UK Update: Natural Capital – A Practical Example of an Emerging Market

Natural capital, the valuable stock of our natural assets, from soil to water, is increasingly underpinning policy development and business thinking.

Nevertheless, the concept itself can be challenging to understand. What is clear is that there is a drive towards net zero and an enhanced focus on sustainability and biodiversity, and this presents land managers, both owners and tenants, with opportunities to grow and diversify their businesses, alongside positive environmental impact.

While traditional land support systems change and the detail of future public funding in Scotland is uncertain, nature markets are presently enabling private investment in nature. This largely through creating units or credits that can be bought and sold. We can assist clients in setting up appropriate business models which facilitate the attraction of investors in this emerging sphere. While the model chosen depends on individual circumstances and objectives, a key principle is to ensure that any land management contracts between the respective parties maximise opportunities without loss of control of assets.

One of the recent schemes in which we have been involved is in connection with a Scottish Charitable Incorporated Organisations (SCIO). The SCIO engaged with the natural capital investor and agreed the terms on which investment is to be made. The investor was looking to fund a non-profit organisation to enter into a contract with land managers, of different management types, in order to deliver natural capital objectives for the investor.

A land management agreement for the planting of trees was therefore entered into with the landowner in order to practically deliver the scheme on the ground, setting out the obligations on either party and strictly within the funding arrangement parameters of the investor. The SCIO received payment for planting each tree, the landowner did not receive payment. However, the landowner obtained not only the benefit of the planted tree, but the added value and wider benefits with this natural capital project.

In this scheme the landowner retains all of the carbon and does not divest their own carbon through the land manager agreement. Further, the investor enhanced its Environmental, Social & Governance (ESG) credentials in the view of socially conscious investors, but there was no additional obligation on the SCIO or the land manager. Indeed, the land managers had the opportunity to achieve natural capital objectives without any up-front cost.

Sometimes individuals or prospective organisations which approach us are at a more initial stage, frequently knowing what they are looking to deliver, but less certain of the type of structure or arrangement to best implement their natural capital objectives.  In another case in which we are involved, nature restoration is to be funded across multiple landowners, which offers nature connectivity at scale across land boundaries, while also offering scale to potential private investors.  Aside from SCIOS, co-operatives or joint ventures are for example, other bodies which may be successfully utilised in such a situation.

In considering the approach there are of course legal, governance and financial considerations, including matters such as taxation and succession. Regardless of model, the natural capital market presents many opportunities which are worth considering.

We have a multi-disciplinary team with a breadth of knowledge and experience advising clients, funders and key stakeholders on sustainable projects across the developing landscape. If you would like to discuss natural capital and the opportunities this emerging market may present for you, please get in touch – we would be delighted to help.

By Burness Paull LLP, Scotland, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact ukscotland@transatlanticlaw.com

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