Environment Matters – Natural Capital: where are we now? In conversation with Oxygen Conservation – S3E4

Sarah Sackville Hamilton (00:43)

Thank you, Mike. I’m here today with Gabi Gershuny, a colleague of mine from the Environment team.

Gabi (00:49)

Hi Sarah, great to be here.

Sarah Sackville Hamilton (00:51)

Thanks Gabi and we’re also delighted to be joined by George Pawley and Chris Winter from Oxygen Conservation. George is General Counsel and Chris is Director of Natural Capital. Oxygen Conservation is a leading natural capital asset manager whose purpose is to scale conservation in the UK and more recently in Europe as well. They’re a long-standing client of our firm as well as our partner in the exciting carbon partnership that we’re going to be discussing today. Thank you so much George and Chris for joining us, it’s really great to have you with us today.

George Pawley (01:21)

Hi Sarah. Hi Gabi. Great to be speaking with you this morning.

Chris Winter (01:24)

Yep, hi guys, looking forward to it.

Sarah Sackville Hamilton (01:26)

Great. So, before we dive into having a chat about our work together under the Carbon Partnership, it would be great to hear from you, George and Chris, about Oxygen Conservation’s work and ambitions within the natural capital sector for those of our listeners who might not be familiar with who you are and what you do.

Chris Winter (01:43)

So, Oxygen Conservation, we’ve just turned five years old as a business. We set up five years ago with a goal of trying to scale conservation. From our perspective, conservation and nature has systematically been undervalued and underappreciated and we’ve seen historic damages and losses to nature that we’re trying to address.

So, what we tried to do is we raised private capital, we use that to purchase land and restore nature, and then we deliver positive environmental and social impact as the product, and then profit as a result, not the purpose of what we do. And over the past five years, we’ve raised and deployed 150 million, so we now own 50,000 acres of land across the UK. We are delivering the biggest, most ambitious level of investment in UK nature that’s ever been seen. Really excited about it, really excited about what’s happened over the last five years and where we are now. It’s been great to be working with you at Burges Salmon over the past five years to do this. And yeah, this is just the beginning. It’s still very early days. We’re currently looking at a second raise at the moment and expanding out into Europe and the US and delivering global nature restoration.

Sarah Sackville Hamilton (02:49)

Brilliant, thanks. I’ll add just by way of brief introduction to what we do at Burges Salmon. So, our experience stretches back a long way in the Natural Capital space. We were architects of the first wave of tree planting agreements about 20 years ago, which was before my time, but I think exciting work when it was going on. And then since then, the practice has really blossomed. We’ve now got a dedicated cross-firm Natural Capital team with a broad range of experience advising both private sector clients but also public sector across carbon and nature markets in the UK from woodland and peatland projects in the voluntary carbon space through biodiversity net gain, nutrient neutrality schemes under those nature compliance markets and then also some exciting new landscape recovery projects under the environmental land management agri-environmental policy framework we’ve got in England.

As you both said it’s such an exciting area it’s been really great to see momentum building in  recent years and both from a sort of a firm perspective and a personal perspective for me it’s just brilliant to work with people who’ve got big ideas and doing something really great for our planet and a lot of that work has of course been with you, Oxygen Conservation, both as a client and as a partner and that’s what we’re going to come onto for the meat of today’s discussion. So, to segue nicely from there into our carbon partnership.

As background for our listeners, we entered into this with Oxygen Conservation towards the end of last year. It’s a long-term partnership centred around protecting and restoring temperate Atlantic rainforest habitat in the Leighon Estate in Dartmoor, Devon. A central tenet of the partnership is that Burges Salmon becomes the exclusive buyer of up to 8,000 Pending Issuance Units that are generated under the Woodland Carbon Code. But it’s important to stress that it’s not just a simple carbon credit transaction.

Our firm’s investment is going to support and generate wider benefits across the Estate and it creates a new model for these types of natural capital agreements. And we’ll get into the detail of that shortly. Before we dive into that detail, first, I’d like just to take a step back. We’ve worked closely with Oxygen as a legal advisor for a number of years now. George, what led you to want to partner with Burges Salmon, and why is Leighon Estate is significant as the focus of the partnership?

