Controversial law could reshape the English landscape, and not in a good way

Currently, the main incentive for hosting ponds is a one-time payment, but that is about to change. A new scheme due to come into force in England next year will create the country’s first market for biodiversity offsets, which could turn such habitats into a regular source of income. Soon, Peter and his family could receive many more calls about ponds and other habitats.

Under the new “biodiversity net gain” rule, developers must compensate 110% for any damage their design causes to nature. Where the developer cannot do this on-site, they can do so through a national biodiversity offset market, a type of token representing a unit of newly created or enhanced and conserved habitat. Controversially, the law will allow developers to invest in habitats entirely different from those they destroyed, raising concerns that England’s landscapes could transform into something entirely different and result in a natural disaster .

“There is a strong risk that all developers will focus on the cheapest and fastest-to-renew habitats, leading to a decline in biodiversity,” said Frédéric Hache, executive director of the Green Finance Observatory, a non-governmental organization and lecturer in sustainable finance at the Sciences Po, a university in Paris. The offsets are essentially “permissions to destroy,” he said.

The Department for Environment, Food and Rural Affairs, the UK arm of government responsible for overseeing the new rule, did not respond to requests for comment.

The offset credits are made up of “biodiversity units” whose value is calculated by considering the size of a habitat parcel along with its specificity, condition and strategic importance. Distinctiveness refers to whether habitat is scarce or declining, and such habitats score higher than more common habitats.

“Strategic importance” refers to whether the habitat is in a location where it can be connected to others like it, or whether it meets specific local biodiversity goals. In other words, as long as there is an overall net gain based on this metric, acres of grassland could be replaced with a newt pond, regardless of the species and habitat being wildly different.

In the UK, the stakes are high to get this right. His biodiversity compensation rule could influence several others like this one. The EU is developing its own nature restoration targets and mechanisms, while negotiations are underway at the United Nations on a biodiversity equivalent of the landmark Paris Climate Agreement. Meanwhile studies on similar compensation systems for biodiversity in Canada, Australia and on a global scale, very few have achieved their goals and most are unsuccessful.

The UK Government expects individual biodiversity units to fetch an average of £20,000 and estimates that the market value could reach as much as £274m a year. Companies looking to broker the deals include Malaysian construction group YTL’s EnTrade; a partnership between Nestlé and consulting firm 3Keel called Landscape Enterprise Networks; and Environment Bank, which is fully backed by wealth manager Gresham House. HSBC’s Climate Asset Management has also expressed interest. In the UK and beyond, investors are positioning themselves to benefit from the global market for biodiversity investment products, which has the potential to grow 2,000% to $93 billion by 2030.

“We hope that eventually biodiversity as a sector will be recognized as an asset class and that this can spur larger pools of capital,” said Peter Bachmann, managing director of sustainable infrastructure at Gresham House. “We see a really new opportunity here.”

Globally, the biodiversity crisis is on the agenda of companies and investors as regulators, scientists and economists sound the alarm about rapid and irreversible species decline. Corporate statements that they are “nature-positive” or “biodiversity-neutral” are increasingly appearing in sustainability reports.

In the UK, the new regime and the broader emerging market for biodiversity offsets could lead to widespread landscape changes as companies seek to compensate for their damage to nature. The Environment Bank estimates that the market in England could need at least 10,000 hectares a year, the equivalent of around 8,200 football pitches.

“We get hundreds of inquiries every week, mostly from the construction sector,” said Emma Toovey, ecology director at the Environment Bank. “We are also seeing interest in the corporate market for ESG purposes as biodiversity units used for net profits are also transferrable to this market and we can only see this increasing.”

However, the interest of the private sector in so-called “natural capital” is not welcomed everywhere. In Wales, farmers are competing with mutual funds at farm auctions as the latter seek to acquire land for another type of environmental good, namely carbon offsets, The Times reported.

The National Farmers Union has warned against converting farmland from food production to trees. “We cannot allow private companies to relentlessly farmland to greenwash,” wrote NFU vice president Stuart Roberts in a letter to the Financial Times.

Back at Peter’s farm, the family is still debating whether to accept the Newt Pond offers and other similar offers. Her main focus is raising a dairy herd and growing crops. “There’s a pretty big pot of money coming our way for biodiversity,” said Peter. “But our core business is growing food, and you don’t want to tie up your land, so you have to be careful what you sign up for.”

Bloomberg