Milestone


03

Baselining and Estimating Ecosystem Services

Introduction

At this point, you will have understood the vision for the project and you’ll have chosen a particular ecosystem service or set of services to be sold. The next step will be to carry out detailed analysis – baselining each ecosystem service and quantifying what will be able to be delivered from the interventions, as well as planning how to monitor and maintain these interventions. You will need to rely heavily on ecological expertise for this more scientific milestone.

At this step, standards, verification and accreditation methods will be considered in more depth.

Milestone 1: Initial Project Scoping

The initial task is often to understand the site(s) you want to use and the land use change needed for nature restoration or creation. This includes considering the goals of the land managers involved, the vision within the wider catchment or neighbouring area, and whether there are permits or planning consent needed for any proposed changes.

At this stage, you can also conduct a high-level assessment to determine which revenue streams can be generated from ecosystem services,  i.e. carbon credits, flood reduction cost savings, biodiversity units, which will be crucial for identifying buyer interest.

Finally, it is useful to have an idea of the costs of the project and potential grant funding that may be available to support initial development.

Introduction

Initial ownership of the ecosystem services will belong to the landowners or, in some cases, the tenants of the sites that the project is using. However, these can be passed onto others, such as third-party project developers, with lease arrangements. In some cases, there may be a sole seller of ecosystem services. This would be the case with a site or landholding large enough that it delivers the volume of ecosystem services needed to cover the costs of the project.

However, in order to achieve scale and impact, a project will likely involve multiple sellers, such as neighbouring land managers and landowners. Scale of land is often needed to deliver significant environmental outcomes, and also to attract private finance. Project developers must plan how they initially contact and engage with these sellers going forward.

Introduction

At this point, you will have understood the vision for the project and you’ll have chosen a particular ecosystem service or set of services to be sold. The next step will be to carry out detailed analysis – baselining each ecosystem service and quantifying what will be able to be delivered from the interventions, as well as planning how to monitor and maintain these interventions. You will need to rely heavily on ecological expertise for this more scientific milestone.

At this step, standards, verification and accreditation methods will be considered in more depth.

Introduction

Based on your earlier market analysis in initial project scoping, you will have identified one or more groups of beneficiaries who may be willing to ‘buy’ or pay for the ecosystem service(s) to be created, restored or maintained. Buyers vary – as do their requirements – but At this step, greater buyer engagement is now needed to develop a deal that channels financing.

 

 

Introduction

You’ll have started building your business case and financial model in earlier steps – laying out your vision, the market proposition and estimating costs and income. This step offers a review, in addition to providing details on information needed to build out the financial model and business case more fully. Both of these key documents will be iterated throughout project development, and may be altered during project delivery as new information emerges. These documents are interlinked and, if developed correctly, will ensure your project’s viability and also help you with discussions with stakeholders including sellers, buyers and future investors.

The financial model will also enable you to better understand the type of structure your project may take to attract investment (i.e., an environmental bond, a loan, an equity investment) and what sort of returns you can afford to pay/offer.

Introduction

A governance structure will inform the way in which the project is run when fully operational and for what purpose. It identifies appropriate decision making processes, who is responsible for what actions, and what controls are in place to make sure that the project is meeting its stated goals, all while abiding by the risk appetite of its engaged stakeholders. The legal entity to host the project will be a key driver in this, and the appropriate choice of entity will be dependent on several factors that are outlined below.

Your governance structure should align with and underpin your business case, as a necessary component of how the project will deliver its environmental outcomes and other strategic targets.

Introduction

It is important to note that not all projects will need up-front investment, but for those that do, this section provides a framework for thinking around the development of the investment model. This does not constitute financial advice – as the GFI is not licensed to do so. However these considerations are based on the insight offered by project developers and other market stakeholders.

An investor will be a new core stakeholder in your project, and it’s just as important to think of what you require from investors, as much as what they require from you – so that you can build a positive and collaborative relationship with them.

This entails defining the investment ask (in line with the financial model), the strategy for approaching the right investors, and the negotiation of terms that can then be formalised in contract development (Milestone 8).

 

Introduction

When all relevant stakeholders have been engaged and their terms of engagement are clarified as much as possible, this is the time to develop the legal contracts and close the deal. This stage is last because legal fees are expensive, and it is generally advised to determine as much as possible in previous stages before

Note: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice on how to manage engagement with lawyers and the process of contract development.

