On 1 June 2023, the Ecosystems Knowledge Network (EKN) published its inaugural stock take of private finance for environmental restoration in the UK.
Key background for the Nature Finance Review 2023:
- The review covers the UK’s emergent pipeline of projects restoring the environment using private finance.
- While dominated by conservation charities, there is potential for finance benefits such as carbon storage and biodiversity restoration to provide income for a wide range of land owners throughout the UK.
- Based on an assessment of 219 projects, the review presents key data on the characteristics of the projects that are providing benefits such as carbon storage and biodiversity net gain.
- Also reported are the concerns and thoughts of projects working out how to sell environmental outcomes to private buyers and to attract private investment. Clarity on market rules is urgently needed.
- Case studies are presented to provide insight into individual projects and the mechanisms enabling nature finance projects.
Key findings from the Review include:
- Biodiversity units were the most frequently sold environmental benefit, followed by carbon credits and natural flood management services.
- 24% of projects are currently generating revenue (of which 16% are seeking and 12% have secured repayable finance).
- 45% of projects are not currently generating revenue but expect to within the next five years.
- Uncertainty around future revenue and policy, governance and legal issues, access to data, regulatory and legal restrictions and a lack or scarcity of investment readiness support were the most frequently reported barriers to progress.
- Investment readiness funding support was correlated with increased expectations of revenue generation and seeking repayable finance.
- Projects were investigating, or using, a large range of repayable finance vehicles, of which equity investment was the most common.
Nature finance refers to the trading of ecosystem service credits, together with the investments that are sometimes required to enable this trading to take place. In the UK, nature finance is a fast-growing area of financial innovation and green (and blue) enterprise. It is integral to the achievement of net zero in the UK and to improved stewardship of land and water. It is central to resourcing a climate-resilient and nature-rich environment that meets the needs of business and wider society.
A prerequisite for nature finance is the supply of sufficient quality and quantity of projects, together with aggregation of them in ways meaningful to buyers and investors. From seagrass to street trees, these projects take place in diverse environmental and social settings. They include the restoration of peatland to reduce emissions of greenhouse gas emissions to the planting of woodland to remove carbon dioxide from the atmosphere and reduce local flood risk.
Over the course of six months, Ecosystems Knowledge Network, an independent forum serving England, Scotland, Wales and Northern Ireland, conducted a review of the pipeline of nature finance projects in the UK. This was based on a widely-promoted voluntary online survey as well as online focus groups and other engagement with groups developing projects. The survey was designed for representatives of projects that would be able to place themselves confidently on one or more of the steps identified in the Investment Readiness Toolkit produced by the Green Finance Institute.
Data from 219 projects were included in the review, including 177 place-based (sub-regional) projects and 42 projects designed to enable recipients and providers of nature finance to interact. These data were interpreted using insight from 54 consultees, as well as the Ecosystems Knowledge Network’s perspective as a leading forum for sharing innovation and expertise in nature finance in the UK. The data show that, while the pipeline of nature finance projects in the UK remains in its infancy, it is emerging as an important aspect of green (and blue) enterprise and entrepreneurial endeavour.
The current mix of projects is disparate; delivered by entities ranging from large private estates to local government organisations and small community groups. It is currently dominated by projects in rural settings in England, which is where most of the revenue generation is occurring. For many private land managers, the opportunity cost of allocating time and other resources to the pursuit of nature finance is too great.
Dr Bruce Howard, Director of the Ecosystems Knowledge Network said:
Every little helps, but there is no getting away from the fact that public funding and philanthropy won’t get us the environment that business and wider society sorely need. Nature is no longer a charity case. The introduction of private finance for restoration of land, water and nature provides opportunity for land managers, corporates and the financial services sector. While the nature finance project pipeline is in its infancy it is going to be crucial in the transition to net zero, in climate adaptation and in the reversal of biodiversity decline.