The Green Offset Annual Review 2023

Annual Review 2022-2023

The Green Offset: Supporting biodiversity net gain requirements

Policy update Introduction

Natural capital has continued to be a topic of great discussion in the land and property sector in 2022/23 as landowners, developers, local authorities and their advisers get to grips with these emerging markets and the interactions with the wider changes to agricultural support.

Spring 2023 has seen a flurry of announcements from government around biodiversity net gain policy and nutrient neutrality mitigation which has provided some further insight into the operation of these markets.

However, there remain several elements of uncertainty driven by the long-term nature of agreements and a lack of policy clarity particularly at local level which continue to hold back the market.

Despite this, there are now a number of operators active in the market offering different models for provision of offsetting. Agreements for delivery are being reached although evidence of market transactions remains limited and the shape of these early arrangements may not reflect those in future as policy is clarified.

Development of The Green Offset (TGO) platform is continuing as it sparks conversations and leads for our registered offset providers. The platform has provided Fisher German with first-hand insight into the operation of these markets, the various operators and mechanics of delivery enabling us to provide considered, independent advice to clients on both the provision and acquisition of offsets. We are supporting a number of clients with advice and support in creating, selling and acquiring habitat and other natural capital units.

Whether you’re a private or corporate landowner exploring opportunities for offset provision or a developer or business wishing to acquire offsets Fisher German can assist with:

• Providing market insight

• Options appraisal for offset creation or acquisition

• Marketing and brokering sale or purchase of units

• Advice on agri-environment opportunities from both public and private markets

Our annual update provides a snapshot of policy and market activity over the past 12 months.

A snapshot of key announcements and publications over the past 6 months

Biodiversity Net Gain (BNG)

Defra have responded to the Biodiversity Net gain regulation and implementation consultation

http://bit.ly/44k5Hxn

This was an extensive consultation on the scope and implementation of BNG providing insight into government’s expectation for delivery. Key points include:

• BNG is still expected to become mandatory from November 2023

• BNG will be applied to NSIP projects but not until November 2025

• Small sites of under 9 housing units on 1ha of land or less than 0.5ha will be assessed using a small sites metric introduced from April 2024

• Development affecting less than 25 sq m, or 5 m for linear habitats like hedgerows will be exempt from BNG

• Householder and self/custom build sites will be exempt from BNG

• At the expiry of a 30-year agreement a new baseline could be assessed and new BNG units created and sold in some cases.

• Pricing for statutory credits should be published this summer

• VAT will be chargeable on unit sales

Taxation of Environmental Land Management

The tax implications of entering into environmental schemes is a frequent query. Government have recognised the need to clarify this area and have published a call for evidence and consultation on the subject with some helpful commentary setting out their position. This indicates that where land managers are selling offsetting units this will likely be regarded as trading for BPR purposes. The outlook for APR is more complex and the consultation sets out the current arrangements with a call for evidence as to how this may be clarified.

Call for evidence and consultation on tax and environmental land management

https://bit.ly/3piqEKn

Defra have set up a BNG hub on their website with publications and guidance including information for land managers summarising the process of creating and selling biodiversity units.

There is Defra guidance on ‘stacking and bundling’ and how they envisage private markets will interact with agricultural support payments, clarifying that:

• biodiversity and nutrient neutrality units may be sold from the same parcel of land e.g. where a wetland created for nutrient offsetting purposes also provides habitat benefit.

• an enhancement funded by an agri-environment scheme cannot be sold as a biodiversity unit or nutrient credit. However, the same land might be used to create further habitat enhancements on top of an existing agri-environment agreement.

The Biodiversity Metric – the tool used for assessing habitat values for biodiversity net gain – has also been updated. Version 4.0 is now available and will be the basis for assessments when BNG policy becomes mandatory in November 2023.

