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Introduction toNature Markets Assessing landopportunities Working withother farmers Baselining,planning andmeasuring Workingwith buyers Farm businessplanning Liability & riskmanagement Using repayablefinance Signing legalcontracts Public sectorfunding & policy Tenancy &ownership
  1. Groundwork
  2. Market Engagement
Introduction toNature Markets Assessing landopportunities Working withother farmers Baselining,planning andmeasuring Workingwith buyers Farm businessplanning Liability & riskmanagement Using repayablefinance Signing legalcontracts Public sectorfunding & policy Tenancy &ownership
  1. Groundwork
  2. Market Engagement

 

How do public sector funding and policy align with nature markets?

 

In England, the role of public funding and support to farmers is undergoing change on a scale not seen in decades. The government hopes to strengthen the link between environmental and farming practices to meet its climate and nature restoration targets, while maintaining food security and the viability of farm businesses across the country.

This section offers a summary of how government is working with farmers to access nature markets, and provides guidance on:

 

  • How nature markets might work with public subsidy schemes,
  • What development funding is available for farmers to explore their opportunities,
  • What ‘market infrastructure’ the government is supporting – including Standards and Codes.

 

What do I need to know about nature markets to begin with?

 

This section of the Toolkit provides a brief overview of nature markets in England and how they relate to farmers. It is designed to answer some of the early questions that farmers may have around nature markets. All Toolkit content, including this Introductory section, will be updated regularly.

 

What market opportunities are available to me based on my land and goals?

 

This milestone will guide you through an initial assessment of your land as you determine what your broad vision is in relation to nature and help you to identify what opportunities might be available to you to attract private sector finance.

The actions taken at this stage can be taken before you’ve made the firm decision to engage in nature markets. The considerations presented in this milestone will help you determine whether nature market participation makes sense for your goals, the condition of your natural capital and your farming business.

You can also apply many of these considerations to develop a broader vision around your natural capital and other potential funding sources – such as government grant schemes or philanthropic funding.

 

Will I need to partner with other farmers, and if so, how?

 

Once you have a vision for your farm, the environmental enhancements or changes you want to make and a sense of the related income opportunities, you may want to consider joining up with other farmers in your area to implement your outcomes at scale to attract buyers.

Aggregation models, often started among  farmer clusters or as farmer cooperatives, bring together multiple farmers or landowners to collectively participate in nature markets. These models aim to harness the combined efforts and resources of farmers to maximise environmental benefits and economic opportunities. This section will introduce the factors that may influence your decision to join up with other farmers and some of the key considerations to keep in mind when setting up and participating in such a group.

 

How do I measure the environmental outcomes that I can produce in a robust way?

 

At this stage you will have developed an overarching vision for your land and a rough plan for what you want to improve. You will now want to make robust baseline measurements of the condition of your land and develop a detailed plan for interventions and intended outcomes. Plans will also include how you intend to maintain your interventions, measure the impact you are having and verify your outcomes in order to sell them.

 

How should I identify and approach buyers for my outcomes?

 

During your initial project scoping, you may have identified potential buyers of the environmental outcomes you are planning to deliver. Now that you have a project plan and a robust baseline, you will be ready to approach and engage buyers more formally.

Buyers will vary in their expectations and requirements. This milestone will help you prepare for initial conversations with potential buyers to ensure you are empowered to ask the right questions and present a project that will attract a fair price. Your buyers may be within your own supply chain such as retailers and businesses, or organisations who benefit directly from your ecosystem services such as water companies or firms who seek to offset their own environmental impacts.

 

How would this project fit in with my current farming business model?

 

Nature market projects are often just one part of a farmer’s wider business. Some people compare building nature market projects to developing ‘micro businesses’ for the farm. As such, much of the content you see here will be familiar to you.

However, these projects also have key features that separate them from the businesses that farmers usually engage in. For example, the longer timeframes associated and the current uncertainties relating to how nature market projects (and the deals that result) can be blended with government schemes.

Below is a list of questions that will help you think through how to incorporate these projects into your current farm business plan. This includes considerations on building a cashflow or partial budget, but also the less quantifiable factors, such as the potential drawbacks and opportunities to your wider farm that sales of present.

