Building the foundations of a Restoration Economy - raising investment for habitat banks - Prof David Hill CBE Chairman, Environment Bank
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Building the foundations of a
Restoration Economy – raising
investment for habitat banks
Prof David Hill CBE
Chairman, Environment Bank
Policy background • 25-year Environment Plan and National Planning Policy Framework • Restore 500,000ha of land for ecosystem benefits - Nature Recovery Network • Mandatory biodiversity net gain consultation – out now • New approaches to funding needed - both public and private sector. Basic payment scheme (CAP subsidy) to end • 75% of land in the UK is farmed and farming intensification has inflicted greatest impacts on wider-countryside biodiversity • Target funding at interventions in the farmed environment that can deliver large-scale significant improvements within as relatively a short a time period as possible
The Restoration Economy
Policy Framework Value Action needed
Sector Mandatory on Planning Authorities to
require development to deliver net
gain much of which would be off-site.
Investment in Habitat Banks (potential
Development National Planning tax incentivisation for investors).
Biodiversity offsetting/ net Policy Framework and £1.2bn p.a
gain delivery, including local plans;
newts/European Protected supplementary
Species planning documents
Environmental land management
contracts (Market-based
commissioning of contracts with land
managers). Paid for efficiencies of
Agriculture 25-year Environment £3.2bn p.a
production and environmental goods
Improving environmental Plan and services – aggregate value not
mutually exclusive.
performance of farming Tax incentives (?)
Credit trading scheme – standard
needed.
Corporate business
Corporate natural capital ONS/NAO. Metrics.
accounting – offset £3bn p.a
Financial annual Offset business impacts on natural
business impacts on reporting capital throughout supply chain.
natural capital Demonstrate responsibility – measure
requirement increased investment value of
company; Biodiversity Disclosure
Initiatives; licence to operate. Credit
trading scheme – standard needed.
Biodiversity net gain • The most significant conservation policy development for the wider terrestrial environment in the past decade. Included in NPPF and 25-year Environment Plan • LPAs have duty to protect biodiversity in planning system – NPPF • Most are not delivering on their legal responsibility • A mandatory system would signal investment opportunities which would facilitate scale-up and create, enhance and manage large areas of habitat for biodiversity conservation • – MHCLG Garden Towns and Villages prospectus – includes BNG as a requirement
Map of LPAs engaged with
Environment Bank
77 LPAs in 34 Counties
have engaged with
Environment Bank as at
2018
Recent & forthcoming sales
Credits
Location Development Compensation
required
Type Location
Coventry Business development 4 0.5ha grassland restoration Within 2km
York, North Yorkshire Large residential 1152 On-site grassland/birds On-site/adjacent
Medway, Kent Large residential ~ 850 Bird compensation Within County
Wet grassland - indirect impacts to
NE Lincolnshire Industrial zone regeneration 711 SPA On-site/adjacent
3 ha lake restoration + woodland
Rochford, Essex c. 600 houses + school 14 creation Within 2 km
32 ha arable margins and grassland
Cambridge, Cambridgeshire Large residential 211 Within 1 km
restoration
Rugby, Warwickshire c.100 houses 19 5 ha grassland restoration Within 4 km
Rugby, Warwickshire c. 860 houses + school 13 3 ha grassland restoration Within 1 km
Thundersley, Essex c. 7 houses 30 6 ha woodland restoration Within 2 km
Wheatley, Oxfordshire c. 50 houses 8 1 ha Grassland creation Within 7 km
Warwick, Warwickshire c. 60 houses 5 1 ha grassland restoration Within 3 km
Southam, Warwickshire c. 240 houses + sports facilities 11 2 ha grassland restoration Within 6 km
How to make net gain work
• LPA requires application of biodiversity impact accounting metric on
ALL development to deliver net gain
• Impact of development assessed – 80% of gain should be off-site;
20% on-site. Net gain is not about ‘prettifying’ development
• Developer purchases conservation credits from broker of
strategically located ‘habitat bank’ which yields the credits based on
a Biodiversity Management Plan
• Environment Bank (EB) brokers deal - signs legal agreements to
purchase the credits with developer, and to manage receptor site
with land manager
• Money paid by EB under a contract with land manager against
specific conservation management delivery
• Monitoring and reporting to LPAs
Case study example - development
• Biodiversity value of existing 12.96ha site = 48.68 units
• Biodiversity value of the proposed development = 16.78 units
• Biodiversity Offset units = -31.90 units
• Large areas of low value habitats, but significant impact due to small
areas of mitigation to allow development to meet housing need.