Defra guidance notes on all of the above can be accessed via https://bit.ly/3PxZNnZ

Local Nature Recovery Strategies

Further information on Local Nature Recovery Strategies (LNRS) has also been published. LNRS are spatial strategies for nature and environmental improvement required by law under the Act. Covering every area of England, each strategy must:

• agree priorities for nature’s recovery

• map the most valuable existing areas for nature

• map specific proposals for creating or improving habitat for nature and wider environmental goals

LNRS will be an important part of the jigsaw for delivery of environmental schemes. It is vital that landowners are engaged in the process and we would recommend keeping a close eye on their development and provide input, where possible

Link to LNRS guidance: https://bit.ly/3NPVkfg

Nature

Markets Framework

The government have published the Nature Market Framework. The framework sets out:

• how government will guide and support the development of nature markets capable of supporting elevated investment levels

• their vision to hardwire integrity and principles into the market framework to build trust and confidence so markets can grow at pace in line with our increased environmental ambition.

Link to Nature Markets Framework: https://bit.ly/3XCPT6H

Green Finance Strategy

This sets out government strategy to harness the UK’s world-leading financial services sector to support delivery of climate and environmental objectives. This considers how to encourage private investment into natural capital markets

Link to Green Finance Strategy: https://bit.ly/3NQP1Iy

Biodiversity Gain Site Register

Defra have released further information including demonstrations of the biodiversity gain register. This will be used to register and allocate offsite provision to specific development and will be an important part of net gain delivery for both developers and offset providers. Limited details are available at time of publication but it is anticipated that there will be a cost of £100-£1000 per registration.

Biodiversity Net Gain Statutory Credits – government are expected to publish pricing for statutory net gain credits by Summer 2023. Statutory credits will be available to developers as an option of last resort where net gain provision can not be achieved locally.

Information continues to be released and with the November date for BNG to become mandatory, we can expect more information over the summer. TGO will provide regular email updates.

The voluntary market for biodiversity is also an area of development with the Taskforce on Nature-Related Financial Disclosure and Science-based Targets for Nature now developed. These mirror development in the voluntary carbon market and can be expected to drive investment into biodiversity markets in a similar way seen with carbon.

Nutrient Neutrality

Deterioration in water quality across environmentally protected watercourses has resulted in new planning requirements in 74 local authority areas. Development in afflicted areas is required to demonstrate ‘nutrient neutrality’ – i.e. it will have no negative impact on the condition of the catchment – before it can be consented. This is holding up planning for thousands of homes across England.

Water quality issues are primarily a result of phosphate and nitrate pollution. Consequently developers are seeking land-based schemes which can offset the nutrient impact of development to enable consent to be granted. This is creating opportunities for landowners in specific locations within catchments.

Offset solutions can include abandonment of agriculture on land thereby reducing a source of pollution (engineered wetlands, riparian buffers and works to drainage and ditches) which can all result in nutrient reductions.

Defra and Natural England are funding a Nutrient Mitigation scheme in an attempt to provide solutions while the market develops. The first scheme was launched in the Tees catchment providing nitrate offsetting priced at £1,800 per kg of nitrate. Further schemes in other affected

catchments are expected to come forward with a Local Nutrient Mitigation Fund: call for evidence and expression of interest aimed at local authorities published in March 2023. We are also aware of several private schemes where offset developers are seeking agreement on land in the right locations to deliver nutrient offset schemes

A full list of catchment areas can be seen here: https://bit.ly/3XtSPlU

If you are a landowner in this area please get in touch with our team to see how we can help.

Alex Watts Associate

01530 446054

alex.watts@fishergerman.co.uk

Tom Beeley Associate

01858 410200

tom.beeley@fishergerman.co.uk

Market Update

The Green Offset: supporting emerging natural capital markets

Over the last year we have seen traction in emerging natural capital markets grow, particularly in those areas where there is a live requirement to deliver biodiversity net gain or nutrient neutrality as part of any new development. We are still awaiting secondary legislation to provide some clarity on many elements; however, the market is moving, and we are seeing a real demand from clients for advice in these areas.

Through The Green Offset, we offer a practical solution for clients to explore natural capital markets. For landowners, known as offset providers, it offers a free and anonymous way to advertise their land as being potentially available for schemes and with over 42,000 hectares registered, we are starting to see some real opportunities being realised for those who have registered their land. For those looking for an area of land to deliver schemes, offset seekers, it offers an easy way to locate a willing landowner with a fee only payable if and when a deal is done.