The Green Finance Institute is not a firm of solicitors or connected in any way with the courts. The information and opinions we provide in this section and across the Toolkit do not address your individual requirements and are for informational purposes only. They do not constitute any form of legal advice. We recommend that appropriate legal advice should be taken from a qualified solicitor before taking or refraining from taking any action.

Introduction

Community engagement is highly advisable for any project that aims to sell ecosystem services, to ensure fair outcomes for local communities and the long-term success of the project. Project developers can build connections with local stakeholder groups early on to spot both risks and opportunities.

Introduction

Project developers and enterprises will need to keep a continuous check on how current and future policy may affect the project, and also opportunities for the project to inform policy. The role of private finance for nature across the UK is being encouraged by the UK government and its devolved administrations, and new rules, standards and markets are being developed.

 

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

You can also read case studies of projects that have successfully completed this milestone of development and view a summary of the common activities undertaken at this stage below.

Case Studies

Checklist

Useful Links

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Next Milestone
Choice of methodology

Baselining and modelling of ecosystem services is a pre-requisite to any nature-based project. Baselining captures the provision of the ecosystem services under the ‘business as usual’ scenario, that is – the likely future volume of ecosystem services without the project’s impact. Establishing the baseline will facilitate accurate monitoring which will, in turn, indicate the level of additionality being delivered, thus reassuring buyers that the scheme is credible.

Consideration

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What methodology is being used to baseline and model the ecosystem services?

Certain methodologies might be mandated as part of a standard or established credit system, such as the Field Protocol within the Peatland Code, Defra’s Biodiversity 3.0 metric for BNG units, or the Urban Greening Factor for evaluating the quality and quantity in urban greening.

Whether it is a mandated or voluntarily applied methodology, project developers should be confident that it is suitable for the local environment through its underlying scientific data and its assumptions.

If the project is using a newly designed methodology, or one that has been altered to suit the local environment, then its use must have the support of buyers, investors, and potentially any government bodies who have influence over the project. Project developers will need to show that the methodology has a robust scientific base, reasonable assumptions and justify why it has used this approach over any alternatives.

Note: in some cases you may be dealing with a baseline of zero, such as in cases of turning developed or ‘grey’ sites into natural habitats. However, it is important to confirm any assumptions with ecological advice or established methodologies. For example, the Woodland Carbon Code‘s process accounts for the scenario of losing carbon through the disturbance of soil when planting trees.

 

Are there scientific standards and codes available to guide baselining and modelling?

There are several standards and codes in operation or in development that set out baselining processes for project developers to use. The three that are UK specific and are currently operational are the Woodland Carbon Code, Wilder Carbon and the Peatland Code. However, there are international codes and standards such as VCS, which can also be helpful.

There are other codes in development, and while they may not be fully operational, their research could provide a useful base for developing your own project’s methodologies and processes. Examples of these codes include the Hedgerow Carbon Code, the Saltmarsh Carbon Code and the Agroforestry Carbon Code. (For more information on the development of codes and standards, see the Policy and Regulation milestone)

 

 

What accreditation schemes are there?

Separate from the standard or code body, there is sometimes a need for a separate accreditor to validate your project’s design and delivery, including the baselining work, in order for your project to receive certification from the code in question. The Soil Association and the Organic Farmers and Growers are the two bodies responsible for assessing and accrediting woodland and peatland carbon projects under the Woodland Carbon Code and Peatland Code.

Project developers may want to consider how long it will take to receive accreditation in their project planning. As this is a new market with a growing pipeline, accreditation bodies are receiving more and more requests, with some project developers waiting up to six months to receive initial validation.

 

Who do I work with to measure the ecosystem services?

If you do not have ecological experience yourself, then there are a host of ecological surveyors that can provide specialist baselining assessment services, ideally those with local knowledge. Examples of these can be found in this milestone’s case studies.

Before the surveyor starts to capture baselining data, its vital that you both agree on the exact methodology the project is using, such as the definition of an eroded hectare of peatland, to avoid collecting data that is misaligned with the project’s aims and having to repeat the surveying process.

 

What if there is no appropriate standard or code to work with?

In the case of no standard or code, project developers will need to work closely with the buyers to get their approval on a complete methodology that includes baselining and estimating the delivery of ecosystem services. This will take longer, and buyers may request that more ecological surveyors or consultants are engaged to develop and test any bespoke methodology. However, as the paying beneficiary, their approval is essential.

 

Can I use a combination of desktop and ground surveying data?

