Natural capital markets must be given the chance to thrive
Sir Oliver Heald MP
01 August 2023
Ecosystem markets could be key to creating a healthy environment for future generations, writes Sir Oliver Heald MP
Toiling away in all weathers and all seasons, farmers make countless sacrifices to produce food and care for their land. It's hard to imagine our countryside without them. After all, it was farmers who created the quilted patchwork of hedgerows which criss-cross our green and pleasant land. Their knowledge is passed down through generations and they take seriously their duty as stewards of our natural world.
Edmund Burke was right when he said that society is a partnership between "those who are living, those who are dead, and those who are to be born." Public anger at the condition of our waterways, declining soil health, and falling species abundance demonstrate the continuing resonance of this ideal and the imperative of turning this situation around.
Conservatives will not be forgiven if we fail to hand on to the next generation a protected and enhanced natural world.
To first put the brakes on nature's decline and then begin to restore it, we need to redirect the billions of pounds that degrade our natural inheritance into rewarding farmers for improving habitats and creating more space for wildlife.
Outside the EU, the UK is free to establish an independent agricultural policy that puts nature first, improves our food security, and diversifies farmers' incomes. The government has already made good progress rolling out the CAP's successor in England, the Environmental Land Management schemes (ELMs).
Based on the principle of ‘public money for public goods', ELMs are voluntary schemes that reward farmers for using more sustainable agricultural practices and the improvements they make to the natural environment.
Compared to the EU's Common Agricultural Policy, which paid farmers simply for being landowners, ELMs are set to deliver much greater value for taxpayers' money, provide more generous incentives to restore nature, and open up a new revenue stream for farmers.
A range of payment options are now available under ELM. The Sustainable Farming Incentive will fund improvements to soil and animal health. Countryside Stewardship schemes are already paying for habitat creation on pockets of unproductive land to tackle flooding and pollution, with 40,000 farmers already in agreements. And Landscape Recovery schemes will support large-scale habitat restoration projects that restore biodiversity and sequester carbon.
But much more needs to be done. The independent Joint Nature Conservation Committee estimates that just 0.023 per cent of GDP is spent on protecting or improving biodiversity. This shows the gap between our environmental ambitions and investment levels.
Of course, more government spending should not be the default answer to any problem. New funding sources from the private sector are emerging, which could offer another way to fund the recovery of nature.
To enable farmers to fully exploit new privately-funded natural capital markets, and if the UK is to meet our target to halt nature's decline by the end of the decade, the government needs to act. Investors have held back so far due to a lack of clear regulatory guidelines.
First, trusted standards and a rigorous accreditation process are needed for carbon offsets and nature credits to ensure that investments are made in good faith and deliver the change they promise. The government recently set out plans to commission the British Standards Institute to develop standards. This work is very welcome and should be completed as soon as possible.
But to kickstart progress in the interim, the government could trial a market sandbox authorised by the Financial Conduct Authority. Under this model, private investors would work with the regulator to develop the rules governing an environmental market within a set location. This gives them the confidence that their investments have regulatory oversight whilst helping to restore our natural world.
In addition to supporting British farmers and restoring our green and pleasant land, natural capital markets would also boost UK food security. Biodiversity loss and climate change are the two greatest medium- and long-term risks to our food security. By leveraging private finance to help restore nature, we not only improve our long-term food security but ease the burden on farmers and taxpayers.
For centuries Britain has attracted the world's greatest financial institutions. Ideally situated between the North American and East Asian time zones, Britain's financial services sector has proved a safe haven during times of instability and given visionaries the capital they need to pursue new ideas. But we should not be complacent.
With the effects of climate change kicking in, new markets are emerging to allow polluters to offset their carbon emissions and restore nature. These innovative traders in carbon credits and natural capital markets could prove integral to our mission to hand on a healthy environment to future generations. The UK cannot afford to be left behind.
Sir Oliver Heald is the Conservative MP for North East Hertfordshire