Aside from The Green Offset, our Natural Capital team now has a breadth of experience to aid clients with any challenges being faced within biodiversity net gain, nutrient neutrality, or carbon sequestration.

Market Insights

We are increasingly seeing application of BNG to planning applications across England ahead of the introduction of mandatory net gain. As a result, we are being contacted by developers requiring offset advice and needing offset units in various areas.

This can range from a fraction of a unit on some smaller development sites, up to tens of units for larger developments.

Feedback from developers is that, in many instances, much of the net gain requirement can be delivered onsite through considered site design. As a result, even large developments are potentially only seeking a handful of units. More challenging sites are those where planning was submitted with little consideration for BNG or where the land area available is constrained.

For most developers the preference will seemingly be to acquire habitat units from established habitat

banks. This is expected to be quicker and more straightforward, allowing developers to concentrate on their core business. However, we are aware of some developers with in-house planning expertise exploring development of habitat themselves.

We are also seeing some local authorities arranging habitat creation to be able to provide offsets – they cannot give priority to these units over the rest of the market, but they may be competitively priced.

Despite huge levels of interest, there remain very few habitat banks established with credits readily available for purchase. This is largely down to uncertainty over how they are to be secured and delivered which makes it difficult to finalise arrangements.

Come November, when offsetting will become mandatory for planning consent nationally, we might expect demand for habitat units to increase potentially acting as a block on development where solutions aren’t available.

To date, most agreements are for offsets associated with a specific development and are delivered and secured via S106 agreements. Conservation covenants remain on the agenda as a means of securing habitat creation; however, despite legislation for conservation covenants being introduced on 30th September 2022, there remain no ‘responsible bodies’ – the counterparty to the covenant. Conservation covenants therefore remain unavailable currently with authorities expected to register as responsible bodies uncertain over the extent of the role and liability they would be taking on.

There remains little evidence of market transactions for biodiversity units. Some local authorities have published values for purchase of offset units through them or for developer contributions and we have examples from our own work. Very generally, values range from circa £20,000 to £35,000 or higher depending on who and how units are being delivered, the type of units to be provided, and local market conditions.

We are expecting local policies to require BNG offsetting to be delivered within the local area of development. Due to the way habitat values are calculated, straying outside of local authority boundaries to offset is likely to result in punitive delivery costs for developers.

It is important to note that biodiversity offsetting is not simply about taking land out of agricultural production to create new habitat. In many instances similar or better habitat unit uplift can be created by enhancing existing habitats identified as in poorer condition. This is because the risks and time involved are far less than those associated with creating a new habitat from scratch. This is recognised in the biodiversity metric; for many farmers and landowners it will be more attractive to enhance some of the existing habitats on land they already own such as grasslands. This is likely to be more cost-competitive than creating new habitats on arable land for example.

CASE STUDIES

Fisher German Natural Capital Services

Carbon Appraisal for large investment and development company

We were asked by Segro to write a report which sets out options and a strategy to assist them to achieve their net zero targets.

The report set out:

• The key strategies available for purchasing carbon credits

• Accreditation options and the associated verification processes

• Considerations for land acquisition and the wider benefits it could offer

• Case study examples to detail different land acquisition options

• Commentary on the arboriculture potential of each site

• Financial appraisal for all options explored

• An appraisal of sequestration options to ensure greenwashing is avoided at all costs

The carbon market is still emerging and thus is inevitably subject to change as legislation comes into fruition. It is imperative that companies properly consider the options and strategies available to them to reach their net zero targets.

Fisher German can assist companies in achieving their carbon targets by investigating their current requirement for reducing their carbon emissions. We can offer advice on the concept and practical options which are available to meet their carbon requirements to achieve net zero targets.

Lease Advisory for a large building material company – tenant wanting to create biodiversity offsets

Our retained client had been approached by their tenant who had a long-term tenancy agreement on their land. They were looking to enter into a 30-year agreement with the local planning authority to deliver biodiversity offsets on the tenanted land.

We have been involved to advise the client of the key aspects which would need to be properly considered should they wish to consent to this.

