A report released in 2021 - The Finance Gap for UK Nature (opens new window) - highlighted there is a minimum of £44 billion to £97 billion funding gap in the UK over the next decade if we are to achieve the UK`s nature-related outcomes, for example the targets set out in the Environmental Improvement Plan (opens new window).

Although The Credibility Gap for Green Finance (opens new window) report, produced by Community Land Scotland (opens new window) notes that a large proportion of the costs associated with woodland creation in particular are made up of land acquisition. Whilst purchase of land for nature recovery is not a pre-requisite, this still leaves a large finance gap if we want to see nature recover.

We need money from private sources to help top up this shortfall, in recognition of the many benefits nature directly and indirectly provides to businesses and individuals.

Organisations have been contributing financially to action to restore nature for many years, such as utilities companies funding blanket bog restoration. In return, nature cleans the water and slows the flow, things which the companies would otherwise have to spend money on by creating hard infrastructure or other mitigation measures. This is commonly referred to as a ‘nature-based solution’.

There are an increasing number of different types of business now investigating how they can invest in nature through ‘green finance’, including through Biodiversity Net Gain, carbon and biodiversity credits. However, with several large organisations accused of ‘greenwashing’, and suspicion of private investors, there is a need to explore how to place trust in these financial markets, and make them accessible to those that need them. There is a particular need to ensure that groups typically excluded from participating in these markets, such as owners or managers of small landholdings, and community groups, are not marginalised further as the scale of investment increases.

The Green Finance Strategy (opens new window) sets out how the government plans to direct our national and global transition to a ‘resilient, nature-positive, net zero economy’ by leveraging more private finance into nature restoration to meet the aims of the Environmental Improvement Plan 2023 (opens new window). These include the goal to raise at least £500 million in private finance to support nature’s recovery every year by 2027 in England, rising to more than £1 billion per year by 2030. The Nature Finance Review 2023 (opens new window) by Ecosystems Knowledge Network provides a review of the pipeline nature finance projects in the UK.

For nature

• Bridge the gap, so funding is at levels required to deliver rapid nature recovery at scale.
• Funding for activities not included in publicly-funded schemes.
• Conservation covenants give longevity to funding and works more on nature’s timescales, helping nature persist into the future.
• Utilities companies can invest in natural processes to improve water quality, and mitigate flood risk.
• Corporate partners involved in nature recovery can raise awareness of the investment need in nature amongst their customers, as well as providing financial support for nature projects.

What else can private finance deliver?

• Payment stacking - blended finance from multiple revenue streams to support different actions.
• Helps businesses build the benefits of nature into their financial modelling.
• Deliver public expectations of investment in nature.
• Helping to combat the effects of the climate and biodiversity crises will ultimately make businesses more sustainable.
• Natural flood management and water quality improvements are often significantly cheaper, particularly over the long term, than hard infrastructure and chemical or mechanical treatment.
• Private finance could provide long-term investment, giving surety to farm businesses and enable better financial planning.
• Provide alternative income streams to farmers to diversify their business.

In practice

• The Nature Markets Framework (opens new window) sets out principles for how Defra expect new and developing nature markets to grow so that they are fair, effective and accessible.
• Explore existing, more established markets and standards such as the Woodland Carbon Code (opens new window) and Peatland Code (opens new window).
• Options for facilitating private finance in the Peak District are being explored, including by the Peak District National Park Authority through an Environmental Land Management Test and by Peakland Environmental Farmers (opens new window) through a farmer-led approach. A collaborative approach providing a simple and efficient link between purchasers and those selling environmental services is likely to work best for upland family farms in the Peak District.
• Private finance initiatives should ensure their proposals are appropriate to the area, adhere to existing environmental policies and strategies, and consider their holistic environmental impact, including landscape, cultural heritage, carbon, flood risk and biodiversity.
• Tools such as the Investment Readiness Toolkit (opens new window) can be used to help guide nature-based projects.
• From early 2024, Biodiversity Net Gain (opens new window) will become mandatory, meaning that all relevant developments will be required to evidence a 10% net improvement in biodiversity through on or off-site habitat restoration measures.

CASE STUDY Peakland Environmental Farmers - the farmer-led approach