Nature is still significantly declining across the UK, a country that is already one of the most nature-depleted in the world, according to the State of Nature 2023 report. UK species have declined by about 19% on average since 1970, and nearly one in six species (16.1%) are now threatened with extinction.
The UK government’s mandatory Biodiversity Net Gain (BNG) requirements could prove to be a game-changer in halting and reversing national biodiversity loss caused by development. Ratified in February, and extended to smaller sites in April, BNG requires new developments in England to achieve at least 10% net gain in biodiversity, including habitats, hedgerows and watercourses.
“We know from scientific studies that land use change is one of the primary drivers of biodiversity loss. The UK’s BNG policy is a mechanism to help address that land use change associated with development,” says Katie Leach, Lloyds Banking Group’s (LBG) first Head of Nature, who joined the bank in May 2023.
Importantly, the policy includes a scientific measurement. The Department for Environment, Food and Rural Affairs (Defra) – with input from the Forestry Commission, Environment Agency, Natural England and local planning authorities – developed a biodiversity metric, which provides a “robust and transparent way” of measuring biodiversity, according to Leach. It is now on its fourth iteration.
While acknowledging the importance of BNG, Leach would like to see focus beyond habitats in the metric. “The biodiversity metric used for BNG doesn’t bring in all elements of biodiversity that we might expect to see from measurement,” she explains.
However, the BNG policy has paved the way for a compliance nature market, which is a “step change” and positions the UK among the first countries in the world to create a compliance market, according to Leach. She adds, “It’s an opportunity to drive wider benefits through, for example, improving air and water quality, and reducing flood risk.”
Industry benefits
Under BNG, landowners and the horticultural industry could see additional revenue streams for land that might be marginal or unproductive. For example, landowners with degraded or low-quality land, where improvement in biodiversity could be achieved through proactive land management, have the potential to sell the resulting biodiversity units to developers.
“It also presents the opportunity to better understand your land, which could be beneficial for many different decisions that you might want to take,” says Leach. “Even if you haven’t yet started to engage in nature markets, understanding the natural capital and ecosystem services that your land provides could be beneficial for both landowners and horticulturalists.”
However, the opportunities and potential scale will be dependent on location. “Some specifics around BNG requirements mean that off-site biodiversity units are incentivised if they are close to the development and within the local planning authority,” she explains. “As such, some local authorities are likely to have higher demands than others.”
Tapping the market
Landowners, developers and landscapers can access the nature market directly, working with buyers of the nature credits. But ultimately, the cost of the delivery risk is going to remain with the landowner, according to Leach. She points to examples of landowners and farmers working in groups or collectives to deliver the credits. In addition, it is possible to work with other land agents or a third-party developer to access the nature market.
Leach is also seeing philanthropic and government funding still playing a large role in this space. For example, LBG is supporting an afforestation project on the Isle of Man, which will involve planting 5000 trees to sell carbon credits on the voluntary carbon market. This has been funded through the bank’s Clean Growth Financing Initiative, which offers discounted lending for specific sustainability projects .
“The funding was used to purchase the land, and the income from the credits will then be used to pay off the low interest ‘green loan’,” she explains.
Nature markets are still nascent, but Leach believes that there is an opportunity to bring together landowners, farmers and the horticultural industry with the demand side which will require BNG units.
The role of banks
Financial institutions like LBG will play a pivotal role in reversing the loss of nature, according to Leach. “We can provide education and support for customers and suppliers, as well as colleagues, to raise awareness about actions they can take to reduce their impact and recognise their dependencies,” she says.
For example, LBG has partnered with the Soil Association Exchange to offer a free in-person consultancy service for 1000 of its larger agricultural clients. The consultants look across six sustainability areas, such as soil health, water and biodiversity. “This helps the farmers set a baseline across each of those areas, and then the consultants share recommendations and create an action plan to help customers adopt more sustainable practices,” explains Leach.