 

What kind of risks should I be aware of and how can I manage them?

 

Like with any aspect of a farm business, risk management is critical – especially for nature market projects that can run over several years. As the landholder, you may be leading the development of the project, be part of a wider group of farmers, or be working with a third-party project developer that is taking the majority of the risk.

In any case, it’s advisable to have a clear understanding of the likelihood of the risks involved, what will happen if the risk materialises, what you as the landholder might be liable for, and how the risk is being managed to prevent this liability.

This Milestone sets out the different types of risks that nature market projects (and the deals that result from them) often carry. The last section covers the types of legal entities that farmers might form, as these can help to manage certain risks and benefit the overall operations of the project.

 

Is it possible to use repayable finance upfront to meet any of the costs?

 

Repayable finance from investors – typically debt or equity – is not always necessary in nature markets if upfront costs can be met by the buyer or through grants.

It’s also important to note that, even when repayable finance is needed, farmers do not necessarily have to secure this themselves.

In the UK, there are very few examples of individual farmers taking out loans and no examples of farmers issuing shares to use specifically to finance a nature market project. Typically, the upfront capital required is organised by a third party – for example, a third-party project developer, a broker etc.

However, as nature markets develop further, and in the case of larger farms, there is potential for farmers to secure repayable finance and meet up-front costs, as with other parts of their business.

The below therefore sets out some questions that farmers (and, more likely, third party project developers) could ask themselves to secure repayable finance from lenders and investors, whether that’s taking on finance independently, or as part of a larger group or partnership.

 

What do I need to be aware of when signing contracts?

 

This Milestone is about the legal contracts you will use and sign to officially commit to the project and transition it to a fully fledged deal. As business owners, farmers are familiar with contracts and understand the need to carefully review the details before signing any such agreements.

Any nature market deal is likely to involve legal agreements that will be tailored to each set of circumstances. However, for ease this Milestone sets out what contract set-ups are used in this space, common contract types, and other key considerations to ask yourself at this stage.

Disclaimer: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice that has been written by speaking with lawyers, farmers and other practitioners. We recommend that appropriate legal advice should be taken from a qualified solicitor before taking or refraining from any action relating to your contracts and projects.

 

Can I participate on tenanted land?

 

The tenancy and ownership structure of land can have significant implications for farmers engaging in nature markets in the UK. The rights of tenants in relation to nature markets is still not entirely clear in the UK and may differ on a case by case basis. Below are some key considerations which can help both tenants and landlords in asking the right questions when considering engaging in nature markets as policy and legal frameworks develop. Further guidance prepared by the Tenant Farmers Association and the Country, Land and Business Association can be found here. 

 

How do public sector funding and policy align with nature markets?

 

In England, the role of public funding and support to farmers is undergoing change on a scale not seen in decades. The government hopes to strengthen the link between environmental and farming practices to meet its climate and nature restoration targets, while maintaining food security and the viability of farm businesses across the country.

This section offers a summary of how government is working with farmers to access nature markets, and provides guidance on:

 

  • How nature markets might work with public subsidy schemes,
  • What development funding is available for farmers to explore their opportunities,
  • What ‘market infrastructure’ the government is supporting – including Standards and Codes.

Groundwork

 

We have separated out these Milestones into ‘Groundwork’ and ‘Market Engagement’ to indicate which Milestones you will want to read as you consider and/or prepare for nature markets (Groundwork) and those you will move through if and when you decide to become a seller of environmental outcomes (Market Engagement).  

We recommend all farmers read through the Groundwork Milestones in addition to the Introduction to Nature Markets in order to understand better whether nature markets are for them, and how they can, at the very least, explore and baseline their farms so they are ready for any opportunities that may arise later.  

Market Engagement

 

We have separated out these Milestones into ‘Groundwork’ and ‘Market Engagement’ to indicate which Milestones you will want to read as you consider and/or prepare for nature markets (Groundwork) and those you will move through if and when you decide to become a seller of environmental outcomes (Market Engagement).  

We recommend all farmers read through the Groundwork Milestones in addition to the Introduction to Nature Markets in order to understand better whether nature markets are for them, and how they can, at the very least, explore and baseline their farms so they are ready for any opportunities that may arise later.  

