Natural capital – insight and views from Knepp Estate
With an increasing focus on the environmental schemes and initiatives that farmers and landowners can engage with, we interviewed Peter Harker, head of our firm’s Natural Capital Group, and Molly Biddell, head of Natural Capital at Knepp Estate, to find out more about what is happening in the agri-environmental scheme space, and how they are approaching the opportunities and challenges that arise.
It’s hard to go a week without hearing about changes to environmental policy, with phrases such as biodiversity net gain (BNG), carbon credits and nutrient neutrality now forming part of the everyday vocabulary of rural business owners and their advisers.
Peter, could you start by outlining what elements of natural capital you’ve been advising clients on recently?
There are lots of opportunities in the natural capital realm for landowners. There’s a growing awareness of the potential value in land, beyond the more traditional uses of farming and existing diversification avenues, and clients are naturally keen to explore and understand their options.
I’m talking to clients a lot about ecosystem service markets and how they might bring in elements of carbon sequestration or BNG into their businesses. We don’t input on which schemes they adopt, but overlay accounting and tax advice where required. Fundamentally, a lot of natural capital projects will require land use change and that could potentially impact IHT reliefs.
And can you tell me why natural capital is something that you’ve chosen to focus on?
You’re the second person to ask me that today! From my perspective, we’re in a privileged position as a key adviser to landowners to help them make the right decisions. Natural capital schemes tend to involve a long-term commitment to land use, likely committing future generations to that change. From a professional perspective, I feel we have a great duty of care to help clients come to the best conclusion.
It’s not, however, going to be the case that this is the best answer for everyone – it’s the right scheme in the right place. I recently heard someone explain that “for a landowner to go green, they need to stay in the black”, so we have a lot of conversations about profitability and cashflow. From a personal perspective, I have a genuine interest and care for the environment and see that being able to contribute to conversations with clients is a small way in which I can play my part.
What do you see as the key challenges and opportunities for landowners as they navigate natural capital schemes going forward?
New income streams and changes of land use give rise to tax questions. We’ve been working hard over the past few years to obtain clarity on these issues through corresponding with HMRC, flagging where we feel there are uncertainties or discrepancies in the legislation. This has been a source of frustration to clients. There are some real unknowns, with the existing rules seeming unfair, likely as a result of them not having been designed for the way the world now works. That’s led to taxpayers feeling unable to make decisions.
I was delighted that the Chancellor launched a consultation reviewing environmental schemes in the March 2023 Budget. As a firm, we have provided a detailed response to this, which draws on our experience and conversations with clients about the uncertainties and apparent mismatch in legislation when weighed up against the environmental policies being proposed. Our response has been submitted to the Treasury, alongside representations from other bodies with whom we work closely.
I expect there will be a great deal more to happen in the natural capital space over the next decade. Carbon sequestration is becoming more understood and established and we can expect to see more trees being planted, but there are other interesting areas. For instance, there’s no formal soil carbon code in the UK, but nevertheless a marketplace is quickly establishing to sell carbon stored in farmland. This comes hand-in-hand with regenerative farming practices, which although very much in vogue at the moment, are not new to landowners who have been adopting regenerative techniques for years.
This isn’t the right answer for everyone, but can provide a balance between looking after the environment and maintaining a financially viable farm. Lastly, in the BNG marketplace I expect opportunities for landowners. This is fast-evolving; broadly, there is legislation coming into force this year to make planning laws stricter, placing a responsibility on those using land for developments to ensure that there is a net gain to biodiversity as a result of the project. This is already driving a demand for BNG units and I expect this to increase over the coming years.
So on to you Mollie, what’s keeping you busy at Knepp at the moment?
Knepp is super busy at the moment as we’re in safari season! My role focuses on understanding what natural capital markets and policy mean for Knepp, which is exciting and also easier said than done – things are moving quickly, but still subject to lots of change. I also facilitate our local farming cluster group, and we’ve just received our next round of facilitation funding so I’m excited to start planning new projects with everyone in the cluster.
We've got several interesting landscape-scale projects happening at Knepp – we really want to drive change and stand out as an example of what good collaboration can look like, paving the way, rather than waiting for standards to be set. I’ve also been having interesting conversations with lots of different organisations about what a nature positive business looks like, from farmers to food retailers to industry sustainability teams, architects, planners, universities, schools and key delivery partners too. It feels like there’s a real desire to create positive change and learn from each other.
What have you learnt in your role so far?
I joined Knepp at the start of the year and I’ve learnt so much! There’s such an incredibly knowledgeable team of ecological experts at Knepp – every day is a school day for me as I’m learning more about the ecological successes of the rewilding project. It’s great that so many farmers and land managers are talking about natural capital, I’m seeing more farmers approach wildlife trusts and environmental consultancies, tapping into their expertise in ways they might not have previously. It will be interesting to see who is providing advice to farmers in 15 years’ time, because the skills and knowledge that we need as farmers are constantly evolving.
And what can we expect to see from Knepp in the future?
We'll be continuing to focus on filling the data gaps within emerging carbon and biodiversity markets, making these markets fit for process-led rewilding, like at Knepp. We want to be able to demonstrate how private natural capital markets can and should function, to enable scalable nature recovery across the UK. We’ve also got some exciting things going on at the regenerative farm here – it’s so important that we talk about nature and food, not nature versus food. Nature is a natural ally to food production, and we are really excited to be opening our new farm shop, and café later this year, where guests will be able to enjoy our wild range meat and no dig vegetables.
You can find more information about the Knepp Estate and the work Saffery are doing on natural capital.