The Green Offset Annual Review 2024

Introduction

2023/24 has been another busy year in the world of Natural Capital. All the talk around BNG since the introduction of the Environment Act in 2021 finally became reality in early 2024 with mandatory net gain introduced to the planning regime in England. There is now, an operational market for regulated habitat offsetting in England driven by the planning system.

Toing and froing over Nutrient Neutrality requirements in November saw government legislation seeking to remove requirements on development defeated in the House of Lords. Nutrient offset remains a requirement for development in select localities with opportunities around phosphate and nitrate offsetting for landowners.

Alongside regulated markets for Natural Capital, the prospects of a voluntary market for habitat offsetting were boosted by the publication of the Taskforce for Nature Financial Disclosure (TNFD) Recommendations providing guidelines for nature-related disclosures. Growing interest amongst corporates seeking to report on the biodiversity impact of their operations alongside other environmental metrics for ESG purposes has potential to be a more significant market than the regulated sector. We have already seen forays into this market by larger corporates.

Although private markets for Natural Capital attract interest and focus, the suite of public funding available to farmers and landowners wishing to invest in farm productivity, reduce the environmental impact of agriculture or diversify into environmental stewardship remains an important source of income and should

not be overlooked. Although not headline grabbing, such schemes often provide straightforward and more readily accessible sources of funding and can help steady farm revenues following the decline in BPS. As well as Sustainable Farming Incentive and Countryside Stewardship, funding is available via water companies, a newly launched Water Restoration Fund, and woodland creation offers (with payment rates increased in 2024) and further supported through the Woodland Carbon Guarantee Scheme.

Fisher German’s Natural Capital team remain fully engaged on the breadth of Natural Capital discussion and have continued to gain hands-on experience of Natural Capital through a range of projects with both new and existing clients.

We hope this review provides a useful summary and update on Natural Capital markets. If there is anything which sparks your interest or you would like to explore further please do get in touch with the team who will be happy to have an informal discussion.

Tom Beeley Head of Natural Capital

Tom Beeley Head of Natural Capital

Announcements and publications

27th July 2023

Statutory Credit Prices published

Government published indicative prices for statutory credits. The statutory credit market provides an option of last resort for developers where suitable offsets can be acquired from the open market. Prices range from £42,000-£650,000 per credit with two credits required for every unit of offset needed. Expectation is that the units will be rarely used and provide a cap on the market.

Register of Responsible Bodies

Registration of Responsible Bodies (RBs) has begun providing a key piece of the BNG jigsaw enabling the use of Conservation Covenants as a means of securing long-term habitat improvements. RBs are registered with Defra with duties to monitor compliance and enforce any breaches as necessary. There are now six RBs registered providing scope for use of Conservation Covenants as a route to market for habitat banking.

29th November 2023

Statutory Biodiversity Metric

Defra’s Biodiversity metric provides a standardised means of calculating habitat value for BNG purposes. It takes account of factors including type, scarcity, condition and strategic significance of habitats to determine habitat value. The statutory metric is the latest version of the tool which must be used for mandatory BNG applications.

BNG Guidance published

A slew of useful guidance documents were published on the government’s BNG hub to assist developers, local authorities and landowners to navigate the application for BNG and provision of offset sites. Essential reading for anyone engaging in this space.

2023/24

Local Nature Recovery Strategies (LNRS) launched

All areas of England will be covered by an LNRS which are being developed by the 48 Responsible Authorities . LNRS will map areas of existing habitat value and identify priorities for nature recovery. LNRS are now being developed with an expectation for them to be published by spring 2025. Landowners are encouraged to be aware of and engage in the process of LNRS development.

2024

Calls for sites from LAs

Following the February implementation of BNG nationally, a number of local authorities have put forward a call for sites. The LAs want to understand the likely supply of offsetting land within their jurisdiction and landowners are encouraged to submit interest forms. We have been involved with preparing responses on behalf of clients.

12th February 2024

Net Gain Register published

The Net Gain register managed by Natural England was published. This provides a register of off-site gains for development allowing the public to track where the habitat impact of a development has been offset. Mandatory BNG requires any gains to be registered. Registration of a gain site costs £639. The register can also be used to register habitat banks from which established units can be allocated to development.

Mandatory 10% BNG implemented (small sites 2nd April 2024)

Mandatory BNG went live for large developments with effect from 12th February 2024. Planning applications exceeding the small site threshold submitted from this date are required to comply with BNG. Applications submitted prior to this date including variations to existing consent and retrospective applications are exempt. Some planning authorities had local policies applying 10% BNG prior to this date.

March

2024

Treasury Response on taxation of Environmental Land Management

The government confirmed they will extend the existing scope of agricultural property relief to environmental land management from 6th April 2025. In addition, government will establish a joint HM Treasury and HMRC working group with industry representatives to identify solutions that clarify the tax treatment of the production and sale of ecosystem service credits and associated units. Useful clarification, but questions remain.

4th March 2024

Taxation clarified

These announcements did not answer all the questions but have helped to encourage some clients to move forward with confidence on the protection of their IHT status.