Measurement of the ecosystem services (particularly baselining) will inevitably involve some ground surveying. However, based on your earlier research there may be specific databases or maps that can shorten the time spent on the ground. For instance, the Defra Data Service Platform has maps that plot the rough depth of peat soils across England and Wales, which can help to indicate what areas are unlikely to be worth testing in ground surveying due to lack of peat depth.

 

What are the costs and timelines of baselining?

Baselining can take as little as a day or up to several months, and range in price from under £100 to tens of thousands of pounds. You may also want to plan for cost overruns and delays, such as in the case of severe weather preventing the surveyor from taking accurate data.

For example, a project developer could baseline the carbon stock of an accessible peatland of 50 hectares in perfect weather conditions over the course of a day, costing very little other than the time spent. However, developing a nutrient baseline for a waterway passing through a farm would require water samplings to be taken over the course of a year or more, with potential delays in data collection from adverse weather conditions or sewage leaks.

Before paying for any specific baselining services, you should establish exactly the outputs you are looking for and the timeframe over which these can be delivered.

 

Should I collect other data alongside my primary metrics?

Though not always necessary, it could be highly beneficial to assess other ‘value add’ aspects of the site in baselining, such as the extent of biodiversity or the public use of the land.

This might inform your risk management strategy – for example how grazing deer would affect a restored peatland – or increase the project’s appeal to buyers and investors, who are looking for environmental or social co-benefits. Examples of where this data has proven useful is included in this milestone’s case studies.

 

 

Planning the new habitat

With an idea of how your site currently performs at baseline, you can model how interventions will improve the ecosystem services it delivers in its ‘future state’ after implementation, and therefore what you can sell to buyers.

As with baselining, you will need to use ecological expertise for design and modelling. Most project developers do not need to be ecological experts themselves for this stage, but having a good understanding of the following considerations will ensure your project is robust. These questions might also be asked of you by external stakeholders who want to make sure that this design is going to deliver the promised environmental outcomes, such as buyers and investors.

Considerations

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What ecological expertise am I using to design the new site? How are they most suited for the project?

Design partners should have appropriate ecological expertise, a proven track record and ideally some local knowledge. Most project developers at this stage partner with the eNGOs, local government organisations or ecological consultants that they engaged with in initial project scoping (see Milestone 1), or with those who are recommended by these entities.

If you are unsure about who to use as a design partner at this stage, you should contact such organisations and gather recommendations. If the project budget and scale allows, you might also issue a Request for Proposals (RfP) or a tender process that asks relevant organisations to demonstrate how they are best suited for the project, and then select the best candidate.

 

Who is/are the delivery partner(s)? How are they most suited to the project?

The delivery partner may be separate from the design partner, in that they are the organisation on the ground and physically installing the interventions on the site. Sometimes these entities are one and the same, or they have a pre-existing and trusted relationship. Again, if you are unsure then you can make local enquiries and / or use a tender process to identify a suitable partner.

Note: ‘delivery risk’ is one of the main types of risks that buyers and investors analyse in nature-based projects. Having a solid rationale for both your design and delivery partner will be essential for getting their buy-in. You should also demonstrate how you are managing this risk and others, potentially using a ‘risk matrix’ approach (see below).

 

Does this design reflect the ambitions and goals of key stakeholders?

At this point you’ll have gathered the key motives and stipulations of the stakeholders of the project, such as the land manager, landowner (if separate), community members and any eNGOs or local nature initiatives who may have a strong interest in the project. You may also have engaged with a buyer (see Milestone 4) with specific ecological interests. It’s important that this design aligns with their expectations and stipulations.

For example, an eNGO may be lending support to a woodland project that is designed to boost the numbers of a local threatened species, or the land manager may be agreeing to help monitor and maintain a restored peatland, as long as they can maintain some access through the site to their wider landholding.

 

How am I designing my site to prevent ‘leakage’ of environmental damage?

Leakage is a term used to describe the displacement or relocation of damaging activities away from a site instead of these activities being stopped. Examples include grazing animals being relocated away from a degraded peatland site that will be restored, only for these animals to be placed onto another peatland site that ends up becoming degraded due to overgrazing.

Preventing leakage is a fundamental principle of robust nature-based projects, and project developers should build in considerations of this in the habitat restoration or ecosystem service plan.

 

Will the site be resilient to expected changes in the climate and surrounding environment?

Climate change and other environmental factors will likely pose a threat to many natural habitats in the UK. For instance, increased flooding could affect the expected efficacy of natural flood management interventions, and heatwaves could lead to more peat fires.

Again, there are ways of incorporating these considerations into ecological modelling and design. Investors and buyers may well ask you about these due to the threat that climate change has on the permanence (see below) of the project’s outcomes.