 

This milestone contains three subsets of considerations or ‘themes’ that farmers may want to explore at this stage. Click on each of these themes to the right in order to read more.

Next Milestone
Government Schemes

Government Schemes

 

Today, farmers face a degree of uncertainty as to what their public funding choices will be in the future, due to the phasing out of Basic Payment Scheme (BPS) by 2024 – to be replaced by Delinked Payments until 2027 – and the introduction of the Environmental Land Management schemes (ELMs).

On top of this, farmers are often invited to participate in nature markets, but are concerned that any offers – no matter how lucrative now – will exclude them from more advantageous public funding in the future. This is a legitimate concern, and one that the government is trying to address with further rules and clarity to be provided.

The Government has stated its desire for ELMs to work alongside nature markets and private sector finance, as set out in the ELMs Payment Principles.

Below offers a brief description of the most common public grants and offers that are tied to environmental practices, along with what has been stated so far as to their blendability with nature markets.

 

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Sustainable Farming Incentive
ELMs Overview Activities Dates and grant values ‘Blendability’ with Nature Markets
Sustainable Farming Incentive Sustainable Farming Incentive (SFI) is a new scheme that is designed for mass uptake. If you were eligible for the Basic Payment Scheme (BPS) in 2022 or 2023, you’ll be able to apply for the SFI.

 

SFI is a 3-year agreement made up of a choice of environmental land management actions you need to complete to receive payment.

 

SFI was designed around actions that can be take alongside general farming practices.

 

You can apply for up to 23 actions for:

  • soil health
  • moorland assessment
  • hedgerows
  • integrated pest management
  • nutrient management
  • farmland wildlife on arable and horticultural land
  • farmland wildlife on improved grassland
  • buffer strips
  • low input grassland

 

The number of actions will expand each year until the full range is available by 2024.

Open date:

Farmers are now able to apply.

 

Closing date: to be confirmed.

 

Grant value: between £10 and £798 per hectare, depending on the action.

In 2024, we are taking a significant step forward to achieve that. We are:

In the Agricultural Transition Plan 2024 update, the government has stated its intention to increase payment rates by an average of 10% for SFI and CS.

Defra has confirmed that Sustainable Farming Incentive (SFI) applicants may enter the same area of land into an SFI standards agreement and a private sector scheme arrangement, such as carbon trading or payments for natural flood management, subject to any eligibility rules or additionality tests applied by the private sector scheme in question.

 

This approach will be reviewed annually.

Countryside Stewardship
ELMs Overview Activities Dates and grant values ‘Blendability’ with Nature Markets
Countryside Stewardship Countryside Stewardship (CS) is a pre-existing scheme that offers a wider range of options for farmers in terms of eligible activities and length of agreements. It has three main tiers:

  • Higher Tier – aimed at the most environmentally important sites, with agreements lasting 10 – 20 years
  • Mid Tier (including Wildlife Offers) – offering 5 year agreements.
  • Standalone Capital Grants – offering 3-year agreements.

Note: previously Defra had planned to replace the CS scheme with the Local Nature Recovery Scheme. However, in early 2023 it decided instead to amend the existing CS scheme, due to a higher-than-expected uptake.

There are c.250 CS grants with different actions attached.

You can use the CS Grant Finder to find specific actions that are eligible. You can also browse the grant finder for actions that generally improve:

Defra will also add 30 additional actions to the 250 actions already available to farmers by the end of 2024.

Closing date: some grants are open all year, others are time-limited. Please refer to the CS guidance and individual CS grants for more detail.

In the Agricultural Transition Plan 2024 update, the government has stated its intention to increase payment rates by an average of 10% for CS and SFI.

Defra intends for CS to dovetail with private schemes and markets for high-quality, accredited environmental outcomes, ensuring that private finance is crowded in. Further guidance on specific schemes is pending.

 

Landscape Recovery
ELMs Overview Activities Dates and grant values ‘Blendability’ with Nature Markets
Landscape Recovery

(Pilot)

Landscape Recovery (LR) will pay groups of farmers and land managers to co-design bespoke projects and agreements to produce environmental and climate goods across landscape scale projects.

