Biodiversity Net Gain: One Year On
Sam Willis, Biodiversity Consultant at Ramboll, outlines opportunities for UK-based property developers and investors to hedge financial and nature risks.
February 2025 marks the one-year anniversary of statutory biodiversity net gain (BNG), with UK developers now required to deliver a minimum 10% net gain on their developments, through on-site or off-site mitigation or via biodiversity credits. Recently, the Department for Environment, Food and Rural Affairs (DEFRA) announced that the process is under ‘active review’ to analyse whether statutory BNG is “achieving its stated outcomes on nature, planning and people”. This review provides an opportune moment to reflect on the statutory BNG process and explore its potential benefits for ESG professionals, investors, and the wider UK.
Reducing investment risk
When a developer is unable to achieve a 10% BNG on-site, they must provide biodiversity units off-site or purchase biodiversity credits. This has led to the creation of a biodiversity credit market in England, including habitat banks. These are areas where habitats are created and restored in advance of any development, and quantified in biodiversity units, which developers can then purchase to offset biodiversity loss within their developments that cannot be mitigated for on-site. Environmentally, habitat banks act as repositories of ecological value and should increase the rehabilitation of damaged and degraded habitats.
DEFRA has encouraged the growth of this commercial market by marking up their own biodiversity credit prices, thereby encouraging developers to use the private market. The department estimates the market for off-site biodiversity units will be worth between £135-£274 million (US$170-US$345 million) annually. This has the potential to create significant opportunities for private investment in nature conservation as financial institutions and impact investors realise the potential of investing in sustainable land use.
Biodiversity loss represents a significant risk to firms, with over 72% of global companies acknowledging that its drivers, such as climate change and pollution, will pose a risk to their business models by 2030. Biodiversity finance in investment portfolios can be a strategic move to reduce risks associated with environmental degradation and regulatory compliance. Statutory BNG reduces financial risks by enforcing regulatory compliance, reducing the risk of legal penalties and project delays. Applying BNG demonstrates a commitment to sustainable practices and can help raise companies’ profiles, while the management and monitoring requirements of BNG ensure an increase in ecosystem stability and resilience.
Investments in biodiversity projects can also act as a hedge against potential future costs arising from biodiversity loss, new regulations and requirements. It offers a proactive approach, with the positive outcomes of statutory BNG helping mitigate risks such as ecosystem degradation across the UK. Developments that stringently apply BNG will be better positioned to comply with new legal requirements that may result from government reviews, which can support developers to mitigate costs associated with retrofitting their developments to new standards. Investors can also mitigate risks that may impact project viability, ensuring a more stable return on investment while supporting the environment and aligning themselves with sustainable practices.
As statutory BNG is in its infancy, there are some gaps in governance that could lead to investment opportunities. Developers may still face challenges in offsetting for rarer habitats such as lowland mixed deciduous woodland. Habitat banks have shown preferences towards habitats such as other neutral grassland, which are generally easier to create and maintain than rarer habitats. Gaps in the market such as rarer habitats may provide low-risk investment opportunities to meet this demand, and lead to an increase in rare, high-value habitats, benefiting local wildlife and biodiversity.
Measuring positive outcomes
Investors need reliable methodologies to assess the effectiveness and impact of their contribution to BNG projects; they are also needed to support informed decisions on sustainable growth strategies and mitigating impacts on nature. Statutory BNG is underpinned by the use of a standardised, robust metric that is built on years of knowledge and testing (the first BNG metric was published in 2012 and has been used by many developers voluntarily since its onset). As BNG is monitored closely by local planning authorities (LPAs), and the methodology is public, statutory BNG supports transparent and credible reporting, which is essential in supporting markets to efficiently transition to nature-smart approaches.
Through BNG, developers have a reliable methodology to assess the effectiveness and impacts of their contributions to BNG projects. Via the proxy of biodiversity units in the BNG metric, positive outcomes achieved by a project are quantifiable, trackable and demonstrable to investors and governance bodies. This can provide investors with confidence that their funds are generating tangible ecological improvements, while being monitored closely by the relevant governing bodies. It can also inform ESG due diligence criteria as part of property transactions where biodiversity risks and opportunities are identified.
BNG has also been shown to achieve positive social outcomes. As BNG projects create green spaces and often enhance local biodiversity, the process can foster enhanced community well-being in addition to supporting local wildlife and Nature Recovery Networks. Investment into BNG can also stimulate local economies through job creation in conservation, landscaping, and environmental management, supporting community engagement and strengthening the bonds between developers and their local communities.
Alignment to reporting frameworks
The statutory BNG process encourages the alignment of biodiversity investment outcomes with recognised reporting frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) and the Global Reporting Initiative (GRI) via the use of a standardised metric, and the built-in transparency and accountability developers must demonstrate. The standardised metric also facilitates comparability with frameworks like the TNFD and GRI, as it follows an ecosystem- or habitat-based approach that is both repeatable and robust.
The statutory BNG process’ alignment to reporting frameworks has the potential to support the growth of BNG and the biodiversity offsetting market globally, demonstrated by adaptions of the statutory metric being used on a global level to further positive biodiversity outcomes. BNG also has the potential to be integrated into global agreements, such as the Global Biodiversity Framework, helping to align national policies with international biodiversity targets and supporting the growth of an international biodiversity credit market.
This article was co-authored by Robert Nussey, Nature Positive Manager, Ramboll.
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