 

What is the potential for the site to reverse in condition after initial implementation?

Project developers should undertake a practical risk assessment of the site. The biggest risk to project developers is that the interventions will fail or external factors will mean the delivery of ecosystem services stops over the agreed period of time. This is commonly called a lack of ‘permanence’ but can also be called ‘reversal risk’

Examples of these risks could be: unsuitable vegetation chosen for a new woodland, or external factors such as fire, landslides or storms washing destroying established ecological habitats. For example, in peatland restoration this risk of reversal is often highest in the initial two years after implementation when the interventions are still ‘taking root’.

Project developers, with help from any ecological surveyors, should list out all risks to the natural habitat and consider both the likelihood or impact of these interventions.

 

Does the methodology lend itself to practical and affordable proving of delivery after the land use change or interventions have been implemented?

After the initial changes or interventions on the site have been made, a project will need a process to measure or approximate the delivery of the ecosystem service. For example, the Field Protocol within the Peatland Code requires the project developer to submit reports, including photos, that show the restored peatland site is not drained, burned or has haggs or gullies, as these would indicate greater emissions from the peatland, based on scientific research and modelling. 

When you are considering your project’s methodology, you should think about what subsequent data or information you’ll need to record and whether this methodology supports a practical route of proving delivery over the lifetime of the project.

This consideration feeds into the choice of methodology to baseline and model the ecosystem service when you are designing the site, but also the ‘post-implementation planning’ of the project (see next consideration).

 

Post-implementation planning

After your interventions or land use change has been delivered, projects will need controls, such as maintenance and monitoring plans, in order to prevent a reverse or failure in the interventions and therefore a failure in the delivery of the ecosystem services.

Considerations

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Do I need a risk registry or risk matrix?

A common way to think about risk management, and a good way of demonstrating the risk profile to buyers and investors, is through a risk management matrix or register.

A risk matrix lists out the likelihood of a risk materialising, the impact this risk will have on a project, and then what controls are put in place to minimise or mitigate this risk and what the likelihood and impact is after this control is in place. Risk matrices often have defined thresholds of what risks are considered acceptable, tolerable, or unacceptable by the project developer. This judgement call is useful for buyers and investors to gauge the risk appetite of the project developer and the risk profile of the project.

 

Does my project require insurance or a delivery risk ‘buffer’?

If the risk of interventions being undermined is high, insurance should be considered as part of the scheme. Under the Woodland Carbon Code, for example, the project land owner(s) must demonstrate their commitment to permanence by replanting or undertaking compensatory planting in the event of a woodland area being lost due to wind, fire, pests, disease or development.

External insurance providers may also be used. For example, indemnity based products can cover losses arriving from factors like vandalism, and parametric products can cover risks such as wildfire – however this latter example requires scale (thousands of hectares) and the annual premium cost of this can be cost-prohibitive for a project.

 

What does the formal maintenance plan look like?

A maintenance plan will be necessary even if the risk of condition reversal is low. The maintenance plan should be developed with ecological expertise, including estimates around the costs of maintenance. A formal maintenance plan might include:

  • A statement of the project’s objectives, including in what condition the site should be maintained.
  • A statement of the maintenance and management activities to be implemented over the project duration, including identification of necessary resources and inputs
  • References to the risk assessment, including what controls are put in place to manage what risks.
  • A list of all individuals and parties involved in the maintenance and management activities, with their roles clearly stated and why they are best positioned for these roles.
  • A chronological plan or estimation of when these activities may be needed.
  • A map of the project area, showing what interventions were originally put in place at the implementation stage.

 

What does the formal monitoring plan look like?

A formal monitoring plan needs to be developed in tandem with the restoration planning. This might include:

  • A schedule of how often monitoring activities are undertaken and by who.
  • A statement of the monitoring activities to be implemented, including identification of necessary resources and inputs, such as costs to pay the monitor for their time.
  • Particular considerations around the risks to the project, such as areas of the site that are more vulnerable to reversal.
  • A clear set of outputs to be delivered from each monitoring point, such as fixed point photography or water sampling results.
  • A process for recording these outputs and having them reviewed by a relevant project stakeholder, including the buyers.
  • An escalation process in case monitoring shows that the site is not delivering its predicted ecosystem services.

 

Do I need to monitor the whole area, or can I use a subset of sites?

If your project is based across several sites or a large area, you may consider taking a subset of sites or defined areas for more detailed monitoring processes, perhaps rotating what sites are monitored at various points in time.