 

Land must be in England and consist of at least 500 connected hectares.

 

The LR scheme is currently in pilot, with grants offered to c.50 farmers groups to help develop the scheme. So far, two rounds have been run and a third round is expected in 2024.

You can apply to join the Landscape Recovery scheme if you’re planning to do a landscape-scale project that supports:

 

  • net zero carbon emissions
  • ·protected sites
  • wildlife-rich habitat

 

The scheme will support outcomes that take a long time to deliver, such as peatland restoration, woodland management, or habitat restoration.

The LR scheme is expected to be rolled out for wider implementation in 2024.

 

LR projects will be selected in rounds, which will involve a competitive application process.

 

Defra have committed to launching a further round in 2024 and expect to continue to launch at least two annual rounds in future years as the LR scheme is scaled up.

 

Estimates of grant values have not yet been released.

Defra is keen to make the LR scheme ‘blendable’ with nature markets, and has made it a requirement of pilots across both rounds to explore this factor in their work.

 

Projects will be supported to develop credible proposals for attracting private finance, for example they will be able to use the LR grant to help them develop land management plans and create business models.

England Woodland Creation Offer

 

The England Woodland Creation Offer (EWCO) supports the establishment of new woodlands and is administered by the Forestry Commission.

EWCO has laid out a clear set of rules for combining payments for woodland creation with payments from nature markets. It offers a core grant for woodland creation, and landowners receiving this are eligible to register with the UK Woodland Carbon Code (subject to Code’s rules and requirements) to use carbon finance as well.

It also offers ‘additional contributions’, which are one-off payments to allow new woodlands to be designed to deliver additional benefits, including water quality and biodiversity. Recipients of an ‘additional contribution’ are not currently allowed to also sell these benefits as ecosystem service units in the market, as this would be considered double counting. In future Defra will allow the contributions to be repaid so that a woodland developer can instead sell water and biodiversity credits on the market if they wish to do so.

Note: EWCO will become part of the Countryside Stewardship scheme from 2025.

 

Farmers are encouraged to keep up to date with these schemes and research other grants available – such as through the government’s grant browser, to explore further grants that could be used alongside nature market trades.

Development Funding

Development Funding

 

It can take significant resources to develop an environmental improvement scheme before it gets to a point where it can generate any revenue or attract grants. These resources are often referred to as development costs.

While it is not always easy to decide if something is a development cost, it may be useful to think about this difference in the diagram below:

 

Depending on the project, some development costs can be covered by:

  • Special ecological grants – such as the Woodland Creation Planning Grant
  • Advance payments from buyers
  • Repayable finance – such as private equity offered by an angel investor
  • Funding from third party project developers – likely taking a larger share of the later income
  • Use of own funds – some farmers have invested their own savings into these projects

However, these options may not always be feasible. In this case, development grants can be a highly useful source of funding for farmers. Development grants are usually provided by government or philanthropic sources, and are non-repayable.

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Natural Environment Investment Readiness Fund (NEIRF)

 

As of January 2024, the most applicable source of development funding for farmers is through the third round of the Natural Environment Investment Readiness Fund.

The Natural Environment Investment Readiness Fund (NEIRF) is a development fund for projects that have the potential to produce revenue from the benefits nature provides, as well as projects able to produce an investment model that can be scaled up and reproduced. It is ran by Defra and the Environment Agency.

 

So far, grants of up to £100,000 have been given to 86 projects across two rounds – including environmental NGOs, local authorities, businesses, estate managers and farmers. These projects are targeting a wide range of environmental outcomes aligned to the 25 Year Environmental Plan – including improved soil health, water quality, and biodiversity uplift.

A third round for farmers is now open

On 11 December 2023, a third round of NEIRF was opened specifically for farmers. The NEIRF is offering individual grants of up to £100,000 to farmers that want to explore nature markets and other ways of leveraging private finance for nature. The goal is to develop replicable and scalable blueprints and business models that other farmers can use.

You can find more detail and the application form here. Applications close on the 16th of February 2024.