Key areas of the advice:

• Value of the credits and potential financial share for the landlord

• Impact on capital value of the land in question

• Lease review considering current terms

• Impact on break clause options

• Negotiations with the tenant and local planning authority

• Drafting of Heads of Terms for lease addendum

Our awareness of the nascent biodiversity net gain market coupled with our existing knowledge of landlord and tenant matters makes us well placed to offer clients advice on these enquiries. We make sure that they consider all possible ramifications of consenting to the tenant entering into an agreement of this nature.

Built Environment Committee invite Fisher German to the House of Lords

One of our associates, Alex Watts, gave evidence in March at the House of Lords’ Built Environment Committee’s inquiry entitled: ‘The impact of environmental regulations on development’, where the committee is examining how new environmental laws might help or hinder new projects.

The government needs to provide clarity and guidance on the emerging environmental regulation, biodiversity net gain (BNG) and nutrient neutrality to prevent it from reducing the viability of development and delaying sites from coming forward, a House of Lords inquiry heard.

Alex has led on our brokerage platform known as ‘The Green Offset’ since 2021, which pairs those looking for areas to site natural capital schemes with parties who have land available. It enables ‘Offset Seekers’, who are firms or individuals looking for land for environmental requirements, to search for suitable sites and contact landowners, or their agents, once a match is made. Landowners, referred to as ‘Offset Providers’, can easily register their land on the website, showing that they are open to discussing the potential of siting environmental schemes on their land, without committing them to anything.

We developed the scheme in anticipation of the Environment Act 2021 being made into law. Now the Act has passed, the majority of development projects must deliver at least 10 per cent BNG by November 2023.

Alex submitted evidence around how The Green Offset scheme has already been highly successful for landowners and developers and is helping to facilitate a market for BNG– but that a lack of clarity in the legislation is preventing it from being embraced by landowners and developers alike. After the session, she said: “While the Environment Act 2021 coming

into force has clarified how much BNG is needed in new planning permissions, it is the lack of secondary legislation that is causing problems.

“We are for example, still lacking legislative clarity around key considerations such as taxation, ongoing monitoring and reporting and what happens to the land after the 30-year term expires. As such, it is difficult to give clear advice to either landowner or developer clients on BNG, which is stopping many from committing to new projects and stifling growth.

“I gave evidence to the committee that it is crucial for secondary legislation to provide clarity on these issues so we can give meaningful advice to clients, and encourage development to continue while also providing new natural capital schemes that benefit the environment.”

Alex was also pleased the House of Lords invited Fisher German to submit evidence to the inquiry. She added:

“I think our invitation was a great reflection of the fantastic work we’ve been doing to help our clients achieve BNG on their projects. I’m hopeful my evidence will help the government understand what it needs to do to improve the situation and increase the confidence of developers and landowners to go ahead with new projects.”

Alex Watts Associate

Leicestershire farm adopts regenerative agricultural practices to create a new income stream

This is the first UK project of its kind to generate certificates based on measured high-density, direct, and verified soil sampling and follows the Department for Environment, Food & Rural Affairs (DEFRA) decision to pay £40 per hectare under the Sustainable Farming Incentive (SFI) for soil improvement.

Blaston Estate, a 390-ha farm with a mix of woodland, arable and permanent grassland in Leicestershire has entered into a multi-year agreement with a corporate utility company, an impact-driven carbon finance company, for the purchase of voluntary carbon certificates generated by carbon sequestration on arable farmland.

With advice from an independent agronomist, the estate owner made a conscious decision to set a goal for his farming operation to improve the soil by diversifying crops, farming with nature and enhancing sustainability. Using techniques such as direct drilling of arable crops, diverse crop rotations, integrated livestock grazing as well as continuous soil cover with the use of cover and companion crops he was able to improve soil health, promote biodiversity and create a sustainable business whilst sequestering carbon.

The Countryside Stewardship (CS) Mid-Tier Scheme and a similar environmental management scheme with a corporate utility company have partly mitigated the reduction in subsidy income. These schemes have helped to support a shift in focus towards the improvement of soil health and structure and to establish a profitable farming system but also acknowledge the potential of carbon sequestration as an income stream.

