operations or supply chains or may move their operations abroad in the future to avoid regulation. In such instances, UK-only legislation or market approaches would not apply or may be limited in their influence. Although these companies may invest in the natural capital market in the UK, there would be no repercussions should they cause environmental damage abroad. In terms of reaching global biodiversity targets, a UK-only natural capital market could be counterproductive. Therefore, efforts should be made to design natural capital markets in a global context to ensure environmental impacts are not displaced.

5.3 One example of this is the European Union’s adoption of a Carbon Border Adjustment Mechanism as part of its Emissions Trading System (ETS). This is a mechanism to try and prevent ‘carbon leakage’ - the shifting of greenhouse gas emitting industries to avoid tighter standards - created after evidence found[12] that companies were shifting carbon-intensive activities with heavy emissions from inside Europe to outside the EU. To ensure genuine net gains for nature, a similar approach should be considered in the UK for any future natural capital market scheme.

5.4 Another example of good practice emerging is the supply chain due diligence approach to ending global deforestation that can span geopolitical borders and drive sustainable practices through market-based action. We would highlight, however, that the current UK approach to forest risk commodities due diligence is limited by its reliance on local legislation and regulation, which is weak in many of the countries where deforestation risks are greatest. This means there are still avenues in the UK where deforestation can be offshored and so does not fully achieve against the principle of net gain for nature.

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?

6.1 The UK is one of the leading financial centres of the world. Its influence could be huge in developing a flow of international capital into restoring nature.

6.2 Organisations across the world, including financial institutions, are establishing ESG (environmental, social, and governance) within their organisations to drive more sustainable outcomes and become more responsible businesses. This initiative by the private sector should be encouraged and incentivised in order to maximise its potential to deliver environmental gains.

6.3 One route could be to better link corporate investment strategies and the priorities of financial markets with government targets on climate and biodiversity, creating a mechanism to incentivise investment in environmental restoration.

6.4 Within the UK, we are seeing the growth of green investment mechanisms, like green loans, with UK institutions prioritising investment in activities that address, rather than cause, the biodiversity and climate crises. The ability of UK financial institutions to scrutinise and drive the environmental benefits of financial investments could be a useful tool to encourage positive behaviours right through the UK value chain and into investments in the UK’s natural capital. This should be coupled with investing in agencies with the relevant experience and expertise to direct and coordinate the investment to ensure we deliver the ultimate gains in natural capital in the UK. Connecting financial institutions with those able to deliver biodiversity and climate action, such as environmental NGOs, would be a critical task in building collaborations and streamlining investment into projects which can deliver the necessary action to restore our natural world, rather than into projects that fund environmental degradation.

6.5 We would again highlight the need for adequate standards and regulations to prevent positive initiatives, like ESG or natural capital markets, from resulting in perverse outcomes. One mechanism to address this may be through disclosure or due diligence mechanisms that could then be used as a tool to reward or incentivise those organisations that are genuinely invested in ending the causes of the biodiversity and climate crises.

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

7.1 The UK is currently a global leader in environmental action and has shown particular leadership on the climate crisis. We believe this leadership is also desperately needed to address the biodiversity crisis to establish a world where nature and people can survive and thrive. Leveraging the UK’s place and standing on the global stage is essential to establishing international standards for natural capital investments that deliver genuine benefits for nature. We would urge the UK to show leadership and collaborate with nations across the world to establish a global standard for nature protection and restoration to address the global biodiversity crisis.

7.2 We again commend the Science Based Targets Initiative’s success in establishing an international standard to address the climate crisis; best practice that could inform a similar approach for nature. Similarly, the Taskforce for Climate-related Financial Disclosures (TCFD) has effectively raised international recognition of the risks of climate change to business. We anticipate similar benefits from the Taskforce for Nature-related Financial Disclosures (TNFD) as it develops. Building upon these standards, particularly in a way that requires action, not just disclosure, will be critical in addressing the climate and biodiversity crises.

7.4 We believe the UK has the potential to develop a scheme of standards for natural capital investments and, through international collaboration, for this to be developed into a global market mechanism that allows investment capital to flow into restoring nature across the world.

September 2023