Natural capital

Natural capital refers to the stock of natural assets - such as land, soil, water, biodiversity and ecosystems - that provide measurable value to society and the economy. It is becoming increasingly important as regulation, policy and investment shift toward recognising and monetising environmental outcomes. For landowners, it creates new opportunities to generate income through biodiversity net gain (BNG), carbon credits and environmental schemes. For developers and investors, it introduces new legal, planning and commercial considerations that must be addressed early in projects. As markets mature, understanding how natural capital is defined, valued and managed in practice is essential to unlocking opportunities while managing risk and complying with evolving regulatory frameworks.

Biodiversity net gain (BNG) is a legal requirement in England that means most new developments must deliver at least a 10% improvement in biodiversity compared to the pre-development baseline.  This can be achieved onsite, offsite or through the purchase of statutory credits. For developers, BNG introduces additional planning requirements, including biodiversity gain plans and long-term habitat management obligations. For landowners, it creates a commercial opportunity to establish habitat banks and sell biodiversity units to developers. These arrangements must typically be secured for at least 30 years through legal mechanisms such as section 106 agreements or conservation covenants, meaning both financial returns and long-term commitments need to be carefully structured and understood.

Natural capital markets allow landowners to generate income by creating, enhancing or managing environmental assets and selling the resulting “credits” to developers, corporates or investors. These may include biodiversity units (for BNG), carbon credits or nutrient mitigation credits. For example, habitat banks can generate biodiversity units for sale, while nutrient neutrality schemes allow land to be used to offset environmental impacts of development. These markets can provide long-term income streams but often require significant upfront planning, investment and legal structuring. They are also subject to complex regulatory requirements and long-term management obligations, meaning careful consideration must be given to land use restrictions, tax implications and the interaction between different environmental schemes. 

Nutrient neutrality is a planning requirement designed to ensure that new development does not increase nutrient pollution in sensitive water catchments.  It focuses primarily on nitrogen and phosphorus levels, which can damage protected habitats and ecosystems. In practice, this means developers in affected areas must demonstrate that their projects will not add to existing pollution levels, often requiring mitigation measures. Where onsite solutions are not possible, developers may need to purchase nutrient credits from landowners who implement land-use changes such as wetland creation or reduced agricultural activity. While this can delay or complicate development, it also creates opportunities for landowners to participate in mitigation schemes and generate income through long-term environmental projects. 

Carbon credits and natural capital projects are increasingly being used by organisations to meet ESG and net zero objectives. Carbon credits represent verified reductions or removals of greenhouse gas emissions, often generated through nature-based projects such as tree planting or habitat restoration.  However, carbon is only one part of the broader environmental picture. Natural capital projects can deliver additional benefits such as biodiversity enhancement and water quality improvements. Organisations should carefully consider the quality, verification and long-term commitments associated with these projects, as well as how they align with broader sustainability strategies. Legal, regulatory and reputational risks must also be assessed to ensure investments deliver genuine, measurable and compliant outcomes. 

In some circumstances, it is possible to combine or “stack” multiple environmental schemes on the same land, such as generating biodiversity units alongside nutrient credits or carbon credits.  However, this is a complex area with evolving regulation and guidance. Key issues include ensuring that each environmental outcome is additional (i.e. would not have happened without the scheme), avoiding double counting and complying with different legal and contractual requirements. Each scheme may have different durations, monitoring obligations and enforcement mechanisms, which need to be carefully aligned. Legal advice is essential to structure arrangements that maximise value while remaining compliant and deliverable over the long term.