In the autumn of 2022, Blaston Estate was able to complete the sale of Verified Emission Reduction units (VERs) based on measured CO2e sequestered across their arable cropping area.

A measurement methodology developed by Ecometrics measured the stock change in Soil Organic Carbon (SOC) in 12 months across the farmed area. Detailed soil analyses across all fields were carried out before the beginning of the 2021 growing season and were then repeated to quantify the precise amount of carbon absorbed throughout the production season. The measurement uses a combination of intensive physical sampling and Artificial Intelligence analysis of multispectral satellite imagery.

Further measurements will be made in the spring of 2023 with the expectation that a further increase in SOC has been achieved enabling another sale of VERs. Each sale is subject to a 10-year permanence period.

The specific details of the sale remain confidential but the value of the sale was more than the corresponding Basic Payment Scheme receipt. The value of the certificates, together with the SFI payment, will assure that regenerative practices will be economically viable, and for Blaston park, the sale of these certificates is expected to be their second largest income stream after wheat.

It is crucial that farmers and landowners who are looking to adopt regenerative practices to restore life to the soil, enhance profitability and make a decisive contribution to achieving net zero get informed advice from the start.

Faced, like all farms in the UK, with the loss of Basic Payment Subsidy (BPS), which reduced from around £80,000 in 2020 and will continue to reduce to zero by 2028, rural businesses such as Blaston Estate in Leicestershire, have had to explore different opportunities to offset this loss of income to ensure the continued viability of their business.

Fisher German prioritises natural capital as a real farm business opportunity

Fisher German has partnered with Trinity AgTech to use their end-to-end navigator software ‘Sandy’ to support their clients, both rural and commercial, to get a credible view of their natural capital and carbon to deliver longterm business development and opportunities.

David Kinnersley, Head of Agribusiness at Fisher German, explains the company has been looking at carbon for over a decade and at natural capital for nearly six years.

“We’ve conducted extensive research and testing across several navigators and tools, but Sandy struck a chord with us and our clients as the best natural capital software tool out there. We especially respect the fact Sandy uses the latest science, being certified to the highest standard available.

“It isn’t just a carbon-centric tool, but instead looks at the whole natural capital landscape, supporting decisionmaking for environmental benefits, business efficiency and financial sustainability,” says David.

As a national firm specialising in property consultancy and chartered surveying, Fisher German strives to support our clients across a wide range of property and land services, and in recent years we have seen rapid growth in demand for analytical data and insight on natural capital on farmland.

“From a rural perspective, we want to help our farmers and landowners to identify business efficiencies and new income opportunities, especially with the reduction in government subsidies. Sandy will help these clients to identify the potential to improve their sustainability and unlock capital within their land, without the need to diversify outside of agriculture.

“We want to provide our internal teams and clients alike with a tool that will not only rigorously evidence the actions being taken on farms to improve carbon emissions, biodiversity, soil quality, and water protection

measure but also enable them to model changes to help decide which actions to take.

“It can’t be underestimated how critical it will be to farm business prosperity in the long term to understand your natural capital position and take control of managing it effectively.

“This is especially crucial at this time for those in the dairy and fresh produce sector who may, if they don’t take proactive action now, be forced into using alternatives which could incorrectly represent their farm and its practices,” says David.

Fisher German prides itself on helping clients to solve the natural capital jigsaw and this partnership will enable this, especially with Sandy’s easy-to-use, intuitive system that can adapt to individual users’ requirements.

”The scenario planning and AI capabilities are hugely beneficial, allowing for the ongoing evolution of farm management decisions. We want to work with our farmers and use the most robust science, tool and process that best represents our chosen land management practices,” David explains.

Commenting on the partnership, Trinity AgTech’s managing director of business development, Anna Woodley, says: “We’re delighted to be working with Fisher German to help their clients to revolutionise their natural capital journey.

“Fisher German is a firm constantly looking to provide its clients with forward-thinking opportunities for business resilience and expansion and we believe the decision to offer them ‘Sandy’ is further evidence of this.”