9th April 2024

Water Recovery Fund launched

An £11 million fund for projects which will restore and improve inland and estuarine waters and wetlands. The scheme is funded by fines imposed on water companies and is available in the specified geographical areas where fines and penalties from water and sewerage companies have accrued.

10th April 2024

Woodland Carbon Guarantee (WCG) Auction confirmed

An eighth auction for the WCG has been confirmed for 23rd -29th September 2024. The WCG contracts with woodland owners to provide a guaranteed price for carbon generated by new woodland planting accredited under the Woodland Carbon Code. WCG contracts can be used on woodland funded under English Woodland Creation Offer (EWCO) grants currently on offer with EWCO payments increased in 2024.

Finding your way in the habitat offset maze

The big update on Natural Capital has been that Biodiversity Net Gain is now a mandatory requirement for most planning applications in England providing a regulatory driver for the biodiversity offset market. We now have the beginnings of a fully operational market for biodiversity offsetting.

There has been significant interest and a growing list of businesses operating in the offset provision sector over the past 12 months.

A few thoughts based on early trends

• Biodiversity offsetting should be viewed as another form of development. As with other types of development there is potential to generate significant value, but this comes with complexity, relatively high costs and wider implications. These are long-term commitments. Those exploring this market should keep this in mind and consider the routes to market available.

• There is no clear picture of demand. Although BNG is now fully live it remains early days. Those looking to acquire units will be searching based on habitat type and location, but availability and timing of delivery will be equally important.

• Most land has potential to create habitat uplift for offsetting; however, costs of delivery vary from site to site. In a competitive marketplace it is essential to identify sites which offer the best potential at a competitive unit price. Scale will be an important factor as will the quality of habitat provision. Providers will need to have a clear and robust understanding of their costs of delivery.

• Although we in theory have a fully operational market for biodiversity offsets, it will take time to bed in and settle. There remains precious little market evidence of transactions in a mandatory BNG world or solid evidence or forecasts for demand and supply. The offset market today is likely based on planning applications conceived pre mandatory net gain and could look quite different to a market based on planning applications designed with full mandatory BNG in mind.

• Conservation Covenants At the time of writing, five Responsible Bodies have been recognised and registered by government. Responsible Bodies open the door to the use of Conservation Covenants between habitat providers and Responsible Bodies as a means of legally securing habitat delivery. Covenants should provide a more streamlined and effective means of delivering habitat banks and are potentially an important piece of the BNG jigsaw. First impressions suggest Covenants will provide a quicker route to market for habitat offsets, but may come at a higher cost. We hope to see the number and geographical coverage of Responsible Bodies expand to further open up this market.

These are interesting times with BNG representing not just a significant change to the planning system, but likely to have widerreaching implications for development and opportunities for land-based sectors. There remains much to be learned as all parties work through the BNG planning labyrinth. The emergence of a voluntary market for habitat offsetting and the application of BNG to NSIP projects from 2025 could further boost the market for biodiversity offsetting.

What have we been up to?

Strategic Appraisal and Project Management

Project summary:

Fisher German was asked by an existing client to review a number of non-strategic land areas to appraise their potential as habitat banks.

The client recognised our expertise in BNG and engaged us to assist in providing guidance to their teams and appraising opportunities for habitat offsetting on several of their sites.

On receipt of an ecological baseline survey, we provided an appraisal which summarised the habitat opportunities, provided indicative values for the units being created and identified the key planning, ecology and wider site constraints. As part of this report, we identified the delivery options available to take the site forward and provided the next steps for the client to consider. These reports will help the client progress the establishment of oven-ready units which can then be utilised to offset their own development activity or alternatively marketed to resolve another’s.

Feasibility Reports

Project summary:

Identifying and evaluating Natural Capital opportunities

The Fisher German Natural Capital team undertook several Natural Capital opportunity assessments on behalf of landowning clients located across the UK.

These reports aim to provide an introduction to both Statutory and Voluntary Natural Capital Markets and identify how landowners may benefit from these emerging markets.

Fisher German produced reports which provided a review of local policy; provided market insight; and identified the opportunities for landowners as well as the risks and constraints landowners should consider when reviewing these opportunities.

The reports included a site appraisal which evaluated existing land uses, natural infrastructure, use restrictions and the impact on the wider holding.

Planning Updates

Fisher German’s Planning Team remain at the forefront of legislative changes, advising clients regularly regarding Biodiversity Net Gain (BNG) matters.

All planning applications, unless exempt, now require BNG to be provided for a minimum of 30 years. The mandatory requirement is 10% BNG, although some Local Planning Authorities (LPAs) are requesting more; up to 30% in some instances.

The team has been involved in many projects where BNG has been delivered through the planning process; both on an informal basis (through the client’s commitments) and on a formal basis (through local planning policy in affected LPA areas before BNG became mandatory nationwide, and more latterly as part of recent submissions to comply with the new mandatory net gain requirements).

Jenny Occleshaw Associate Partner

01530 567475

jenny.occleshaw@fishergerman.co.uk

Now that the new BNG legislation is in place, we are seeking local planning authorities to adopt their working practices; many of whom are updating their validation lists to set out their minimum BNG requirements for submission as part of a planning application submission. This is resulting in a varied approach across the country to the extent of BNG survey/report work that is required upfront as part of a submission.