The British Standards Institute is developing a new standard for nature investments.
Rural property can benefit from these new investment streams; commercial property development will find itself having to fund the payments. The aim is to ensure integrity in markets for natural capital and ecosystem services, called “nature markets”.
Development is at an early stage with “proposed principles for discussion” published for consultation until the end of July, in the BSI document Nature Investment Standards Programme, Integrity Principles for Nature Investment Standards, Proposed principles for discussion.
What are the principles, and what will they mean for the property sector?
Under discussion
- Additionality Payments must result in new environmental outcomes that would not have happened otherwise.
- No double counting Market mechanisms must guarantee that you cannot sell the same benefit twice to different buyers.
- Robust quantification There must be rigorous rules to measure benefits. These must include buffers to protect against uncertain achievement of outcomes.
- Validation and verification Schemes must be validated and verified independently. This will often be an ongoing process, for example, for schemes which sequester carbon or reduce greenhouse gas emissions through natural processes.
- Lasting and permanent benefits Investments must yield permanent benefits. This could mandate the use of insurance against scheme failure.
- Transparency Recognised, credible and publicly accessible registries will be needed to track progress and ownership. Registries will need to detail the land concerned, methods of validation and verification and log ownership.
- Avoid unintended consequences Difficult enough for the known unknowns, but for the unknown unknowns? Continuing effective management will be crucial.
- Effective governance This relates to the operation of standards and schemes like the Woodland Carbon Code and Peatland Code, and the claims that may be made by buyers of environmental units.
- Ethical buyers and suppliers This focuses on the ethical responsibilities of buyers and sellers to mitigate environmental impacts in the first place, to disclose environmental impacts and to satisfy “know your buyer” requirements.
- Market ease of access Simplicity with integrity.
- Openness to innovation New and existing schemes like the carbon codes are under constant development. A new standard must recognise and accommodate this.
- Multiple benefits from nature Schemes should support multiple benefits from the same land, including the production of food and timber.
- Engagement with relevant parties Local communities, land users, occupiers should all have the opportunity to “comment on and shape projects”.
- Local community benefits The last integrity principle. Benefits should be able to be shared “fairly and equitably” with public, private and community interests.
The document goes on to itemise “key success criteria” for the new standard, although it is thin in this section on the achievement of local community benefits – a point bound to be noticed by anybody with an interest in areas of rural disadvantage and deprivation.
The new standard will influence arrangements between developers and land managers.
Now we have nutrient neutrality requirements for new development; later in the year we will have biodiversity net gain for new development in England and a growing requirement for carbon offsetting in all areas.
Other schemes for flood mitigation and water quality are being developed.
How to respond?
Should we welcome the new standard or worry about it? Inevitably, a little of both. Suitable regulation of new markets should be welcome to all participants, and may help to establish the UK as an attractive place to invest in nature.
But there are concerns. For example, one of the principles is concerned with additionality and another with securing multiple benefits from nature.
In practice these may prove hard to reconcile.
It is reported that Natural England is refusing to pay for management works on sites of special scientific interest through its environmental improvements. This may be additionality at work in its legal form (Forestry Commission research has identified many different types of additionality): you will not be paid for anything you are obliged to do anyway.
There can also be very practical problems with additionality.
For example, the Woodland Carbon Code requires applicants to demonstrate that tree-planting projects would not be viable without being able to sell carbon units. How is this demonstrated?
Applicants must assess the net present value of the project using a fixed discount rate of 3.5%. Most rural estates count themselves lucky if they are achieving 2% year-on-year revenue returns.
Brokers and intermediaries
The draft principles do not mention the role of brokers and intermediaries beyond the bodies which will verify and validate schemes.
We are already seeing the emergence of a new class of intermediary – existing firms extending their services with the launch of new capital departments, and new firms set up with the express intention of providing and managing biodiversity net gain, for example.
Some of these intermediaries may be sitting on large amounts of money paid upfront by developers for biodiversity net gain, for example, against long-term commitments given by land managers over periods of 30 years or more.
Will the money still be there in 10 years’ time? What if the intermediary company goes broke?
Could this be the repeat of an old economic story – one which is familiar to farmers? That of being last in the queue after the processors and intermediaries have taken their cut. This is not a novel idea. Willard
Cochrane recognised this farming treadmill in 1958, and Allan Schnaiberg recognised the environmental implications at the turn of the century. Seller beware.
Charles Cowap is a rural practice chartered surveyor and chartered environmentalist
