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UK Takes Nature-focused Path

Defra, BSI programme builds on Green Finance Institute research to facilitate the agriculture transition. 

The British Standards Institution (BSI) and Department for Environment, Food and Rural Affairs’ (Defra) new Nature Investment Standards Programme is expected to play a key role in supporting the UK agriculture sector’s climate transition by unblocking barriers to private investment. 

Originally announced earlier in March, with further details published as part of a raft of policy announcements and commitments on ‘Energy Security Day’, the programme aims to facilitate the government’s goal to unlock £1 billion per annum in private investments contributing to nature’s recovery by 2030. 

“Defra has made it very clear that it is committed to working on the mobilisation of private sector finance to support the government’s environmental objectives,” Helen Avery, Director of Nature Programmes and the GFI Hive at the UK-based Green Finance Institute (GFI), told ESG Investor.  

The programme’s objectives include scaling up high integrity nature markets to incentivise private investment, building trust and confidence by guarding against greenwashing, and empowering regulators and other expert bodies to engage with and support the development of nature markets that are “robust, transparent and fair”, according to the Nature Markets report.  

For the agriculture sector, the programme will develop clear rules and standards for how farmers and land managers can access public and private capital from high integrity nature markets, through which they will be able to sell credits or units to “measurable and saleable benefit nature projects”, building on existing standards like the Woodland Carbon Code and Peatland Code.  

“Working with the agriculture sector to build these projects and facilitate [nature-friendly] farming is crucial,” said Avery.  

“Defra has listened to what the market needs in terms of clarity through the nature markets framework and is outlining guidance at a time when UK nature markets are still quite nascent, giving [farmers and private investors] something to work from. 

“It’s going in the right direction.” 

Max Boucher, Senior Manager of Biodiversity Research and Engagement at the FAIRR Initiative, welcomed the government’s acknowledgement “that nature markets should be considered alongside and not instead of action to minimise emissions, as the two are closely linked”.  

“Strong regulation and standards are critical in pushing the [agriculture] sector to implement measures that promote biodiversity, including the introduction of more wild areas such as hedgerows and buffer strips to prevent nutrient loss,” he said.  

Planting seeds 

The government’s Nature Markets report also highlights existing guidance that can support stakeholders involved in UK nature markets.  

These included the GFI Hive’s Investment Readiness Toolkit, an online framework guiding nature-based project developers and enterprises through eight stages toward being investment ready, such as developing a governance structure and identifying and working with investors.  

Defra has also commissioned the GFI to develop an online toolkit to help farmers identify and navigate opportunities to access private sector investment to “pay for nature-positive outcomes”. 

Avery said the GFI aims to make the toolkit available this summer.  

To attract private investors, the government has also invested £30 million of seed capital in the Big Nature Impact Fund (BNIF) and noted that the Natural Environment Investment Readiness Fund (NEIRF) – for which the GFI is advisor and third-party assessor – is funding the development of a pipeline of 86 nature projects suitable for private sector investment. 

The government further plans to “test what works” when it comes to attracting private investment in nature by allotting £1 million each to four local authority areas, including Cornwall and the West Midlands, which will trial additional nature-focused projects with local partners.  

BSI will be developing multiple standards for nature markets over the next three years of the programme, all of which will be made available for public consultation. 

“For these nature markets to function, we need ground rules and boundaries, and it is the government’s responsibility to provide those,” said Brandon Lewis, Director of Sustainability, Timberland and Agriculture at global asset manager Manulife Investment Management.  

“Clear boundaries create value signals, and those value signals are what investors respond to. Governments and the private sector must work together on this, and it’s encouraging to see more of this happening in the UK, US and elsewhere.” 

Financing the farming transition 

Defra and BSI’s Nature Investments Standards Programme “builds really well” on the recommendations outlined by the GFI in its ‘Financing a Farming Transition’ report, said Avery.  

In July 2022, Defra commissioned the GFI to explore how private sector investments can be unlocked at scale to support the farming transition. Last month, the GFI published the results of its assessment of current barriers preventing the farming transition and four key enablers to overcome them. 

Some of these barriers include a lack of guidance around tax treatments and whether emissions must be reduced at a farm-level, as well as a lack of clarity on stacking different environmental credits, certificates or units with public sector funding.  

The GFI called for the government to define a set of simple, priority environmental outcomes and accompanying best-practice measurement guidance which both farmers and the private sector can utilise. The institute noted the importance of formal guidance on how nature markets will operate, and supplying further funding for the early-stage development of aggregation models to ensure farmers and land managers of varying sizes can collaborate to deliver “landscape-scale environmental outcomes”.  

One of the biggest barriers identified in the GFI report was the availability, quality and relevance of nature-related data.

“Habitat, environmental and spatial data sets are currently held in multiple digital locations, are of varying quality and are often incomparable with each other due to varying data languages,” the report said, noting that this makes it difficult for the private sector to access decision-useful information and allocate capital accordingly.  

We need a clear understanding of how the sector is doing in terms of achieving the UK’s environmental targets and where capital needs to flow to,” said Avery. 

The UK government confirmed on Energy Security Day that it will be developing a “consistent approach” for measuring emissions from farms, with plans to publish carbon audit guidance in 2024. 

In Q3 2023, the UK government will work with stakeholders to test updates to the Environmental Reporting Guidelines (ERG), which provide voluntary environmental reporting guidance for UK organisations.  

The BSI, Defra programme will also provide a benchmark for industry codes to be recognised as sufficiently robust and credible.  

Now there is more cross-sectoral dialogue between the banks, investors, agri-food sector, farmers, water utilities, and the government – this is when we are going to start seeing a real pace of change,” said Avery. 

Identifying risks 

Earlier this week, the GFI announced it will be conducting further analysis on the scale of nature-related financial risks to the UK economy, culminating in a report outlining its findings later this year. The institute’s research will be supported by Defra and the Bank of England.  

The analysis will build on the UK government’s support for the Taskforce on Nature-related Financial Disclosures (TNFD), which recently published V0.4 of its reporting framework.  

“When the costs of neglecting nature are revealed through this analysis, we will be able to see for the first time the impact this will have on the UK economy, making it clear that conserving and enhancing the natural environment is the only intellectually coherent path to growth,” said Dr Rhian Mari-Thomas, the GFI’s CEO. 

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