The Wyre Catchment Natural Flood Management Project

 Project Summary

The Wyre Catchment Natural Flood Management Project is the first example in the UK of private investment enabling the delivery of natural flood management. The project will deliver more than 1,000 targeted measures to store, slow and intercept flood water and reduce peak flow in a catchment in England, with the interventions hosted by local farmers. Beneficiaries of the reduced flood risk are paying for the interventions, and the Project’s Community Interest Company has successfully raised a nine-year £850k private loan facility to help fund the interventions.

 

Milestone 1: Initial Project Scoping

Often the initial task is 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 , e.g. carbon credits, flood reduction cost savings, or 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.

Milestone 2: Identify and Work with Sellers

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 appropriate legal arrangements and compensation. In some cases, there may be a sole seller of the ecosystem services, where the site or landholding is large enough that it delivers the volume of ecosystem services needed to cover the costs of the project and attract buyers.

However, in order to achieve scale and impact, a project will likely involve multiple sellers, such as neighbouring farmers and estate managers. 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, building their wants and needs into the project.

Milestone 3: Baseline and Estimate Ecosystem Services

At this point, you will have understood the vision for the project and identified 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 4: Identify and Work with Buyers

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 money towards the nature-positive outcomes that your project wants to deliver.

 

 

Milestone 5: Develop Business Case and Financial Model

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.

Milestone 6: Develop a Governance Structure

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.

Milestone 7: Identify and Work with Investors

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).

 

Milestone 8: Establish Legal Contracts and Closing

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.

Community Engagement

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.

Policy and Regulation

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.

 
Acknowledgements 

With many thanks for their time and insight on this case study:

Dan Turner, Technical Lead, Land Management and Market Creation, The Rivers Trust

 

The Rivers Trust - Wildlife and Countryside Link

 

Thomas Myerscough, General Manager, Wyre Rivers Trust

 

Date published: 08/12/2022

Next Milestone

Identifying community stakeholders

The project is designed to reduce flood risk in a small catchment area in Lancashire, primarily benefiting the local community of Churchtown, which has around 85 homes and 300 residents. This area was chosen because it had historically experienced severe flooding and the Environment Agency had determined that the cost benefit analysis did not support the installation of further grey infrastructure. The project team felt therefore that this project could support much needed flood resilience in the community, and decided to make community engagement a key value of the project.

It considered first what groups would be best to engage with.

Firstly, the local residents themselves were considered to be a ‘high interest, low power’ stakeholder group, due to the degree of co-ordination it would need to communicate with this large and dispersed group. The project team decided early on to try and create a two-way dialogue throughout the project’s lifespan, such as through social media and the metrics dashboard it would make public (see below).

Secondly, the Churchtown Flood Action Group (FLAG) was identified as a ‘high interest, high power’ community group, consisting of residents that were focused on reducing flood risk and supporting flood recovery in Churchtown. They meet once a month and undertake many activities, such as the appointment of flood wardens in community planning and the creation of their own earth bund with government and philanthropic funding. The Churchtown FLAG attends Northwest Regional Flood and Coastal Committee meetings, overseen by one of the buyers of the project, the Wyre Flood Forum and has regular meetings with the Wyre Water Catchment Partnership.

The project team therefore saw the Churchtown FLAG as a key stakeholder group that should be made aware of the project early in its development. It could also help with outreach to the wider community and other relevant groups, such as catchment-based partnerships. However, as flooding in Churchtown was an emotive subject and the FLAG had developed its own knowledge base around natural flood management projects, the project team recognised that early engagement with this group must be thought through to manage expectations appropriately and share its learnings.

 

 

Communicating with Stakeholders

The project’s initial contact with the Churchtown FLAG was made through the Wyre Rivers Trust.

As with seller engagement (See Milestone 2), the project team thought it best to engage the community with a trusted local body present. The Wyre Rivers Trust had a pre-existing line of contact with the Churchtown FLAG through an existing DEFRA Community NFM Project and the Wyre Flood Forum, which meets quarterly to discuss flood resilience across the Wyre catchment. Members include relevant FLAGs, elected officials, the local community, Flood Risk Management Authorities (Environment Agency, United Utilities, Lancashire County Council, Wyre Council), Wyre Rivers Trust and other statutory organisations

The Flood Forum were probably first told about the potential for the project in 2019, and then updated on a quarterly basis from then onward.

As the project was still in an early stage of development, the project team were careful to manage expectations with the phrasing of their intentions. For example, the project team stated that it aimed to develop the mechanisms to deliver NFM solutions, rather than promising to deliver NFM solutions directly. Information was also shared on the proposed interventions, its catchment based approach and the project team’s longer term ambition of replicating this project elsewhere in England.

Members of the Wyre Flood Forum, including the Churchtown FLAG, approved of the project’s ambition and it was agreed that the Wyre Rivers Trust would continue to represent the project at the Forum’s quarterly meetings. The Churchtown FLAG were appreciative of the opportunity to increase the local catchment’s knowledge capital on natural flood management solutions and help to relieve local anxiety of flood risk.

However, the Forum members had a number of questions that the project team then turned into an FAQ document, which it later posted on the Flood Hub as a public facing resource. The Churchtown FLAG used this to promote the project to the wider community.

A visit to the Wyre Catchment Natural Flood Management project area was held in June 2022 and members of the Flood Forum received a presentation on the project and on other natural flood management activities which have taken place in the last five to ten years.

 

 

Sharing Outcomes and Benefits

The project has three distinct features that help to share outcomes and benefits with the local community; the asset lock, the representative director role and the performance dashboard.

Firstly, in forming a Community Interest Company (CIC) to host the project (See Milestone 6), the project team was able to set up a complete ‘asset lock’. This requires any transfer of assets out of the CIC, such as retained profits, to be used only for community-led services and activities that promote awareness and help address risks associated with flooding, climate change, biodiversity loss and other environmental issues. The project team considered this an important mechanism for demonstrating credibility in sharing benefits with the community.

Secondly, to promote a sense of ownership in the project, the team has created Director role within the CIC’s governance structure to represent the community, alongside other Directors such as the buyer, investor, and landowner representatives. Voting rights are split equally between all seven Directors. The person who has accepted the role was recommended by the Wyre Rivers Trust and was actively involved in the communications with the local community during project development. Going forward, this Director is responsible for continued engagement with the local community and reporting feedback and other community-based insight to the project’s board.

Finally, a ‘metrics dashboard’ is being developed that reports on the project’s performance. This is an online platform that will demonstrate the number of interventions successfully installed over the first three years and the performance statistics of these interventions after flooding events. This dashboard will be used by the directors and other core project partners in managing the project, but there will also be a ‘public view’ with less detailed information that will be promoted locally. With the dashboard, the project team aim to convey a sense of transparency with the community on the project’s performance, which will support engagement over the project’s lifespan. The project team have earmarked funds within the financial model to develop and manage this dashboard (See Milestone 5).

 

Photo credit: The Wyre Rivers Trust