The UK’s largest nature charities have published voluntary principles for science-based investment to create high-integrity natural capital markets, in an effort to tackle corporate greenwashing.
- The principles intend to support high-quality and high-impact markets for nature restoration and cover the supply-side and demand-side of the market for carbon credits, biodiversity units and nutrient credits.
- The UK natural capital markets have a funding gap of £6 billion to support nature recovery across land and sea, presenting a significant investment opportunity for businesses.
- Creating high-quality nature markets can be a tool to raise capital to reverse biodiversity decline.
The Wildlife Trusts, Royal Society for the Protection of Birds (RSPB), Woodland Trust and National Trust have teamed up with Finance Earth, a financial consultation and fund manager, and Federated Hermes, an investment company. They co-developed a set of voluntary Nature Market Principles for science-based investment to support high-integrity and robust natural capital markets in the UK.
Alistair Maltby, director of estate and woodland outreach at the Woodland Trust, said: “Everyone involved in nature conservation is alive to the risk of greenwash. The nature market principles are an important step in tackling this. They ensure only projects which genuinely contribute to nature’s recovery are included, and only those businesses with a clear commitment to that objective can invest. The principles set out the foundations for a high integrity market and we want them to be adopted as widely as possible, to help to deliver the funding that is urgently needed to assist nature’s recovery.”
Finance Earth and Federated Hermes will manage the Government-backed UK Nature Impact Fund, which is intended to stimulate institutional investment at scale in high-quality nature restoration projects across the UK. The fund will adopt the Nature Markets Principles and apply them across all of its activities in UK nature markets.
What are nature markets?
Nature markets are dedicated to selling and purchasing environmental credits such as carbon credits, biodiversity units, nutrient credits and natural flood management payments. They can also open up new income streams for rural communities and provide incentives to protect biodiversity.
For instance, Gabon, home to a significant portion of the Congo basin rainforest which is the second largest tropical rainforest in the world, has implemented a system of carbon offsets that provides income for protecting local forests.
These are very new and emerging markets, however. While carbon credits have been sold for a few years and have come under fire for opacity and many actors are working to rebuild trust in the space, voluntary biodiversity credits – which guarantee a ‘no net loss of biodiversity’ – are a more recent addition that has created much controversy. Work is ongoing globally to figure out how they might work. In 2023, Scotland entered into a pre-commercial agreement for the creation of a platform for biodiversity credits.
Conversely, biodiversity offset credits, in which companies can offset damage from value chain activities by investing in conservation projects, have existed for years. The Global Biodiversity Framework agreed upon at COP15 encourages the formation of nature markets in its Target 19, calling for “innovative schemes such as payment for ecosystem services, green bonds, biodiversity offsets and credits”. Just like in the voluntary carbon markets, the lack of standardisation and transparency creates confusion for buyers, who may not know where to purchase high-quality credits – indicating a risk of greenwashing.
The current lack of regulation for these emerging markets has led to concerns that poor quality or low ambition schemes could create a ‘wild west’ that allows certain industries or businesses to greenwash, while also missing out on opportunities to maximise benefits for nature and people.
Natural capital in the UK
Globally, more than half of the world’s GDP is dependent on nature; in the UK, natural capital is thought to add around £51 billion in direct gross value each year. The country, however, is one of the most nature-depleted in the world. Since the 1970s, UK species have declined by an average of 19%, and nearly one in six species are now threatened with extinction.
There is an estimated £6 billion annual funding gap for UK nature recovery across land and sea. Amid increased awareness of the link between nature and the economy, public and private actors are working to direct financing in the right places to protect and enhance biodiversity.
The UK Government has set targets to grow annual private investment in nature by at least £500 million by 2027, rising to over £1 billion by 2030. It also has a legally binding commitment to halt the decline of species abundance by 2030 and is part of a pledge to protect and manage 30% of its land and sea for nature by 2030, as agreed upon at COP15.
Moreover, the Government published its Nature Markets Framework in March 2023 and is collaborating with the British Standards Institute to develop standards for green financing. Also in 2023, more than 20 financial institutions formed the UK Financial Institutions for Nature Group to increase the flow of private finance for nature-positive outcomes.
Dr Rob Stoneman, director of Landscape Recovery at The Wildlife Trusts, said: “Nature-based credit schemes present a real opportunity to restore nature and create regeneration and prosperity in the countryside – if done in the right way. These principles send a firm message from some of the UK’s top deliverers of nature-based solutions that we will only engage with the highest integrity schemes.”
The ‘Nature Market Principles’ explained
According to James Alexander, the chair of Finance Earth, these principles are intended as a ‘stop-gap’ to influence market practice today and contribute to emerging government policy and regulation.
He said: “Enshrined in the principles are the need for projects to be science-based, transparent and verifiable, ideally in perpetuity and benefiting local communities as well as society more broadly. There are also stipulations about who the producers of the credits will do business with, ruling out those companies dependent on environmentally damaging activities such as fossil fuel extraction.”
They cover both the supply-side principles for ecosystem services projects and demand-side principles for ecosystem services buyers and investors. The main supply-side project development principles are:
- Science-based nature recovery: the Nature-based Solutions (NbS) projects should be science-led and deliver concrete net gain to biodiversity and ecosystem integrity.
- Environmental and social safeguarding: projects need an integrated approach to minimise leakage (or the shift of adverse environmental impacts to another geographical area or country) to avoid negatively impacting other environmental objectives or communities.
- Additionality: NbS projects should only sell ecosystem services based on new and verifiable outcomes that would be a direct result from the income generate from the sale and would not reasonably have happened otherwise.
- Permanence & financial prudence: the durability of the benefits to nature must be maximised and risks of reversal mitigated.
- Seek co-benefits: projects should seek to maximise co-benefits for local communities.
- Verifiability: the results should be made reliable and independently measurable through best practice management, monitoring, independent verification and reporting. .
- Transparency: finally, projects should commit to public disclosure of outcomes to maintain accountability and support the development of trusted ecosystem service markets.
For the demand side, the principles include ‘Buyer Screening Criteria’ and ‘Commitment to Best Practices’. Under these, buyers and investors in the UK must be aligned with net zero transition and show support for conservation, while also adopting best practices in terms of the management and reporting of their social and environmental impacts.
SGV TAKE
It is imperative to also hold companies to account for greenwashing in relation to their biodiversity impact. Considering that over half of the world’s GDP is dependent on nature, allowing the large-scale destruction of ecosystems to continue will ultimately destroy the economy. Creating high quality nature markets can be a tool to raise capital to reverse biodiversity decline.