This would be especially useful in the case of catchment-scale projects with a more complex provision of the ecosystem service. For example, the Wyre Natural Flood Management Project is regularly monitoring two of its ten sites to capture a proxy measurement for flood risk reduction across the catchment as a whole, which is impossible to measure and attribute back to the project directly due to other changing land conditions across the catchment.

If you are working with a technical standard, such as the Peatland Code, Woodland Code or BNG Framework, there will be specific monitoring and reporting requirements that need to be adhered to ensure ecosystem services are verified and marketable.

 

What informal monitoring is possible?

As a complement to the formal monitoring process, project developers might regularly ask the land managers near the site to check on the site’s condition and the state of any particular interventions that are of concern. Alternatively, some sites may have public access, and project developers may consider the possibility that visitors can provide valuable information on the site’s condition through ‘citizen science’ initiatives.

 

Should I build in an adaptive management phase before the project is formally assessed on its effectiveness?

If there is a higher degree of uncertainty over the volume of ecosystem services to be delivered, or the practical function of the interventions after implementation, then project developers may build in an ‘adaptive management phase’ that allows for the interventions or site management to be adjusted to deliver the best ecological results.  This might involve reduced or delayed payments from buyers as they await for this phase to conclude and the results of effectiveness to be delivered, and therefore a more ‘patient’ source of capital may be needed.

For an example of an adaptive management phase in use, see the Wyre Natural Flood Management Project case study, which is using a five-year phase before buyer payments start.

 

All Case Studies
Checklist

 

You can download a Word copy of the Milestone 3 Considerations as a checklist here, to help with your own project planning.

Alternatively, you can find a simple list of the Considerations below:

 

 

Choice of methodology  

  • What methodology is being used to baseline and model the ecosystem services?
  • Are there scientific standards and codes are available to guide baselining and modelling?
  • What accreditation schemes are there?
  • Who do I work with to measure the ecosystem services?
  • What if there is no appropriate standard or code to work with?
  • Can I use a combination of desktop and ground surveying data?
  • What are the costs and timelines of baselining?
  • Should I collect other data alongside my primary metrics?

 

Planning the new habitat 

  • What ecological expertise am I using to design the new site? How are they most suited for the project?
  • Who is/are the delivery partner(s)? How are they most suited to the project?
  • Does this design reflect the ambitions and goals of key stakeholders?
  • How am I designing my site to prevent ‘leakage’ of environmental damage?
  • Will the site be resilient to expected changes in the climate and surrounding environment?
  • What is the potential for the site to reverse in condition after initial implementation?
  • Does the methodology lend itself to practical and affordable proving of delivery after the land use change or interventions have been implemented?

 

Post-implementation planning 

  • Do I need a risk registry or risk matrix?
  • Does my project require insurance or a delivery risk ‘buffer’?
  • What does the formal maintenance plan look like?
  • What does the formal monitoring plan look like?
  • Do I need to monitor the whole area or can I use a sub-set of sites?
  • What informal monitoring is possible?
  • Should I build in an adaptive management phase before the project is formally assessed on its effectiveness?

 

On the 22th of February 2023, the GFI hosted the third in a series of ‘Investment Readiness’ webinars that focus on UK nature-based project developers’ experience. This webinar focuses on Milestone 3, ‘Baseline and Estimate Ecosystem Services’, with an overview of what this entails, and a panel of project developers who share their insight and experiences on this Milestone.

The panel includes:

  • Ben Hart, Nattergal
  • Briony Fox, North York Moors National Park Authority
  • Chelsie Fuge, Bristol Avon Catchment Market
  • Chris Perkins, Carbon Bank

The Panel was moderated by Helen Avery, Director of Nature Programmes at the Green Finance Institute.

 


On the 16th of May at 12pm, the Green Finance Institute hosted the fifth in a series of webinars in support of the Facility for Investment Ready Nature in Scotland (FIRNS).

The webinar hosted a panel of Code representatives and project developers, who shared their advice on how to baseline and estimate ecosystem services, including:

  • Pat Snowdon, Head of Economics and Woodland Carbon Code at Scottish Forestry
  • Renée Kerkvliet-Hermans, Peatland Code Coordinator at IUCN UK Peatland Programme
  • Penelope Whitehorn, Co-Chief Scientist at Highlands Rewilding

The panel was chaired by Helen Avery, Director of Nature Programmes at the Green Finance Institute.

If you have any further questions or comments, please contact firns@nature.scot