The Sustainable Soils Alliance                            RNC0005

Written evidence submitted by The Sustainable Soils Alliance

Call for Evidence

The role of Natural Capital in the Green Economy

The Sustainable Soils Alliance (SSA) was launched in 2017 to address the current crisis in our soils. Its aim is to campaign to restore UK soils to health within one generation by seeing soil health elevated to where it belongs as a priority alongside clean air and clean water. The SSA is a non-profit organisation (CIC number 10802764).

This evidence is supplementary to that provided in the original submission provided by the Sustainable Soils Alliance in September 2023.  Much of it is drawn from a multi-stakeholder virtual workshop on ’The Green Finance Knowledge Gap’ hosted by the The Green Finance Topic Advisory Group of the Land Use for Net Zero (LUNZ) Hub in April 2024.

It also reflects our engagement on the development of the BSI Nature Standards, and specifically FLEX 701.

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

See previous (2023) response.

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

• Measurement, reporting and verification should be seen as a public good and the government should concentrate on a) funding and b) bringing integrity to the MRV via a single framework that can link public and private sector, leaving behavioural change up to land managers, and funding this change to the private sector. The European Commission is looking to achieve this through its Carbon Removals Certification Framework, including soil carbon.
• When it comes to aligning finance with environmental benefits, there is a need to challenge the supposition that a market based ‘Return on investment’ approach is the only transaction model, and explore other options, i.e. ‘funding’ rather than ‘investment’. 
• While there is a clear need for high integrity in the offsetting and compensatory marketplace, there also needs to be room for a ’lower integrity’ market for organisations who wish to just fund a project through CSR or ESG and aren’t necessarily looking for very specific, measurable outcomes (especially carbon) and where there might be freedom to contract type of management e.g. Landscape Enterprise Networks, The Wildlife Trusts.
• This is especially true for soil where the environmental benefits sought might be for improved soil health – e.g. to improve water holding capacity, where the investors might be water, insurance or even transport infrastructure businesses.  In this instance soil carbon measurements might be needed as a proxy for overall soil health, but not as a calculation to mitigate an emission elsewhere.
• The benefit of these approaches is that they overcome many of the market complexities (land ownership, MRV) and enable farmers to ‘get on with it’ without the burden of legal, contractual, cost overheads etc. We are seeing interest in corralling corporate ESG/CSR funds into a central ‘pot’, underpinned by an external framework covering permanence etc. 
• To that end, there is a need to understand investor mindsets and establish an investor ‘typology’ reflecting exactly what they are looking to get out of a project. Some private investors are willing to invest without an obvious ROI.

3. 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?

When considering how to bring high integrity to ecosystem markets, the focus until now has been on offsets.  Equally important – especially when it comes to attracting investment into soil health, is the market for insets. 

Insets is the process whereby agri-food businesses can reduce their overall carbon footprint through interventions that are directly related to their own supply chain (products and services), also known as Scope 3 emissions), while offsets involve external projects which are not directly related to a company's operations.

This is critical for the following reasons:

• The UK insets ‘market’ is larger: While there is no concrete market analysis, our insights indicate that it is ‘within value-chain’ carbon reporting, rather than offsets, that is attracting the most investment today. In many cases, companies are willing to prioritise (and sometimes pay more for) within-supply chain mitigation than they are for offsets.
• This is because:
• There are relatively few fully registered UK offset projects,
• Agricultural offset projects in the UK are too small scale to be cost effective, especially when compared with the US for example
• Food and drink businesses are currently investing in insets both to meet their scope 3 targets and stimulate the transition to regenerative agriculture.
• Insets enable a more collaborative and transparent relationship – a shared journey towards net zero targets – between the payer and the seller (farmer), than would emerge from a transaction with e.g. energy, aviation industries. Indeed, we are already seeing signs that farmers are being advised to retain carbon reductions/removals and biodiversity enhancement within their value chains as there is increasing demand from the companies they supply to demonstrate progress towards Scope 3 emission reduction targets, targets for nature and the management of nature-related risks to their business.

• A two-tier market would be confusing: Including insetting in the BSI Nature Standards Programme and elsewhere has the potential to enhance the integrity and consistency of the insets market and so make it more attractive for in-supply chain investors. In contrast, an exemption for insets would undermine the perception that they are of equal integrity to offsets.
• Farmers need greater protection: They are already under increasing pressure from multiple supply chain players to deliver Scope 3 reductions as a contract/licence to operate – i.e. without receiving commensurate financial support. An external incentivisation framework for insets would protect them from supply chain customers that ‘require’ these actions, whilst supporting those customers that are looking to demonstrate tangible domestic benefits achieved. In other words, the inclusion of insetting could play an important role in preventing insetting from becoming simply a licence to operate without providing any form of quality control, support or compensation.