What is a habitat bank? • Area of land restored for biodiversity at scale – 40-100ha in size • Value added by being linked to existing sites of conservation value - spatial plans for conservation – bigger, better, joined • Delivery agent : Landowner/farmer; wildlife trust; other conservation NGO; Community Benefit Society (not-for- profit) • Brokers used to raise and validate conservation credits from the land management interventions – use existing and agreed metric so standardised assessment.
Benefits of habitat banking (1)
• Developers
o Clarity and certainty
o Increased net developable area
o No long-term on-site liabilities or costs
o Developer knows price beforehand
o Allows immediate purchase
• Planning Authorities
o Transparent, consistent, auditable (eg per NPPF, 25 yr
Environment Plan)
o LPA already signed-up to assured gains and knows the net
gains will be delivered
o New secured wildlife habitat, easyBenefits of habitat banking (2)
• Biodiversity Conservation
o Proper funding of biodiversity – not just landscaping
o Financial disincentives for habitat destruction
o Enables long-term and large-scale habitat conservation
o Biodiversity is a material benefit in planning
• Landowners
o Restoration economy
o Provides a realistic income with long-term funding
o Land status not affectedSetting up a habitat bank • Locate landowner(s), identify area, identify habitat type to be delivered • Survey receptor site • Calculate biodiversity units created, convert to conservation credits to be sold to developers • Produce Biodiversity Management Plan with objectives, measurable deliverables, outcomes focused, timescales set, payment regime (payment by results) • Implement governance documents • Implement monitoring and reporting regime
Habitat bank NE Lincs
Governance • Conservation Credit Purchase Agreement – between Environment Bank and the developer purchasing conservation credits • Letter of Sale provided by Environment Bank to the developer • Conservation Credit Certificate – presented to the developer by Environment Bank on purchase of the credits (before development starts), which in turn is presented to the local authority to demonstrate the discharge of their biodiversity liabilities • Conservation Bank Agreement between Environment Bank and the landowner of the habitat bank • Biodiversity compensation management plan between Environment Bank and offset provider
Habitat bank costs Eg for a lowland grassland habitat bank: • Uses Environment Bank costing model • To create/restore and manage 2 habitat banks in each LPA area • 40ha each in size; yields 240 grassland credits • 30 years duration, inflation proofed • Total cost for capitalisation and long-term management = £1.58m; £3.16m for 2 banks for 30 years • Delivery agent gets capital establishment costs plus £600 per ha per year • Credit price to developer = £6-8,000 per credit
Financing (1) • Upfront funding of the habitat bank is best - provides instant, predictable, cost-effective supply of conservation credits – third party investors/ LPAs (?) • BUT relies on certainty of market – mandatory BNG in planning would provide this • Habitat banks can also be funded ‘incrementally’ as credits are sold to developers • Provides clarity to landowner and >25 year revenue stream to create eg wildflower meadows, wetlands, woodlands etc.
Financing (2) • Regulatory framework – case law has confirmed habitat banks are fully compliant with planning legislation using Section 106 or planning conditions BUT CIL is not an appropriate mechanism to use. • Development is therefore not permitted until such time as conservation credits have been purchased • These factors mean limited exposure (low risk) for investors
Example demand analysis Parameter Data No. houses in development 220,000/yr to year 2030 allocation No. houses per year 11,000 5-year period 55,000 Housing build density (mean) 35 units/ha Area of land-take 1,571 ha No. biodiversity units lost on 6648 average No. conservation credits to be 7313 purchased (10% net gain) Potential area of habitat banks 1463 ha required
Example demand analysis cont… Parameter Data No. 40ha habitat banks to 37 establish Approx. cost of a conservation £7,900 credit Cost of 1463ha of habitat banks £57.8m Average house price £210,000 Total sales income £11.55bn Profitability applied 23% Net profit for 55,000 houses £2.657bn Cost of habitat banking as % of 0.5% of gross income income and profit 2.1% of net profit
Estimates of value of UK
biodiversity net gain market
Estimate Source
£54m p.a Defra (2011) for White Paper
£500m - £1.2bn p.a Ecosystem Markets Taskforce (2013)
report
£700 - £800m p.a Vivid Economics and Environmental
Finance, Natural capital finance model –
Strategic Outline Case, Defra, March 2018Third party investment
• Habitat banks provide
more cost-effective
solutions for developers
• Bespoke offset site
conservation credits cost
c. £9k - £20k depending
on habitat and length of
term. Habitat bank credits
c.£6k - £8k.