Note: As an advisor and assessor to the NEIRF, and having designed its original Monitoring and Evaluation plan, the GFI has assessed applications across both rounds and provides ongoing support to the NEIRF’s Community of Practice.

 

The GFI has been working closely with Defra and the Environment Agency to design this Farming Toolkit as an integral resource in NEIRF Round 3. It will be used to:

  • Help with the assessment of applications
  • Guide the monitoring and evaluation of the NEIRF Round 3
  • Support the Community of Practice – providing a common framework of understanding so that farmers can learn from each other more effectively.

As a result, we would encourage farmers that are interested in applying to NEIRF Round 3 to familiarise themselves with the Toolkit and consider how they might develop their projects via the Milestones. This approach is not compulsory, but may help with the development of your application.

 

Other Sources of Development Funding

While the NEIRF Round 3 is a bespoke development fund that is aimed at farmers wanting to explore their nature market opportunities, other sources of funding may be available that cover some of your development costs.

For example, if your project involves restoring a particular type of habitat or has a strong community focus, then other funding may be available for these specific activities. We would encourage farmers to search for funding that can cover some or all of their development costs.

 

Government Funding

Below is a brief list of government funding sources that have been known to overlap with farmers exploring their nature market opportunities. These may not be available year round, and we cannot guarantee that your own project will be eligible:

 

 

Other Funding

In addition to government support, there are a host of organisations, such as environmental charities, academics, and private companies, that may be willing to help you with certain development costs.

Many of these types of organisations received development funding from Rounds 1 and 2 of NEIRF themselves, and want to work with farmers in the near future to expand their models of delivering environmental outcomes with the use of private finance.

As a farmer, you may wish to start conversations with some of the below organisations, to see what plans they have of working with farmers in the nature markets space:

  • Your local Rivers Trust
  • Your local Wildlife Trust
  • Your regional Farming and Wildlife Advisory Group (FWAG)
  • Your local water company – (see here for a useful Farmers Weekly article on the types of schemes that water companies can offer farmers)

 

Standards and Market Rules

Standards and Market Rules

 

As a farmer exploring your nature market opportunities, you may hear about different Standards and Codes, asking what they entail and how suited they are for your deal.

We’ve included a section on Standards and Codes here because they can play an invaluable role in nature markets – setting rules and processes for buyers and sellers to follow in a way that makes deals more robust.

The UK Government is also supportive of Standards and Codes, and is developing an overarching set of market standards to provide oversight and regulation of the ones currently in development.

Below is a breakdown of the questions you might ask about Standards and Codes, to add further detail to the above.

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What do Standards and Codes do in nature markets?

In the context of nature markets, Standards and Codes provide processes that allow sellers and buyers to make trades with certain assurances and clarity.

For example, they typically set out processes for:

  • Measuring the environmental improvement, often building a scientific grounding over several years before becoming operational and offering such processes.
  • ‘Unitising’ the improvement to be understood by buyers and other stakeholders – such as with carbon units (tonnes of CO2e) and nitrogen credits (kilograms of nitrogen).
  • Selling the improvement to a buyer using processes to increase the integrity of the trade, such enforcing additionality tests, rules around public disclosures, disputes resolutions, and registries to prevent double counting.
  • Verifying whether the project plans to deliver, or is delivering the environmental improvement in a robust way and reliable way.

In this Toolkit, we use the words Codes and Standards interchangeably, as do many stakeholders in this space. However, you can find a more technical breakdown of the differences in our Glossary.

What Standards and Codes exist in England?

In England, there are several Standards and Codes that are either in operation or in development.

Each of these targets a specific habitat type (hedgerows, agroforestry, peatlands) or an environmental improvement that can be delivered from different habitats (Biodiversity Net Gain, Nutrient Neutrality, Wilder Carbon).

The below table summarises these Standards and Codes, including which ones are voluntary or compliance driven, and what organisation leads them:

 

How is the Government supporting these?

 

Support given so far

The Government is highly supportive of the use of Standards and Codes in nature markets, having given both development funding and direct input into several of those in development and in operation.

