Understanding the Nature Markets Framework
The natural capital markets have often been likened to the 'wild west' - so how will the framework tame the current state of affairs and help rural businesses?
4 minutes to read
Defra has launched its Nature Markets Framework (NMF), and it promises to allow the rural and environmental sectors to capitalise on the new private funding opportunities.
Nature markets enable private investment in nature by creating units or credits that can be bought and sold.
These markets will allow businesses to invest in enhancing the ability of land, freshwater, and marine habitats to supply carbon, nature recovery, clean water, and other benefits.
The government has set an ambitious target to grow annual private investment in nature by at least £500 million by 2027, rising to over £1 billion by 2030.
But this level of investment won't occur unless the nature markets are structured correctly, and landowners, land managers and private investors have confidence in the system.
The framework sets out much-needed principles that should boost landowners' and land managers' assurance and trust in accessing public and private environmental and ecological funding opportunities. On the vital subject of market integrity, the principles include additionality (new environmental gains); no double counting; robust quantification; delivery of lasting benefits; transparency; validation and verification.
In addition to these are the principles to maximise societal outcomes from markets. This includes ease of access to markets; supporting multiple benefits from land and sea use; and openness to technological innovation.
These principles only lay the groundwork. Defra promises that they will guide further policy development, but those operating in the nature marketplace also need to follow them. Farms and estates will be relying on these foundations.
A key to this is how the principles will be embedded in the rules, standards and any market governance. The framework lays out the steps for rules regarding: (1) stacking and bundling, (2) additionality tests, (3) combining public and private finance.
Stacking and bundling will be important for many landowners and land managers looking to maximise the income potential of an area. Selling separate credits or units from more than one type of nature market for the same activity on the same parcel of land is known as 'stacking'. Whereas 'bundling' is selling a single unit or credit with multiple environmental benefits. One of the first rules in this area concerns biodiversity net gain and nutrient neutrality. The policy document confirms that units from both these ecosystem services can be sold from the same project - at least until March 2025. This isn't possible with the Woodland and Peatland Codes at present, but opportunities are being investigated.
Connected with stacking is a need for robust rules regarding a legitimate gain for an ecosystem for which credits have been sold. The additionality test rule ensures legal and financial integrity, and the framework suggests plans to evaluate opportunities to support the nature markets further.
The additionality tests form part of the combining of public and private funding to ensure "they are compatible, pay for different or additional outcomes and do not pay for the same action twice", says Defra. It has already been confirmed that Sustainable Farming Incentive (SFI) applicants may enter the same parcel of land into an SFI standard and a private scheme such as carbon trading. But public grants will be kept under review to make sure private finance isn't crowded out.
The NMF confirmed an announcement about a new arrangement with the British Standards Institution (BSI) to develop a suite of high-integrity nature investment standards. This will develop governing principles for nature investment standards covering all markets and thematic standards for each ecosystem service. It is expected that once these standards have been crafted, unit/credit issuance schemes will adhere to the standards and seek accreditation. Work on this area is crucial to provide that trust in nature and natural capital markets and reassure landowners and land managers to enter these schemes.
Defra says it will also develop a consistent approach for measuring emissions as part of the framework and, by 2024, set out how farmers and land managers will be supported to understand their emissions through carbon audits.
There will be many who will been keen to see the whole outcome of the framework delivered yesterday.
Realistically, it could be 2026/27 before much of the framework is worked through. A full suite of Environmental Land Management options is on its way by the end of 2024. But the work with BSI, for example, is a three-year programme starting in 2023.
Tom Heathcote, Head of Agri-consultancy for Knight Frank, says "there is still work to be done around developing regulations and market infrastructure to ensure good governance. But when the framework is fully implemented, it should provide an improved incentive for rural businesses to engage with public and private environmental schemes."