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Natural Capital and the Future of Land Management

Climate change and biodiversity loss are recognised as the two existential threats to our civilisation and the next few years will see a major transformation in how we use land so as to address these crises. The impacts on land use are liable to be even more significant in the uplands of Britain than in the lowlands because of the economic challenges in the former and the lack of scope for diversifying farm products.

In a post-Brexit world, pressure on market access and configuration, together with the rapid removal of the basic payment scheme (farm subsidy), will place substantial pressure on the farming and landholding sector. These pressures could be ameliorated as new asset classes are developed to build climate resilience and restore biodiversity. But the farming sector hasn’t yet fully responded to the inherent changes that it faces.

Meanwhile, there is an escalation in interest from non-farming external operators, investors and philanthropists looking to develop new asset classes from the land. The key to success for future land managers (and existing farmers) will rely on them having the capacity, knowledge and interest in developing and servicing new markets and not being tied to current methods of land management. For many, this will be a bitter pill to swallow.

Alongside the major changes to the financing of farming and land management is the emphasis now being placed by investors on requiring corporate business to reduce its impacts on the planet through corporate natural capital accounting. Natural capital, put simply, is the ‘stock’ of natural resources, the assets – soil, water, arable land, grassland, woodland, hedges, wetland, and other habitats, and species, that deliver economic benefits(ecosystem services) to people. The term has become increasingly important in land use policy, with the aim of making more visible the benefits we derive from the natural environment. Essentially, natural capital accounting is about a company’s future value being directly linked to how they interact with and use the resources that nature provides.

As investors press for transparent disclosure of impacts on natural capital, a company will only achieve its investment potential if it can demonstrate net zero or a gain in natural capital as part of its normal operations. Future corporate survival and growth will therefore rely on how they demonstrate to investors and fund managers that their business activities are truly sustainable. Natural capital initiatives on landholdings through which corporates can offset their own impacts represent a new market with which landowners and farmers should engage to generate the revenues of the future.

How, therefore, do we bring together the loss of farm subsidies, the inherent critical importance of climate resilience and biodiversity restoration and the interest in new land management interventions from new investors including corporates needing to demonstrate their own investment prospects? The answer lies in making nature economically visible.

The iconic upland landscapes of the Yorkshire Dales provide a number of major opportunities for diversifying income through restoring and protecting natural capital. For example, improving landscape quality by regulating how farms operate, reducing plastic waste and the often, damaging, visual impact of farming activities, will drive a better tourist experience and higher revenues. Investment funding into landscape improvements at a farm level would provide incentivisation to keep farming ‘tidy’. Interest in peatland restoration using carbon offsetting is growing rapidly and will lock up water on the hill, mitigating flooding lower down the catchment. High nature value farming through the restoration of hay meadows, lower stocking densities and a major shift away from silage-making lends itself to corporate natural capital investment through the environmental benefits it delivers, providing value to low impact and premium quality farming.  And broadleaved woodland planting and restoration improves landscape quality, locks up carbon, reduces flood risk and substantially increases biodiversity. Finally, rewilding areas of the uplands will provide new revenue streams from nature-based tourism.

The balance between the lowlands and uplands of Britain, in terms of types of products grown, is going to change. Land managers in the uplands will need to focus on adding value to these iconic landscapes by restoring natural capital at scale and exploiting new markets around climate resilience and biodiversity restoration that society wants to see. It may be a hard transition but a rewarding one for those who come forward to lead a new generation of land managers.

About the author

David Hill