Article prepared by John Lockhart, Chairman

Background

Undoubtedly, one of the strongly emerging themes of 2018 has been the rise in the prominence of Natural Capital.  However, there does seem to be a huge amount of confusion as to what it really is and what, if any relevance, it has or is likely to have in our professional and business lives.

This short article aims to provide a brief introduction to Natural Capital and some useful signposts as to where you can access further information to provide you with a better understanding of why Natural Capital should be a key part of your thinking as we plan for a post-Brexit future.

 

Government Policy

In its 2011 White Paper, The Natural Choice, and repeated in successive manifestos, the Government has stated it wishes to be “the first generation to leave the natural environment of England in a better state than it inherited…”

To help achieve this aim the government formed the Natural Capital Committee.  One of their key recommendations was the development of a clear long term Environment Plan, but it was not until this spring that this plan finally arrived in the form of  “Our Green Future: A 25year plan to Improve the Environment”.  This was then closely followed by the consultation paper “Health and Harmony: the future for food, farming and the environment in a Green Brexit”, which started to set out the government’s thinking on the future of agricultural subsidies and land management support.  The key theme of this document is the proposed move away from support for agricultural production to a system of, as yet undefined “Public Payment for Public Goods”.

Natural Capital was the guiding principle for both of these documents and as such, having a sound understanding of the principles will be essential if we are to understand how the rural sector will be supported and regulated in a post-Brexit world.

 

So what is Natural Capital?

Natural Capital is our ‘stock’ of waters, land, air, flora, fauna, minerals and oceans.

As such, Natural Capital is simply those assets provided by nature, which have the capacity to generate goods and services.  In summary, it is the source of all other types of capital: whether manufactured, financial, human or social.

The benefits that people derive from this Natural Capital are known as Ecosystem Services.

 

Current Position

Since its inception in 2011, the Natural Capital Committee has reported annually on the state of the UK’s Natural Capital.  The underlying and salutary messages are that it is in long-term decline and that this decline is threatening our economic prosperity and opportunities for growth.

The benefits are well understood and researched and can be valued and quantified.  For example:

  • better health and wellbeing;
  • educational opportunities;
  • recreation and tourism;
  • sustainable supply chains;
  • better carbon retention and sequestration;
  • better catchment management and natural flood protection;
  • better soils;
  • enhanced and more accessible landscapes; and
  • greater biodiversity.

Values for Natural Capital are significant. In 2018, the Office of National Statistics estimated the value of the UK’s Natural Capital at some £761billion. Figures have been calculated based on capitalised annual flows of services.

 

Practical Assessment

One of the issues around Natural Capital is undoubtedly the over complication of the assessment of the baseline position and then a lack of practical market opportunities that exist to enable what can be demonstrated to be highly valuable assets in relation to Natural Capital into viable revenue streams.
Landowners and managers have a fundamental understanding of Natural Capital values and in many instances land management decisions and policy is unconsciously guided by this understanding.

The CLA have sought to promote a Land Management Contract through which farmers and landowners would be paid for the provision of the Ecosystem Services with defined measures and outcomes based on science, evidence and societal needs.

In light of current thinking, this understanding needs to be more focused and qualified. Landowners and managers need to review their assets and look at them through a new lens focused to highlight the emerging opportunities. It will be critically important to understand what assets are present and their relative values and potential opportunities.

 

Knowledge is the Key

One of the characteristics of the Natural Capital field is the vast range of academic research and the vast range of emerging tools and methodologies that are now coming forward to support the wider understanding in this area. These provide levels of academic rigour and understanding that will help in the development of structures and opportunities for economic investment. It is now possible to calculate with some rigour how changes in land management within a river catchment will reduce flows and thereby flooding risk.

The range of guidance and tools is too extensive to cover here in anything other than cursory detail.

However, to provide some key links:-

Natural Capital Committee:
Ecosystem Knowledge
Royal Institution of Chartered Surveyors

 

Market Development

One of the key challenges we face is the current lack of simple pathways to market. There is much evidence that has been recorded in favour of the natural environment such as: our woodlands actively sequesting carbon; grasslands and wetlands reducing flood risk and improving water quality; access to our natural environment providing benefits to our health and well-being; and our urban trees improving air quality and providing essential shade and shelter. However, evidence to support and reflect the financial returns of these benefits is still in its infancy.

In December 2016, Defra published its review of 16 payments for ecosystem services pilot projects that it supported between 2012 and 2015.

In September 2016, Green Alliance and the National Trust launched a proposal for a Natural Infrastructure Scheme, an area based market in avoided costs, delivering environmental improvements by bringing together groups of land managers to sell ecosystem services to groups of beneficiaries.

The Defra best practice guide on payments for ecosystem services is a helpful introduction to what the approach is and how it might be applied in the UK. A copy can be downloaded from the Ecosystems Knowledge Network website linked above.

However, I think as landowners, managers and stakeholders we need to get onto the front foot. In the first instance, we need to review, map, document and value our Natural Capital Assets. We then need to consider who needs what we have, and work together with both private sector and public sector partners to develop market opportunities.

 

In Summary

Natural Capital is here to stay and is gaining ground and credibility. It is guiding Government thinking and they currently see BREXIT providing a great opportunity to embed their environmental objectives into British Law; and to shape new agricultural and land management policies and a new framework for environmental protection.

Enhancing Natural Capital makes good practical economic sense and our challenge is now to develop programmes and structures that start to properly reflect the real value that the provision of these public goods provides to society as a whole.

 

 

 

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