Unlock finance for green and blue spaces

You will need people with dedicated time for this work. They will need to be adept at bringing change, working across departments and engaging partners including Executive Officers and elected officials. It is innovative work, so the team will learn new concepts, some financial jargon and be comfortable with not having all the answers upfront.

Your internal team will likely include representatives from finance, legal, housing, planning, strategic and operations green estate. This work could inform planning guidance issued to developers and link to Local Nature Recovery Strategies, so understanding this context is important.

The team should know how land is currently used and be able to understand the opportunity for change. Conservation management skills and knowledge of ecological assessments will mean they can accurately cost habitat restoration, public access improvements and maintenance.

Your core project team will want to bring in specialist external advisors, too. These will include an appropriate external finance organisation who is equipped with the skills and regulatory clearance. They will help develop the financial model to manage risk and help you to outline your business case, establish the vehicle itself, and access investment.

You will also need legal support to help set up the habitat bank when you are ready to do so.

Piloting sites quickly helps to develop an understanding of supply and demand for biodiversity units.

Make sure you understand the land you’re working with. You don’t need granular detail at this stage, just information about where key nature sites are, their size, any designations, some level of habitat information and basic management objectives.

When selecting pilot sites consider size, number, significance, public access, and partners. Private investment is easier to attract on a larger scale. Aim for a minimum of 50 hectares in total and no less than 10ha per site. A group of pilot sites might be between 20ha and 100ha. You may want to identify more pilots than you think you need and model the costs for them, just in case one or two are not viable.

If a site is within your Local Nature Recovery Strategy, there is a multiplier effect in the DEFRA Metric for calculating biodiversity units, meaning it will generate 15% more biodiversity units.

You don’t need to have identified all the sites in your Local Nature Recovery Strategy to select pilot sites, but if you have some or can do this in parallel, it’s a good idea.

Biodiversity net gain is measured in units. A baseline will tell you how many units you currently have on the site, for comparison purposes during and after restoration. To work out your baselines, you need an ecological assessment for each site capturing the relevant data. From here you can propose how to restore the habitat and use the DEFRA metric to calculate the units – UK Hab Assessments map directly onto the DEFRA metric.

You may choose to have your ecological assessments done independently, providing additional reassurance to your future investors. You may also choose to undertake habitat assessments across all or many of your potential sites (not just pilot sites).

This will enable you to get an overview of potential available units across the city and therefore estimate revenue at a city scale over 30 years.

As part of your prep work, you need to decide how your habitat bank can help to maximise environmental, social, and economic benefits for your city or town, keeping revenue and benefits local.

An early discussion on key offsetting principles will help you to build in the elements that are most important to you.

Take a look at our suggested offsetting principles by clicking the button to the left.

Your supply is the difference between the baseline units and the number of units a site will produce after habitat is created or restored.

This part of the process is typically called ‘supply assessment’ because you work out how much improvement (measured in units) can be sold to developers. Conservation specialists will advise what restoration or creation might be possible from your baseline assessments.

In 2021, a DEFRA report suggested the market price per biodiversity unit could be between £20,000 and £25,000. Your external financial partners will keep you up to date with market prices.

Biodiversity units can be sold outside of the locality, though developers are incentivised to buy in their local area.

Understanding top level growth targets for infrastructure, transport, and housing can offer assurance that there’s enough demand in the pipeline. Especially for places seeking to satisfy all local demand, and not oversupply what might be required.

Note that if a development scheme already has permissions, it may not be required to deliver biodiversity net gain.

Also remember you are looking at longer-term demand as biodiversity units are sold any time from the third to around the fifteenth year.

It’s best to do this modelling with an experienced external commercial financial partner. Ecological expertise will already have determined what interventions should happen at each site. Now you need to know what these might cost, including restoration, maintenance and the cost of providing public access.

We suggest starting high, including all costs associated with your established priorities. You can look to reduce these costs later on if needed.

This is robust analysis and a working model that should be continuously updated for accuracy. It offers data to make decisions about which sites are viable, the best time to sell biodiversity units and to test principles and ideas. For example, it could help you to understand how many years beyond the minimum 30-year term that any endowment might cover maintenance costs.

Risk is managed partly through the DEFRA metric which includes a difficulty multiplier for habitats that are harder to restore, and a discount factor for selling units in advance of verifying the planned habitat was delivered.

Your external financial partner will further support risk management through modelling to account for changes in market prices, adjustments for inflation, operating costs for the habitat bank and building in a buffer for changes in demand.

The business case should be clear and concise, using familiar templates and protocols for internal decision-making, such as presenting options.

Focus on the decisions that need to be made to secure a mandate to progress your work rather than technicalities – you might include supporting documents that cover any technical or background reading.

As you progress your business case, it can be helpful if your external financial partner is available to answer technical questions or even co-present.

Your external finance partner should help you with the process of designing the capital and corporate structure. This involves ensuring cash flows towards your priority benefits. For example, funding for long-term maintenance.

You will also need to seek external advice on governance and which legal structure (e.g. traditional company or a charity) is best for you and any contracts you might need drafting.

Once set up, the habitat bank will need accountancy and insurance services and a bank account. Your external finance partner can then attract investors using materials compliant with the Financial Conduct Authority (FCA) regulations.

They will negotiate and close the investment deal. The habitat bank will register any sales of biodiversity units. It will monitor, report and verify compliance with the habitat management plan, submitting data to the relevant body.