• Proposal to set up 20 habitat banks (800ha) for 30 years in first
instance.
• Investment sought of £31.7m over a 5 year period
• Sale of 4800 credits at £7.5k per credit
• Yields return of £4.19m over the 5 yearsOpportunities and barriers
Opportunities
• Ability to make a transformational change to the countryside and its
biodiversity
• Attract in third party investors and recycle that investment
• Transparency, LPA complying with their duties
Barriers
• Need a mandatory regime with an effective regulatory framework
• Some LPAs won’t prioritize or care – so mandatory is essential
• Too much emphasis on delivering ‘biodiversity conservation’ within
development site boundary – evidence is that this does not provide value for
money
• Lack of mandatory regime and regulatory framework means investors don’t
engageNet gain and habitat banking for
Great Crested Newts
• Moved to system based on status of populations
rather than individuals
• Implementing habitat bank model for newts with
agreed species offsetting metrics
• Newt habitat created in advance in key areas,
credits purchased by developers as needed
• Natural England provides District organisational
licence to LPAs via NatureSpace PartnershipScheme coverage 2018-20 • South Midlands now • Expansion into the other regions 2019 onwards
Income and costs
£1.2m investment raised to set up South
Midlands and secure District Licence
Allocation of scheme income
• 20% SMNCP Habitat creation
• 20% SMNCP Endowment fund
• 20% SMNCP operational costs
• 40% NatureSpace operational &
monitoring costsInvestment vehicle – Green Bonds Bloomberg Barclays MSCI Global Green Bond Index; 2017 c.£200bn
Investment vehicle : Impact investments and
environmental credits
• £117bn of impact investments globally
• Address worlds most challenging problems eg
conservation and biodiversity loss
• Who? High net worth and Foundations
• ?In UK - impact to be addressed is deterioration of
biodiversity and natural capital as a result of intensive
farming and development
• eg restore biodiversity through land sparing – capitalise
schemes with returns paid by Government ELM funds –
farmer clusters and Community Benefit Society structureWhat the Restoration Economy could achieve for the Nature Recovery Network Cost of 40ha high quality mosaic grassland habitat bank – £1.585m creation and 30yr management Value of fund from Environmental Land Management contracts £3.6bn Value of fund from net gain/offsetting (NG) £1.2bn Value of fund from corporate natural capital accounting (CNCA) £3.0bn Area of land restored through habitat banking (exc. CNCA and 90,850 ha/yr NG) Time to deliver Nature Recovery Network (exc. CNCA and NG) 5.5 years Area of land restored through habitat banking (inc. CNCA and 196,845 ha/yr NG) Time to deliver Nature Recovery Network (inc. CNCA and NG) 2.5 years
Summary
Mechanism Habitat bank solution Action
Biodiversity net gain/habitat Habitat banks – • Mandate net gain – clarity
offsetting conservation credits yielded and consistency across
by creation and planning authorities
management interventions
• LPAs will then deliver their
Value potentially £1.2bn/yr biodiversity duties
from development
• Accredit brokers and
Conservation credits, locally biodiversity compensation
raised and delivered, far (offset) sites
better than a general tariff –
more fine-scale, relevant • Provides better regulatory
and proportionate to impact framework for LPAs
Major contributor to the • Bring forward third party
Restoration Economy and investors to capitalise
Nature Recovery Network habitat banks
• Tax incentives for investorsYou can also read