Banks also have a role to play in capital provision, facilitation and helping to redirect financial flows away from activities that harm nature towards activities that have a positive impact on nature, such as structuring sustainability-linked loans with nature-related key performance indicators, Leach adds. She reports that LBG has already started down this path.
In addition, financial institutions have a role in terms of convening and influencing. “We are actively taking part in partnerships, industry bodies and different initiatives to shape and drive change, for example the Sustainable Markets Initiative and the work that we’re doing under the Financial Services Task Force as part of that,” she says.
Nature-based initiatives
Creating a high integrity market for nature-based solutions faces several challenges. First, there is a range of markets in the UK, including compliance markets like BNG and Nutrient Neutrality, as well as voluntary markets, which include carbon credits and payments for ecosystem services, such as improving water quality.
Second, the supply of credits needs to be high integrity. “The International Union for Conservation of Nature suggests, for example, that nature-based solutions should ensure a measurable net benefit for biodiversity, seeking opportunities to enhance ecosystem integrity which has not always been achieved when planting fast growing trees, such as pine, as a solution for climate change mitigation,” says Leach.
A high integrity market will need to involve local communities in the generation of nature-based solutions, ensuring that they’re scalable, as well as bringing in the scientific view on monitoring, reporting and verification. “It will come down to how do we measure and show that these markets are of high integrity,” she says.
But there is also a challenge around the long-term nature of nature markets. “BNG, for example, needs to be managed for a minimum of 30 years. Introducing that into the market is quite different to how financial markets operate at the moment,” she adds.
In addition, issues remain around how those nature units are financed, how land agreements are secured and how the markets are regulated, in the absence of governance bodies or unified standards. “It feels like a long list of challenges, but there has been some great progress made already, even if there is much more to do,” says Leach.
At a regional level, compliance markets like BNG and voluntary nature markets are embryonic but developing. At an international level, the Taskforce on Nature-related Financial Disclosures (TNFD) is a voluntary disclosure framework launched in September 2023.
“TNFD is a key development in terms of supporting consistency and transparency in reporting of impacts and dependencies on nature, but also the risks and opportunities. Improving transparency and measurement can help spur greater action from businesses and financial institutions, as we’ve seen with Task Force on Climate-Related Financial Disclosures and decarbonisation. This great first step, and like the BNG policy, it is spurring action,” says Leach.
Step by step
LBG is the founding business partner of Projects for Nature, which connects companies with nature recovery projects that have been screened by Defra, Natural England and the Environment Agency. The projects are focused on restoring nature and engaging with communities.
“We see this as a great opportunity for us to gather learnings both about the commercial risk management, as well as the environmental benefits of nature-based solutions. It will help us to learn more about flood risk management and regenerative agriculture, which will assist us in our long-term strategy,” says Leach.
The bank is involved in three projects, including the Weald to Waves project, which is a 100-mile nature recovery corridor in Sussex. “The project connecting farmers, as well as a range of people across our customer base, such as private gardens and other large landowners,” she says.
The other two projects are the Resilient Glenderamackin, which is looking for nature-based solutions for flood risk management in Cumbria, and Nature Recovery at Dalehead in the Peak District, which is a demonstration site to advance regenerative agriculture.
In its sustainability report this year, LBG announced its Nature Approach, aligned with its group strategy, which covers the bank’s management of nature-related risks, how it is capitalising on nature-related opportunities and embedding nature in everything it does.
“We’re looking across each of those areas and how we can take that work forward,” says Leach. “We are keen to see the outcomes from Projects for Nature and how we can embed the learnings further in the business. In addition, we’re undertaking a number of initiatives related to the TNFD framework.”
Leach’s advice to the horticultural industry is that everyone has a role to play in halting and reversing nature loss. “There’s a huge range of actions that we can all take to address nature loss, so I would like to encourage everyone to be thinking widely about how they interact with nature and the importance of taking action,” she says.