Understanding natural capital and its opportunities

Natural capital is a term we will become much more familiar with in the coming years. It refers to the world’s stock of natural resources and was defined by the Natural Capital Committee as that part of nature which directly or indirectly underpins value to people, including ecosystems, species, freshwater, soils, minerals, the air and oceans, as well as natural processes and functions.

With an increasing focus on natural capital, as part of the wider sustainability agenda, what should landowners be aware of and what opportunities does this create?

Adopting a natural capital approach

The government’s policy document ‘A Green Future: Our 25-year plan to improve the natural environment’, incorporates a natural capital approach into decision making and the development of policies, which will impact on land owners.

Examples of this approach in practice can be seen in the government’s Environmental Land Management schemes, which is intended to support the rural economy whilst also achieving the goals of the 25 Year Environment Plan. Through the scheme, farmers and other land managers will be rewarded for farming sustainably and benefiting the environment. For example, they may enter into agreements to be paid for delivering clean water or thriving plants and wildlife.

The first of the schemes, the Sustainable Farming Incentive, is being piloted from this year. This will reward farmers for managing their land in an environmentally sustainable way and will require them to achieve certain standards for certain types of land, such as grassland, farm woodland or hedgerows.

Alongside the approach set out by the government, the British Standards Institute (BSI) introduced a Natural Capital Accounting standard in June this year. This new standard provides organisations with a better understanding of how their operations impact and depend on natural capital and how to ensure this is maintained sustainably for the future. This knowledge can then inform future decision making to ensure natural capital is included as part of the business planning process.

What opportunities does natural capital create for landowners?

Alongside the obvious environmental benefits of adopting a natural capital approach, there are also monetary gains to be made. As subsidies are phased out post Brexit and replaced by other payment schemes, you may look towards capitalising on the natural resources available to you on your land. In doing so it is important to consider any legal implications.

One opportunity that is intrinsically linked with natural capital is diversification, where land owners branch out from traditional farming methods to create other streams of income. Diversification may involve looking at the natural resources available to you and seeing how both you and wider society can benefit from these resources.

For example, woodland and trees are a key natural element which can be capitalised on. From an environmental perspective, they absorb carbon dioxide, reduce flooding, and provide natural habitats for wild animals and livestock. However, they could also provide an income stream through a diversification project, which would not only have direct financial benefits but may in turn provide employment in the local area or other benefits to the public. Legally this could require planning applications and the relevant permissions, as well as health and safety and insurance considerations.

Tenant farmers may need the landlord’s permission for diversification projects and for the lease to be reviewed by a professional, so they understand what steps need to be taken and to identify whether there are any restrictive covenants in place that prevent this type of development.

As you begin to consider how you can create value from your land’s natural capital, we would advise you seek professional legal advice, particularly if changes are being made to the land which could require review of documentation or legislation, consent or permissions.

This article was first published in the September 2021 edition of South East Farmer.

This content is correct at time of publication