The UK will have a smorgasbord of emerging nature markets in forthcoming years, but concerns persist around the underlying integrity and market infrastructure, according to an industry coalition.
The Broadway Initiative, a coalition of UK trade associations, released a report on Wednesday that reviewed the state of the UK’s Nature Markets.
“High integrity nature markets are crucial to addressing the funding gap for UK nature recovery. The UK government aims to generate £1 billion of private investment in nature every year by 2030,” said Broadway Initiative convenor Edward Lockhart-Mummery.
“Some progress has been made, but [UK environment ministry] Defra and other departments can do even more, so we are calling on the government to make the best use possible of the upcoming consultation and review of carbon and nature markets as a vital opportunity to renew the momentum,” added Lockhart-Mummery.
In the report, the coalition said that while “market appetite” is high, there are fundamental challenges that the market actors and government need to overcome to instil confidence and unlock scale.
STEPS FORWARD
There have been three major advancements in developing the UK’s nature markets, according to the report.
Firstly, the British Standard Institutions Nature Investment Standards Programme has released a discussion document on “Integrity Principles”. The organisation was tasked by Defra to set a common framework of standards for nature markets including voluntary carbon codes and biodiversity net gain.
However, the report’s authors contend that while BSI’s programme is progressing well, there is a need to begin work on developing accreditation mechanisms for independent assurances that credits are standard-compliant. This would ensure that if claims were raised against market operators there was a verification process in place.
In addition, the Nature Markets Framework for England and the Scottish Government’s Interim Principles for Responsible Investment in Natural Capital were noted by the report’s authors as two other significant developments.
The Nature Markets Framework said that Defra will do further work to understand the evidence of the impact of stacking models on economic, environmental, and wider social outcomes. But nature markets remain constrained due to a lack of market rules on these issues, as well as other aspects including additionality and blended finance.
Scotland’s Interim Principles will be built upon during 2023-2024 to produce the Natural Capital Markets Framework, with a strong focus on a just transition as well as public, private, and community benefits.
However, while the UK’s devolved and national governments are broadly strategically aligned, the pace of change and policy detail is diverging, contended the report’s authors.
For example, the Welsh government is keen to explore alternative approaches to ecosystem trades, out of concern about ethical and reputational risks.
Whereas in Northern Ireland, the lack of political administration means policy making is frozen. This is a concern for the large volume of capital of private finance needed to unlock nature markets at scale, which may need to operate at a UK-wide level, the authors said.
Elsewhere, price signals for nature are emerging, with the average price paid for biodiversity units in the Bristol Avon Catchment market reaching £87,400 per hectare.
Earlier this month, prices of UK voluntary carbon units were revealed as some of the highest priced in the world.
STANDING IN PLACE
Beyond the policy and price challenges, the Broadway Initiative zeroed in on the major obstacles to high-integrity nature markets.
Currently, no market oversight body exists for the governing nature markets in the UK, which affects the overall integrity of any nature market due to a lack of separation between the rule makers and rule administrators, the coalition said.
For example, Natural England provides guidance on how to comply with the rules and also has the role of statutory advisor to local councils to process planning applications.
Groups like the National Farmers Union have called for the government to have a stronger role in developing this, whereas green group the Nature Conservancy has proposed an “Office of Environmental Markets” for independent oversight.
However, market oversight does not have to be undertaken by a government entity that gets provided its role, the report said.
The authors found ‘limited progress in translating strategic goals and policy ambition into specific actions to facilitate market development,’ which has been made worse by delayed and conflicting policy moves.
In September, the UK government attempted to remove an obligation of nutrient neutrality from land developers, meaning they would no longer have to mitigate the impact of harmful pollutants, despite several local markets being operational. While the amendment was thwarted by lawmakers, it has resulted in market uncertainty, according to the Broadway Initiative.
Similarly, in September, England’s flagship mandatory biodiversity net gain regulation was delayed into the new year. The capacity of local authorities to enforce such schemes has also been questioned, with academic studies deeming over one-quarter of BNG units as having a high risk of non-compliance.
The Broadway Institute said rapid action is needed on the demand drivers and governance to ensure impact and integrity.
In addition to this, the authors highlight that the use of public finance like environmental payments are also not to encourage outcome-based approaches, or to stimulate market development, but instead still pays for activity and per hectare-based actions.
These factors have led many land managers to remain sceptical about nature markets, which ultimately means the supply and engagement of land managers in both voluntary and mandatory schemes remains limited.
Only 21% of projects in the pipeline are generating income, most of which are from biodiversity and carbon units, the authors said.
By Tom Woolnough – tom@carbon-pulse.com
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