The government has recently published a raft of climate policy updates which outline its plans for future energy security and net zero. As part of its strategy, Defra has published a Nature Markets Framework which sets out how it intends to support farmers and land managers in delivering net zero and nature recovery. Nature markets allow businesses to invest with farmers and land managers to improve the ability of the land to deliver a range of ecosystem services, through creating units/credits that can be bought or sold.

Under the UK’s Environmental Improvement Plan, the government has set an ambitious target to increase private finance into England’s nature recovery to at least £500 million per year by 2027, and more than £1 billion by 2030 in order to support greater biodiversity. The government acknowledges, however, that a current absence of nature investment standards is impeding investment as there is currently no route for emerging nature market methodologies to be recognised as sufficiently robust.

The development of high-integrity nature markets is therefore vital to enable organisations to mobilise this investment. Accordingly, the framework “represents a commitment from the government” to build nature market policy on “robust and enduring principles” in order to support the development of nature markets and build trust and confidence so markets can grow at pace in line with the government’s increased environmental ambition. This acknowledgement of the government’s role in creating a successful nature market in the UK – and aligning it with global markets – will be greatly welcomed by industry.

The framework sets out some important principles for the design and operation of nature markets, many of which are similar to those underpinning the existing voluntary carbon markets, such as transparency, additionality (new environmental gains), no double counting etc. The framework states that units sold on nature markets must be based on “robust assessment of the benefit delivered”, with methodologies “defined in codes and standards, reviewed periodically – and predictably – and updated when the evidence base improves sufficiently”. To address this, the British Standards Institute is being asked to expedite a pipeline of nature investment standards over the next three years. All draft or initial versions of the standards will be made available for public consultation. The new high-integrity standards aim to protect against greenwashing and ensure farmers and land managers can attract investment which will lead to genuine nature recovery. It is anticipated that unit/credit issuance schemes will seek accreditation against the new standards once developed.

In addition, the framework addresses many of the challenges that have been identified by early market participants. For example, it focuses on when and how different credits or units can be issued for different ecosystem services, on the same piece of land – enabling farmers and other people developing nature-based projects to benefit from multiple streams of income.

Of course, further work is required to develop regulations and market infrastructure in this sphere. The government is also exploring the most appropriate role for it to play in overseeing nature market governance, in particular in relation to transaction data and transparency for original credit sales and resale markets. In addition, Defra has committed to further collaboration with stakeholders to review and develop the framework going forwards. It is therefore vital that the government develops an improved incentive for nature market participants to ensure finance flows to where it is needed most.

We are seeing a large increase in work in this area and this is clearly a need for quality advice.  We can bring together lawyers as required from our real estate, planning , environment, corporate, and finance teams to advise on these issues. If you would like advice or want to know more, please contact Michael Barlow or another member of the environment team.

Written by Simon Cox.