If government is serious about nature recovery, it must harness the full power of the market to do so

For natural capital markets to flourish, and for private money to flow, the government needs to properly commit to them, writes Kitty Thompson from the Conservative Environment Network

Kitty Thompson | Head of Campaigns

If we are serious about reversing biodiversity loss, we must harness the full power of the market to do so. That means creating conditions where private investment can flow into nature recovery - not as an act of charity, but as a rational, profitable enterprise. The government's attempts to do this ring hollow when placed alongside the Planning and Infrastructure Bill, which threatens to undermine the very market mechanisms that are starting to make private investment in nature viable.

When a forest is cleared or a wetland drained, its loss may not show up in a company's accounts, but the costs are still realised elsewhere. Our natural environment is being degraded not because it is worthless, but because its value is invisible to markets. Because nature isn't traded in markets like other goods, its value is often ignored and unfortunately treated as if it were worth nothing.

But natural capital - our forests, rivers, soil, air, and wildlife - is not without significant economic value. In fact, the economy relies on the valuable goods and services they provide every single day, which are estimated to be worth £1.5tr in the UK.

Giving natural capital an economic value is ultimately about recognising its true worth. And with it, realising a greater role for private capital to play.

For too long, we have relied on public money to finance nature recovery. This has proved to be a well-intentioned but ultimately insufficient approach. The money is often spent inefficiently and ineffectively by the state and, as a result, nature declines.

Public funding has its place, but it demonstrably cannot shoulder the burden alone. Defra's budget will never rise to the levels required to restore nature, not least when it is currently facing further cuts. There is a funding gap that only the private sector can now fill.

Giving nature a real monetary value, in order to finance its recovery, requires us to go with the grain of the economy, rather than continue to work against it. The right approach should be about ensuring that the economic system recognises, rewards, and reinforces the value of nature, so that protecting and restoring it becomes a rational, even inevitable, choice for investors, businesses, and governments alike. This is where natural capital markets come in.

Natural capital markets are systems where environmental assets are assigned economic value and traded through mechanisms like credits. They create the necessary incentives to care about nature, and generate business opportunities to restore it.

We already have some in place. Biodiversity Net Gain (BNG) requires developers to improve biodiversity by at least 10 per cent, for example. As well as improvements to on-site nature, BNG has already led to the emergence of exciting new nature businesses, like Nattergal, delivering nature recovery and marketplaces, like BNGx, facilitating recovery by simplifying the trading process.

With that in mind, it is great to see this government take an interest and launch a call for evidence into expanding the role of the private sector in nature recovery. But its call for evidence cannot be viewed in isolation as businesses do not operate in a policy vacuum.

There are growing concerns that policies that are already being pursued will hinder, not encourage, private sector investment in nature by eroding the role of fledgling natural capital markets.

The government's flagship Planning and Infrastructure Bill would establish the Nature Restoration Fund, which will require developers to pay into a central mitigation pot to be spent by Natural England.

This state-led approach to nature restoration will limit the ability of private markets to form in response to demand from developers, preventing new economic opportunities from emerging for nature's recovery. Indeed, many businesses are already extremely concerned about the fate of BNG and existing nutrient trading markets if this fund is introduced in its current form due to the lack of safeguards within the bill.

For natural capital markets to flourish, and for private money to flow, the government needs to properly commit to them. This means setting clear rules of the game for how markets will operate, providing clarity on stacking credits, and ensuring whatever is done is tied to overarching nature recovery objectives. Then the government must designate respected private sector bodies to design the standard, accredit projects, and award credits - put simply, let the market do its thing.

Getting government in and out as quickly as possible will speed up the formation of these markets, reducing the uncertainty that changes in short-term political priorities can cause, and ultimately lead to far more money being channeled into nature recovery.

Creating markets and allowing them to operate underdeterred by other policy changes is not only an opportunity to reduce nature's reliance on government subsidy, but also to depoliticise environmental spending, which is, more often than not, low down the political pecking order.

But natural capital markets require political leadership with a clear, consistent, and persistent sense of direction. Despite positive noises in recent years, this leadership has been lacking. While it is great to see a new call for evidence, actions speak louder than words and, given the direction set within the Planning and Infrastructure Bill, I remain sceptical about how serious the government is about embracing the role of businesses in financing nature's recovery. 

First published by BusinessGreen. Kitty Thompson is CEN's Head of Campaigns.