Notably, the English Government has created compliance markets for Biodiversity Net Gain and Nutrient Neutrality, which make it compulsory for property developers to offset their impacts on biodiversity and nutrient levels in local waterways – with the limited option of purchasing ‘offsite’ environmental improvements from landholders. The metrics and processes that the government uses to do this are not called Standards or Codes, but in practice they work in a similar manner.

In terms of voluntary markets, the UK government was an early supporter of the Woodland Carbon Code and the Peatland Code, and today government agencies like Defra and BEIS sit on the Executive and Advisory Boards of these Codes. Furthermore, eight of the Standards and Codes in the above table also received development funding from the first two rounds of NEIRF, which is run by Defra and the Environment Agency.

The organisations that lead these voluntary Standards and Codes are not government-based. More commonly they are environmental charities and academic organisations. The government is broadly comfortable with this approach, but it also recognises the need for an overarching framework to regulate the Standards and Codes that are brought to market.

 

Plans to further support Standards and Codes – Nature Investment Standards Programme

Defra recognises that the current lack of Standards and Codes is holding back investment and market development, particularly for environmental improvements and land use/habitat types where methodologies for measuring these are new – such as hedgerow carbon sequestration.

To support the scaling of high-integrity environmental markets, Defra has announced a three-year partnership with BSI (British Standards Institution) to develop a UK Nature Investment Standards Programme. This will include a new, consensus-based, UK-wide standards framework, which sets out clear principles and requirements.

.

Below is a list of what the Programme aims to deliver:

Source: BSI Nature Investment Standards Programme, 2023

 

The Integrity Principles were published in July 2023. The first set of standards from this Programme is expected to be made available in 2024.

If you are interested in feeding into this work – you can learn more about the programme and sign up to get involved here.

 

Can I use different Codes and Standards to sell multiple ecosystem services from the same parcel of land?

As one parcel of land can produce many valuable ecosystem services, farmers and other market stakeholders often ask whether it’s possible to recognise these different services in a nature market deal and earn more income. Conceptually, this can be done by either stacking or bundling the ecosystem services.

In the Nature Markets Framework, published March 2023 by Defra, the following definitions are set out:

  • Bundling: When a suite of ecosystem services produced by the same activity (for example the biodiversity and water quality improvement provided by wetland restoration) is sold as a single combined unit in the market.
  • Stacking: When multiple different ecosystem services produced by the same activities (for example biodiversity and carbon benefits of a new woodland) are sold as separate units in the market.

While bundling is relatively easier to achieve, the rules of stacking are largely unclarified, due to complications around concepts like additionality. If you’re hoping to earn extra income from land that you’re committing to a nature market deal, it’s important to check with both sources of income that this is acceptable to do.

 

Stacking Rules in Different Markets

The below rulings have been set out by the responsible bodies and summarised in the Nature Markets Framework.

  • Biodiversity Net Gain (BNG) and Nutrient Mitigation

Phase 1 guidance permits units to be issued for both BNG and nutrients from the same activity/project. They do not permit units to be issued for BNG or nutrients and also for a voluntary ecosystem market from the same activity/project, unless through a subsequent habitat improvement. This improvement needs to be quantified in comparison to a baseline which includes the initial activity.

  • UK Woodland Carbon Code

The WCC states that currently the wider benefits of woodland creation projects are ‘bundled’ with the carbon unit by default when they are sold. In future, the WCC Secretariat may agree additional ecosystem service standards that can be stacked with the WCC. Once agreed and the necessary registry infrastructure is in place to keep track of ‘stacked’ and ‘bundled’ projects, woodland creation projects should be able to stack these standards with WCC provided that all income streams are declared in the WCC Cashflow Spreadsheet and the project meets required additionality tests. The potential to credit water or biodiversity and stack with carbon credits is being investigated.

  • UK Peatland Code

As with the UK Woodland Carbon Code, the Peatland Code’s guidance states clearly that units are currently sold as an implicit bundle in which other ecosystem services associated with peatland restoration (such as biodiversity and water-related benefits) are ‘bundled’ in with the measured carbon unit. The UK Peatland Code notes that in future it may be possible to stack multiple voluntary credits where these meet the additionality criteria of the Code, and again provided the right registry infrastructure is in place to prevent double counting, and is exploring how this could be done.

 

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