As a landowner it is important that you know about Natural Capital assets and the related newly emerging markets developing. These are assets naturally produced by or present on your property that you can exploit to replace lost, and bolster existing, income streams. The method by which you can do this will depend on whether you choose to access publicly funded grants or if you can tap into the rapidly increasing privately funded market. We spoke to Esther Round and Daisy Darrell from Birketts to find out more.
The UK Government has taken a ‘Natural Capital approach’ in its reform of agricultural policy, following on from the loss of CAP payments and as part of its Agricultural Transition Plan in its attempts to meet its targets. There are three key schemes we will discuss below that form the main publicly funded projects available to farmers and landowners.
In addition to the publicly funded grants, there is a fast-emerging private finance marketplace. Investors and developers are wanting to invest in Natural Capital either to offset their carbon; meet their planning needs; or to do the right thing for the environment.
There are three emerging government-funded schemes – the Sustainable Farming Incentive (SFI), Countryside Stewardship (CS) and Landscape Recovery (LR).
Sustainable Farming Incentive
Farmers and land managers will be eligible to apply under the SFI if they were eligible for the Basic Payment Scheme. They will be paid to engage in those activities which improve water quality and biodiversity and mitigate climate change. Animal health and welfare are also considered to be the provision of public goods for the SFI.
It is intended that these activities will: ‘help farmers reduce their costs and improve their efficiency as well as help the natural environment and reduce carbon and other greenhouse gas emissions.’
Farmers and land managers are being encouraged to view their land through the Natural Capital prism to assess the potential value of the working farm which incorporates not only production but restoration and conservation. For example, unproductive corners and edges of fields could be utilised to generate income if they are used to improve biodiversity.
CS is intended to provide financial incentives for farmers, land managers and foresters to look after and improve the environment.
DEFRA tell us that CS grants ‘will pay for more targeted actions relating to specific locations, features and habitats. There will be an extra incentive…for land managers to join up across local areas to deliver bigger and better results.’ These ‘clusters’ of farmers and land managers will facilitate a greater financial return for those ecologically beneficial activities delivered at scale.
Birketts is already helping several clusters achieve these funding aims through various means, including collaboration agreements and special purpose vehicles.
The LR scheme can be used in combination with some CS grants but is not yet available. These grant funded projects are intended to be used by those who want to take a more radical and large-scale approach to producing environmental goods on their land.
The Government has confirmed that the three new schemes have been designed to be as accessible as possible for tenant farmers too. Tenant farmers are eligible to apply for the SFI if they expect to have ‘management control’ of land for the three-year duration of the SFI agreement. For CS, tenants are required to obtain consent from their landlord before applying to ensure that they do not unintentionally conflict with the interests of their landlord.
Landscape Recovery requires long-term management control of land, or the consent of those with management control, for the duration of the project and implementation agreements. It has been reported that around 50% of the initial Landscape Recovery pilot projects have involved tenants, proving that there could be scope to be involved in the new schemes however land is occupied.
There are several options available to you as a landowner via which you can access private funding to help exploit the Natural Capital assets offered by your land. The question is how you, as a landowner or farmer, might make an income from that?
First, if you can provide land on which habitats can either be enhanced or created to generate biodiversity net gain units then a number of options are available to you. A developer may prefer to buy or let your land on which to generate its own units when it cannot do that on its development site. Equally, a developer may prefer to simply buy the units from you, with you providing the units by managing the land in the required manner.
Finally, you may be approached by habitat banks who will let your land and contract with you to manage the land so as to generate units which it, in turn, sells to developers. We are seeing promotors and brokers entering into this marketplace to promote units on behalf of landowners for onward sale. We have also seen developers seeking exclusivity agreements to secure units in case they wish to utilise them.
Secondly, your land could be used for nutrient neutrality schemes. Whether your land will be suitable will be far more dependent on its location than for either BNG or carbon projects. We are seeing land being purchased or let by developers who wish to construct created wetlands that filter water runoff from developments. We are also advising clients who are contracting with developers to either put their land to a particular use (e.g. plant cover crops) or to cease carrying out particular activities on their land (e.g. reducing the volume of nitrates and phosphates used in normal farming processes).
Finally, you might consider the benefit of carbon sequestration or, where relevant, peatland improvement. Your land may be of use to third parties who will pay to use your land to capture carbon in this way or you may prefer to create carbon units or credits which can be sold onwards to those who need them.
There are multiple options available to you in the private marketplace, which is changing rapidly. It is always advisable to take a step back to look at your land and business in the round before taking the plunge with any one option.
One final question you might be asking yourself is: can I take advantage of more than one of the above options?Natural Capital specialists refer to this as stacking, when landowners may seek to blend a range of income sources by delivering more than one ecosystem solution on the same area of land.
The picture here is still a little unclear whilst we await DEFRA’s guidance (the guidance is expected shortly and is intended to run until March 2025). DEFRA tells us that whilst it will be possible to sell BNG and nutrient credits from the same nature-based intervention (e.g. wetland can provide both), it will not be possible to sell carbon credits based on the same area of land and nature based solution.
Can You Mix Publicly Funded Nature-Based Solutions With Those Funded Privately?
This is – in theory at least – possible, but only if the land manager can evidence very clearly that there is a clear baseline beyond that which has been achieved as a result of the existing payment. So, if you were to receive payment under a CS agreement, you could not sell that enhancement on again under a BNG agreement. You would need to establish a new baseline from which to work in order to enhance the habitat further to create BNG units.
Please note that the content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2023.