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

• The Natural Capital Ecosystem Assessment (NCEA) programme collects data to show how different soils are contributing to different ecosystem services as a measure of soil health.  The programme began national soil monitoring in 2022 and will also contribute to a comprehensive and robust baseline for soil health by 2028.
• The programme, alongside national soil monitoring schemes across the UK, will provide reliable data to help account for carbon stocks within England’s soils, as well as chemical, physical and biological characteristics.  It should contribute to overall understanding about the characteristics of a healthy soil, and help bridge the gap between soil carbon and overall soil health – i.e. to ensure that any nature markets promote overall soil health, and not the single-minded pursuit of carbon sequestration which can have unintended consequences.

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

See previous (2023) response.

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?

• Empowering and educating farmers about natural capital markets is crucial to help them deliver genuine net gains for their businesses and for nature.  As it stands, awareness about natural capital markets among farmers is low but growing. Recent years has seen more caution than there was at the beginning reflecting concerns around greenwashing, high costs, verification, scale, and the need for different baseline assessments for different markets.
• The risk and reward distribution between different players in the market is a source of mistrust and concern about greenwashing.  Projects involve the investor, the land manager, and in between, a highly complex supply chain involving predominantly new companies with different models, opportunities and different ways of addressing some of the issues (technology, etc.) against a backdrop of significant policy change within the industry. 
• There is a need to conceptualise and demystify the market in very simple terms. Key to this

is explaining to farmers a) profit level, and b) risk.  Farmers are going from a direct government payment scheme into a private sector scheme that they have no experience or trust in. This needs to be addressed - and relates to basic economics but also culture, education and language.

• There is a gulf between the language used by the investor community (seen as cryptic and confusing) and that by the farmers, as well as a misunderstanding about what natural capital is and what it means to individual businesses. Investors need to have better understanding about the farming sector and willingness to empathise with its inherent challenges rather than see it simply as an investment opportunity.
• There are considerable legal concerns - how will farmers be measured and where is the flexibility to reflect circumstances (droughts, flooding) which are out of their control, as well as uncertainty around the relationship between private sector markets and payment for public goods.  

7. 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?

See previous (2023) response.

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

When understanding the international policy context for nature investment, it is important to recognise the role and impact of global non-jurisdiction (i.e. non-government) instruments, especially those that govern the reporting obligations for the food and drink businesses when looking to report on their in-supply chain investments (i.e. insets).

This is a rapidly evolving ‘policy’ framework, which currently affects carbon accounting, but is growing to incorporate biodiversity reporting, and has important consequences for soil health.

• Most corporates are using the draft GHG Protocol Land Sector Removal Guidance (LSRG) and the Science-based Targets initiative SBTi FLAG guidance:
• The GHG Protocol Land Sector Removal Guidance (500+ pages) provides details on how companies should measure progress/account for land-related emissions and removals. However, it has been subject to delays and currently only exists in draft form, with some elements of its text getting pushback from industry on the grounds they would be challenging to implement. The protocol authors (World Resources Institute) will not themselves accredit against the protocol - other (commercial) bodies will play this role, which is why it is important for BSI to provide guidance about how insets should be implemented in the UK.
• The SBTi FLAG Guidance and Tool, published in 2023, outlines how companies should set science-based targets for mitigation of land-related emissions and removals. The SBTi Guidance documents are currently under debate on the use of offsets.
• Both SBTi FLAG and GHG Protocol LSRG currently state that reporting emissions is mandatory and reporting removals (e.g. carbon sequestration) is optional, however these clauses are under constant review.

• Whilst the focus of the international standards organisations has been on carbon until now, their attention is increasingly turning to biodiversity, water use, etc. The World Business Council for Sustainable Development is in the process of drafting a biodiversity standard.
• As a starting point, the UK government should ensure its approach is compatible with the GHG LSRG and SBTi so as to avoid causing confusion and the impression that companies have to choose between an international and a UK pathway.
• For example, by explicitly stating that the BSI is aligned with LSRG and SBTi, BSI accreditation can be a useful route for relevant activities in the UK to be certified as broadly aligned - which would be valuable for the market. The LSRG and SBTi currently stop short of providing actionable methods for quality assessment and leave considerable ambiguity that could be better resolved at a national level.
• Policy-makers should see it as their role to bridge the gap between the LSRG, SBTi and the domestic market, making it easier for local accreditors to ‘get on with it’ - e.g. BSI would turn a set of guidelines into an actual standard against which companies can have their projects verified.
• A BSI insetting standard would provide an opportunity for the UK to show leadership in tackling the challenge of consistency that all markets are facing. By showing a clearer path to implementation of LSRG and SBTi approaches, the BSI could give UK carbon farming initiatives a competitive advantage globally. With appropriate validation and verification procedures, the UK BSI standard could be applied across international supply chains.
• In time, the BSI might decide to go over and above the LSRG and SBTi in the UK where a clear deficiency with those international standards exists, or where there is a tangible appetite for the UK to set a higher threshold and set a precedent for higher global standards in Scope 3 reporting.

December 2024