The Principles, which cover credits, are designed to pre-empt UK government regulation, as concerns about greenwashing grow.
New Nature Market Principles launched by the UK’s biggest nature charities will act as a temporary solution to regulation and aim to ensure the development of a market with high integrity and impact, according to James Alexander, Chair of Finance Earth.
Specialist financial advisor Finance Earth, along with the Royal Society for the Protection of Birds (RSPB), Woodland Trust, Natural Trust and asset manager Federated Hermes have co-developed the Principles which cover carbon credits, biodiversity units and nutrient credits.
The rate of nature loss in the UK is particularly stark with a recent study finding that one in six species in the country is threatened with extinction. The UK government published a Nature Markets Framework in May and is working with the British Standards Institute to develop robust standards for green financing.
Further, there is an estimated £6 billion (US$7.3 billion) annual funding gap for UK nature recovery across land and sea, and the government has set an ambitious target to grow annual private investment in nature by at least £500 million by 2027, rising to over £1 billion by 2030.
But the current lack of regulation for these emerging markets has led to concerns that poor quality or low ambition schemes could create a ‘wild west’ that allows certain industries or businesses to greenwash. Alexander told ESG Investor that the Nature Market Principles would act as a “stop-gap” until robust regulation and standards are developed.
“Any new market in any sphere often runs ahead of policy and regulation,” he explained, noting that when he started the world’s first peer-to-peer lender Zopa it took ten years for market regulation to come onto the statute books in the UK.
“Private capital just often runs ahead of policy and regulation and where it does, I would say protecting the early-stage development of a market is important so it ultimately delivers in the way that it should, and you don’t get bad outcomes that could jeopardise the market,” he said.
Tackle in tandem
It is hoped that the Principles will promote a discussion and act as a feedback mechanism for the UK government and British Standards Institute, he added.
“We’re sure there’ll be critique and that’s extremely welcome,” he said. “Our real hope is it helps move the conversation on the development a high integrity, high impact market. Because nature and climate needs that.”
The importance of tackling the climate crisis and nature loss in tandem is rising up the agenda. A new report released by the Cambridge Institute of Sustainability Leadership (CISL) this month has warned that nature should be considered with climate for economies and business to thrive. The report provides a guide on how investors can engage with companies on integrating nature and climate.
On how the finance sector could use the Nature Market Principles, Alexander said he hoped it would be viewed as a useful starting point for organisations to develop their own thinking on the right way to engage in these markets.
“We hope it promotes a discussion of quality and impact of what’s being funded and also the impact on nature, climate and communities.”
There are seven supply-side principles, including adherence to science, additionality and permanence and two demand-side principles focused on buyer screening criteria and commitment to best practice.
Finance Earth is also working on ‘high integrity marine nature capital markets in the UK’ with the Crown Estate, Pollination and the Blue Marine Foundation.
Focus on the integrity of climate and nature markets continues to be a sharp focus as efforts to get to net zero intensify.
This week, the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE GRI) and law firm DLA Piper have released a report calling for regulators and enforcement agencies across the world to implement strict and proactive enforcement action for repeat offenders of climate-washing and corrupt practices.
Tiffanie Chan, Policy Analyst, at LSE GRI, said: “Without proper safeguards against corruption and poor integrity practices, resources for the delivery of climate solutions may be diverted away from the pursuit of genuine progress. The necessary scale and speed of transformation for a low-carbon transition makes corruption in climate solutions a high-risk area, and one that is ripe for swift regulation.”