England’s financial plan may help restore tens of thousands of acres for birds, bugs and bees, though challenges loom.
(Bloomberg) — On an ordinary grassy field called Puddington Moor, an unusual financial experiment is underway: A project allowing investors to generate millions of dollars of revenue in return for helping restore ravaged terrain to once again attract bugs, bees and birds.
The 25-acre plot is one of the UK’s first so-called habitat banks, a parcel of land whose managers are committed to helping restore and protect nature. Ecologists assess and quantify that change, which is then packaged into tradeable units and sold as credits to housing developers or road builders seeking to offset their environmental impact. A new law taking effect in November requires developers in England to show they can deliver a 10% net gain in biodiversity in order to get planning permission.
It’s an attempt to solve a problem many countries are struggling with. England wants to build new roads, warehouses and almost a million homes by 2025, but it also wants to halt species decline by the end of the decade. The government is betting that scores of habitat banks across the country can generate credits worth about £300 million ($370 million) per year, and help it achieve both goals simultaneously.
The new market also will go some way to meeting the government’s goal of growing annual private investment in nature to £1 billion by 2030. It “will ensure all new developments deliver a net benefit for nature,” said a spokesperson for the UK’s department of environment, food and rural affairs.
“In the past, you had to sacrifice financial returns for impact,” said Peter Bachmann, managing director for sustainable infrastructure at Gresham House, a London asset manager backing Environment Bank, an intermediary that packages and sells Puddington’s credits. “Now it’s flipped on its head and impact can drive returns.”
Market demand may lead to the annual restoration of 10,000 hectares (24,700 acres) in England, equivalent to 8,200 football pitches, according to estimates from EB.
A handful of countries have already tried a habitat-bank approach, and the EU and Scotland are hatching similar plans. A big spur is the recent Kunming-Montreal Global Biodiversity Framework, which aims to boost annual conservation finance by $200 billion, partly with the help of biodiversity offsets. BloombergNEF estimates that the nascent global bio-credits market could hit $160 billion by 2030. A host of intermediaries — banks, traders, asset managers and carbon offset devotees — are gearing up to take a slice.
“Biodiversity is about to be one of the most significant asset classes in the world,” said David Dorr, founder and chief executive officer of Dorr Asset Management, a firm in the Cayman Islands that plans to trade biodiversity credits.
Where those billions end up will determine the market’s fate. Dodgy deals and dubious profiteering have tarnished reputations and disrupted trade in the more-mature sister market for carbon offsets. It remains to be seen whether biodiversity credits will do any better to ensure that a fair share of the proceeds goes to those doing the real work.
Read More: Controversial New Law Could Remake English Countryside — And Not in a Good Way
England wants to show that its version of the biodiversity plan will create a big impact, but it has challenges to overcome.
Analyses of projects implemented by six early-adopter councils found that, in the absence of improved governance, the scheme “risks poor outcomes for biodiversity.” That chimes with studies on biodiversity offsetting programs in Australia, Canada and at a global level, which concluded that most are unsuccessful. Researchers found that two thirds of biodiversity offset schemes globally failed to achieve a “no net loss” result. They’ve been undermined by a low supply of credits, weak oversight and the outsized expense of designing and using a practical, real-world measure for biodiversity losses and gains.
After three decades of biodiversity offset policies, “there’s generally a lack of evidence on whether they work,” said Megan Evans, senior lecturer in public sector management at the University of New South Wales, Canberra.
Bella Lowes, a farmer and interior designer, and Toby Diggens, a landscape architect, are a thirty-something couple managing a small cattle farm in southwest England. They acquired Puddington Moor two years ago by taking out a monthly £900 mortgage, and now they want to return it to its former glory — a flourishing meadow of purple moor grass, orchids and wildflowers that draws the local wildlife.Years of intensive vegetable farming by the previous farmer exhausted Puddington’s soil. Flora and fauna fled the scene. To finance its rebirth, the couple turned to Environment Bank to help access England’s new biodiversity offsets scheme. The pair leased Puddington to EB and will receive about £9,000 each year for 30 years. In return, they must manage the plot to meet certain habitat goals.
To generate credits, an EB ecologist uses a government-devised metric, studying factors such as the type of habitat, its condition and distinctiveness, and the likelihood the rejuvenation will be achieved. It’s “essentially a calculator,” said Emma Toovey, ecology director at EB.
Environment Bank expects to generate about 60 credits from Puddington and can sell those immediately. The field’s transformation from degraded farmland to species-rich grassland will take a lot longer. An EB ecologist visits once a year to assess the number and abundance of plant species, and to check whether Puddington is on track to meet its biodiversity goals. They then report back to the local authority responsible for compliance.
For Lowes and Diggens, the long-term contract provides a steady annual income that’s up to four times the £2,400 or so they’d expect to earn if they just farmed the plot. The gains are even larger for Environment Bank. If each credit sells for £20,000 to £25,000 — as the UK government and EB anticipate — EB stands to reap up to £1.5 million in revenue from the field. Their end profit will be less given the “substantial” overhead costs, EB said. These include legal and administrative fees, ongoing monitoring as well as the cost of initial restoration tasks.
England’s approach to biodiversity offsetting is largely untested and there are risks. Credits are generated and sold to developers for immediate use based on projected, not achieved, nature gains. That means credits used to secure planning permission may not reflect real-world progress. A similar issue has tarnished the carbon-offsets market where project developers’ carbon reduction or removal claims have often fallen well short of the actual abatement delivered.
Read More: UN Says New Biodiversity Credits Can Succeed Where Carbon Offsets Failed
“We’re trading a certain degradation in the environment for an uncertain gain,” said Katherine Simpson, environmental economist at the University of Glasgow. “The concern is the safeguards. How is this going to be regulated? How is it going to be monitored? How is it going to be followed up?”
In England, the job falls to local authorities that are often understaffed and under-resourced. Although funding for local ecologists has been increased to £16.7 million from about £4 million, it may not be enough. “There is a real danger that a company has been allowed to strike a liability of its balance sheet, but the world has not improved,” said Sophus zu Ermgassen, ecological economist at the University of Oxford.
Lowes and Diggens are optimistic and have made progress in reviving Puddington, a project they say will take up to 12 years to finish. The couple has planted barley to strip the soil of excess nutrients from years of fertilizer use, and spread wildflower and grass cuttings to seed the degraded field. They’ve planted bushes for animals to nest, rest and eat, and dug shallow depressions to collect rainwater where they can drink. Their cattle occasionally graze on the plot, turning and fertilizing the soil.
Puddington “is like a recovering drug addict,” said Diggens, noting that goldfinches, reed buntings and skylarks have returned to the area.
On a recent afternoon, Lowes examined a few holes in a depression caused by a cow’s hoof-print. She identified them as beak marks of a snipe, an endangered bird that’s also been visiting.
“We’ve taken a field that was completely trashed and will never have to go through those human processes again,” Lowes said. Diggens added: “We’re happy with the deal we got. Our principal goal is to restore habitat.”
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