PERSPECTIVE3-5 min to read

How restoring nature can deliver profit with purpose

The growing market for natural capital, as well as changes to UK planning law, have created even more reason for landowners to consider nature restoration.

17/11/2023
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Authors

Samuel Bosanquet
Family Office Services Director

Britain’s countryside lies at the heart of some of the most pressing challenges facing the UK today: ensuring food security, reducing emissions and restoring biodiversity. The government’s response is reshaping how farmers and other landowners are thinking about land use. A wide range of measures have been introduced that, taken together, are allowing landowners to generate meaningful income from more sustainable land management.

Perhaps the best known example of this is “rewilding” – the practice of allowing land to return to its natural state. The approach was pioneered by the Knepp estate, a farming enterprise in Sussex that now attracts some 30,000 visitors every year. Its success, along with more recent government incentives, has prompted many other estates across the UK to follow its example. Rewilding Britain lists dozens of rewilding projects across the country.

However, rewilding can only ever be part of the answer. If nothing else, rewilding too much farmland could require us to import more food – and export more of the environmental cost of its production. Many of the government’s newer measures are therefore designed to support more sustainable farming. These are likely to involve some elements of nature restoration, but clearly have a very different set of objectives to rewilding.

We do not advise on land management. Nevertheless, we have been involved in a number of client conversations on the topic in recent years. Agricultural land benefits from inheritance tax exemptions, but it is not yet clear whether these will also apply to land that is solely used for nature restoration (a government consultation is underway). So changing how land is used can have tax implications. It will also have an impact on the income from and value of a property, which could well have a bearing on a family’s broader wealth strategy. From recent conversations, there are several key points to highlight for landowners interested in nature restoration.

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A foliage lion statue was installed in Trafalgar Square by Innocent drinks company as part of a rewilding campaign in London, UK.

Our perspective

Firstly, it’s an evolution rather than a revolution. Some high-profile nature restoration projects have involved the decision to rewild an entire estate. But it can start with a relatively small piece of land and be introduced very gradually. Income can be generated by modifying existing farming practices, or alongside them. So landowners can take their time to find the approach that works best for them.

Secondly, you will need well-informed advice. Qualifying for payments under nature restoration schemes often requires landowners to hit measurable targets. This will involve technical and commercial advice on what you can achieve with your land and the broader economic impact. We are happy to make introductions to qualified advisers.

Lastly, as in the world of investment, landowners should avoid putting all of their eggs in one basket. “Diversification, lies at the heart of running any successful rural land enterprise,” says consultancy Real Wild Estates, who advise a number of estate-owners. “Rather than placing a heavy reliance upon any one source of revenue, landowners should be creating diversified rural business plans that are resilient to both market and policy changes.”

New revenue sources

Over the past couple of years, the tapering of the Basic Payment Scheme and the heightened awareness of the vulnerability of the countryside has resulted in landowners being increasingly interested in potential income from several new revenue sources, in particular environmentally beneficial ones. These encompass payments from government-backed initiatives as well as private market participants.

  • Environmental Land Management
  • Carbon and nitrate credits
  • Biodiversity net gain units

Environmental land management

UK farmers are already benefiting from the governments environmental land management schemes (the umbrella term for a range of packages). This includes Countryside Stewardship grants, which have been available for several years. The Sustainable Farming Incentive, launched over the summer, will provide grants at pre-specified levels for a wide range of specific farming-related activities (including not farming, as some farmers have noted). In many cases, these schemes are allowing farms to operate at a profit, with environmental purpose. Depending on the structure of the farm’s operational and occupancy agreements, some grants may be payable to occupiers rather than owners. These initiatives therefore need to be considered very carefully.

Carbon and nitrate credits

The “Woodland Carbon” regime aims to encourage the creation of new woodland in order to lock up carbon on a permanent basis. The government has committed to buying Woodland Carbon Units – a form of carbon credit – for a guaranteed price every five or ten years up to 2055/56. As of the end of 2022, ten hectares of woodland is needed to create a Woodland Carbon Unit. Units can also be sold to other private market participants who may need to buy carbon credits – such as property or infrastructure developers. Carbon credits can also be generated by restoring peatland, governed by the Peatland Code. Nitrate credits operate in a similar manner but for now can only be sold in the private market. Credits are purchased by property developers who need to offset the nitrate footprint of new buildings. Credits can be created by taking agricultural land out of intensive farming and reducing nitrogen inputs.

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Wild things: artists Catherine Borowski (R) and Lee Baker pose with ‘Graphic Rewilding Flower Clouds’, a 3D sculpture inspired by the flora and fauna of Chelsea, London, on 15 June 2023.

The new planning regime

From late 2023, most developments in England will need to contribute to UK biodiversity to get planning permission. Under proposed plans, developers will need to not just replace the biodiversity they cause to be lost – but increase it by 10%. In practice, this means that developers will have to pay farmers and landowners to improve their land to achieve gains in biodiversity. “Biodiversity net gain” units are already being sold. However, prices are volatile, the market is complex and there remains a high degree of uncertainty. The improvements that landowners must make depend on the “distinctiveness” of the land on which developers are looking to build. Habitats of high distinctiveness can only be replaced by land of similar or higher distinctiveness. As a result, the value of biodiversity net gain units can vary greatly.

Proceeding with caution

The shift in the direction of government policy and the creation of new enviro-capital markets sound good news for landowners. However, the journey could well be volatile. We have seen companies in the sector go bankrupt and the government make significant U-turns. The change in approach on “nutrient neutrality” for housebuilders is just one example. This reversal has made a number of environmental projects lined up by farmers unviable.

Many of our landowning clients are motivated by the ideals of rewilding. In reality, however, there are not many large estates that can afford to simply let nature take the driving seat. They need to generate income – and the new economic incentives around nature restoration will play a hugely valuable role in helping them achieve this, as well as protecting UK food supply. They may also open the door to options that were not previously feasible, such as ecotourism and hospitality – and a more entrepreneurial journey than traditional land ownership.

Several of our clients have been targeting nature restoration in their land-owning strategy – for reasons of both principle and profit. Ethical considerations have prompted some families to give up the use of pesticides entirely to promote biodiversity, prioritising long-term benefits over short-term returns. To enhance financial returns, we have seen other families using regenerative farming practices (“no-till” farming) to sequester carbon into the soil. A range of advisors independently verify the carbon sequestration and match the families with companies looking to reduce their carbon footprint. The revenues can be surprisingly additive to the farm’s income stream.

Authors

Samuel Bosanquet
Family Office Services Director

Topics

Biodiversity
Natural Capital
Market views
Climate Change
Sustainability
Environmental
Dialogue
Family offices

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The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.