October 2023
The Wildlife Trusts, RSPB, National Trust and the Woodland Trust, together with Finance Earth and Federated Hermes, have today (18th October 2023) published a set of principles for ensuring “nature markets” truly deliver for nature, climate and people. This post explains why they are needed, who is behind them and how you can help improve them.
His Majesty’s Government (HMG) is committed to restoring nature, including a legally binding commitment to halt the decline in species abundance by 2030 and a pledge to protect and effectively manage 30% of its land and sea for nature by 2030.
At the same time, the annual funding gap of resources required to restore nature in the UK is enormous. Beyond current public and philanthropic commitments, it is estimated at around £6 billion per year.
To meet this ambitious target, we need a huge collaborative effort involving public, private and third sectors. A huge step up is required in private investment into nature restoration to create, enhance or protect natural capital such as woodlands, peatlands and other multi-benefit natural habitats and systems, collectively known as “Nature-based Solutions” (“NbS”). These NbS generate a range of ecosystem services that can be monetised in existing and emerging markets for natural capital products such as carbon credits and biodiversity units and have the capacity to deliver multiple benefits for society and the environment, as well as opening up new income streams for rural communities and farmers.
Natural capital markets in the UK are nascent but rapidly growing. Both compliance markets (e.g. biodiversity net gain) and voluntary markets (e.g. carbon – using the Peatland or Woodland Carbon Codes) are either in their infancy or relatively small-scale when compared to more mature ‘asset classes' such as traditional infrastructure and renewable energy.
Nascent and rapidly growing markets can be vulnerable to poor practice. This could lead (and in some cases is already leading) to poor outcomes for nature, climate, communities and investors. HMG has provided helpful clarity on the direction of future Policy and Regulation as contained in the 2023 Environmental Improvement Plan, Green Finance Strategy and HMG’s 2023 Nature Markets Framework. However, the rate of market development on the ground is outpacing this planned policy and regulation and is likely to continue to do so. As HMG’s 2023 Nature Markets Framework rightly states: ‘Integrity is the bedrock of nature markets. It means that credits awarded and sold for benefits such as biodiversity, carbon capture or water quality must reflect genuine, lasting and additional environmental improvements, which are robustly verified and transparently documented, with no double counting or room for misleading claims or greenwash.’
Notwithstanding the helpful high-level “Core Principles for Market Operation” contained in the Nature Markets Framework, there remains a void regarding the specific form that these high-level principles should take in practical real-world application. As a result, low quality, poor practice may emerge, which has the potential to damage early market integrity and as a result restrict market growth and reduce the social and environmental impact achieved.
This is why Finance Earth together with the RSPB, the National Trust, The Wildlife Trusts, the Woodland Trust and Federated Hermes have been co-developing the Nature Markets Principles, a set of voluntary principles for science-based investment to support high integrity natural capital markets in the UK (the “Principles”). These are intended to assist in filling the short-term void. Their aim is to support the development and long-term operation of high-integrity, high quality and high impact UK markets for nature restoration and enhancement. They are designed as a stop-gap, to influence market practice today and to contribute to emerging Government Policy and Regulation. They seek to support and augment, rather than replace, widely accepted and developing National and International codes and standards, including the work of BSI (previously the British Standards Institute). We also hope that the existence of the Principles will also help shine a light on poor practice.
The Principles have drawn from a review of many UK and international sources, as well as practical delivery experience. The Principles cover: Ecosystem Services Project Principles (supply-side) and Ecosystem Services Buyer and Investor Principles (demand-side). Given the early stage of market development in the UK, including the pace of policy and regulatory development, the Principles will likely need to be reviewed and re-issued annually.
The Principles may be used voluntarily by all market participants and to assist with policy development. The Principles do not, nor are they intended to, provide an overarching approach to nature markets, nor do they make comment on HMG targets, the role of government, regulators or standards bodies in this domain.
We very much welcome any feedback and suggestions for how the principles can be further improved - please email us at principles@finance.earth.
You can read the full Nature Markets Principles document here.
James Alexander is Chair at Finance Earth
The opinions expressed in this blog are held by the author and not necessarily those of the wider Link membership.
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