We recently concluded a series of dinners, hosted at Burghley House, Castle Howard and Christ Church Oxford. The aim was to bring together landowners, academics and financiers in an attempt to identify actionable solutions capable of moving the needle on preserving and enhancing natural capital at scale.
What conclusions did we reach?
There is no silver bullet but several themes emerged.
What is the size of the opportunity?
Climate change represents an existential crisis with which Governments across the world are battling. Our response to it requires fundamental change in both policy and mindset. Markets in carbon/BNG/nutrient neutrality units are beginning to develop but the extent and size of these is still unclear. BNG is a good example, many are looking to build and bank these potential opportunities but there remains uncertainty about the extent of these. Some feel that the apparent willingness of Councils to see onsite provision represents a missed opportunity and will limit the demand for offsite supply.
To what extent is this subject to political change and, with the election of Trump in the US – a country which to some extent has led the way – are we about to take a step back?
The finance gap
Natural capital projects cost money. Whether they be for peat restoration, improvement of water quality or enhancing biodiversity. There's currently a lack of private investment. Presumably because whilst private investors can appreciate the potential non-monetary return on investment, the potential for a financial return is less obvious in what are still emerging markets.
Where the investment is capable of generating an asset, for example in the form of carbon/BNG/nutrient neutrality units, it's easier to see the potential for a financial return. Habitat "banks" will lease unproductive land and forward fund the work required to enhance it and generate credits. The landowner receives a guaranteed income stream for 30 years, and the "bank" is able to sell the units to developers for a profit
A private company might invest (as we have done) in a project to meet their own ESG targets, eg carbon offset but this is not sufficient to attract large pension or investment funds. One exception is charities as their objectives do not necessitate a financial return. The one example we encountered of a commercially viable project that has not relied on public funding has been backed by a charity.
How do we move the needle on private investment? Tax relief on investments in projects designed to, for example, enhance biodiversity or sequester carbon, may offer a solution. When tax relief on investments in renewable energy projects was introduced, there was a sudden and sharp increase in private investment via VCTs and EIS. It's been almost a decade since tax relief on such investments was withdrawn but the market has continued to expand.
Both the US and Europe (US Inflation Reduction Act and EU Net Zero Industry Act) have introduced reform packages to incentivise green investment using tax credits, subsidies, grants and loans. In the US, tax credit investments provide companies with a method to fund a project in exchange for the right to claim a tax credit. This would be one way for the government to drive private investment into natural capital projects, green energy and clean tech.
Collaboration
The "landscape recovery" limb, for instance, requires collaboration between landowners through a single legal entity. It's always a challenge to ensure parties in a joint venture are at one and whilst it may be an over-generalisation, farmers are not natural collaborators. Landscape recovery schemes are also quite prescriptive in their requirements meaning landowners may find themselves trying to fit a round peg into a square hole.
Data
There needs to be an independent, objective means of communicating the impact (both financial and non-financial) that adopting interventions has. Landowners need access to key data to inform their decisions about which projects to undertake. Recording the impact of projects will help to build the data bank so that, over time, we can paint a more comprehensive picture of the impact any particular intervention is likely to have. Being given access to this data may make the difference between a landowner making the decision to undertake a project, or sitting on their hands. If landowners collectively sit on their hands, the moment will pass and the needle will not move.
Education
How do you take the public with you, which could potentially help to drive investment? This is meant to be about public monies for public good. It will be interesting to see how the natural capital market evolves.
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