George Pawley (05:07)

Yeah, sure. So, we’ve been working with Burges Salmon, as you said, since Oxygen Conservation was founded. So, we kind of set up in June 2021. And one of the first things we did was to run an invitation to partner in the summer of that year to identify one firm that we wanted to work with on our early acquisitions. You know, we very much take a partnership-led approach and wanted to work with somebody who got to know us, you know, a great level of detail and could work with us across multiple acquisitions and estate operations. But I think above all else, we had a real clear alignment of values. You know, your commitment to being a responsible business is really long standing and it’s incredibly genuine.

I think that’s embodied by everyone in the firm that we’ve interacted with, which is like testament to how you’re able to kind of find the right people and kind of in their advice, they deliver the true firm values that you’ve set out. So, we got working together. So, we were working with primarily with Ross Simpson, who’s our fantastic kind of client partner. And the first acquisition we worked on together was, and that’s the first of 12 to date, was the purchase of Leighon, which is 860 acres in east Dartmoor.

As you said Sarah, it’s like this amazing place, it’s got some amazing kind of surviving fragments of Atlantic rainforest and we saw at that estate an opportunity to deliver some amazing environmental improvement projects, so new woodlands, reconnecting habitats, improving water systems and ideally at that point in time it was all about showcasing what could be done with large-scale nature recovery. So, the acquisition was done working with Burges Salmon with Oxygen Conservation and the acquirer was The Dixon Foundation which is connected to our business. So, a charity who wanted to acquire this estate and deliver that improvement on the ground.

Sarah Sackville Hamilton (06:47)

Yeah, thank you. That’s brilliant. And Gabi, both George and I have touched on the partnership sort of pushing beyond the boundaries of a simple carbon credit transaction and how much more there is that’s going on at Leighon Estate. Could you chat us through briefly what the objectives of the partnership are and what we’re setting out to achieve with it?

Gabi (07:09)

Yeah, thanks Sarah. And I think this flows really nicely from what George was saying. So, yeah, the partnership is formed around some shared overarching objectives, which focus on four broad themes: climate change, biodiversity, public and social benefit, and developing the UK voluntary carbon market. And we really work together to kind of identify and shape these.  And as George says, I think that was really helped by the fact that we were starting from a position of sort of shared values between our organisations and having that pre-existing relationship.

So, just to go into a bit more detail on each of those sort of themes and the objectives. On climate change, as a firm, Burges Salmon has set carbon neutrality objectives and science-based targets to reduce our business emissions. And the carbon sequestration value of the woodland project aligns with our objectives as part of our strategy for compensating for our residual emissions. I think it’s really important to stress here that reducing our emissions is the top priority. So, the partnership is one in a hierarchy of actions that the firm is taking.

On biodiversity, the firm’s investment in Leighon aims to really go beyond carbon sequestration benefits to protect and restore the wider habitat and species abundance at the Estate which George touched on and also to align with the UK’s environmental targets set under the Environment Act 2021 as well as sort of wider international goals under the Cunming Montreal Global Biodiversity Framework.

The public and social benefit objectives include sort of education around environmental protection, conservation and sustainable development for the public benefit. And as part of this, we together kind of envisage collaborating to create educational and recreational opportunities for both Burges Salmon staff and others at Leighon, and we’ll come on to talking about some of those opportunities shortly.

Last but not least, we have a shared aim of championing the importance and the value of premium quality carbon credits to support the development of the voluntary carbon market in the UK.

Sarah Sackville Hamilton (09:24)

Thank you so much, Gabi. That was really useful framing for the partnership and what it’s all about.

What I’d like to do now is delve a bit further into the detail. Chris, could you tell us a bit more about the core components of the partnership? So, the Woodland Carbon Project, the wider benefits and what makes Oxygen’s carbon credits premium quality?

Chris Winter (09:41)

Sure. I think, I mean, the backdrop to this is ultimately what’s allowed us to raise 150 million and deploy it into nature restoration is the emergence of carbon markets. So, this model whereby companies looking to offset/reduce their emissions can purchase carbon credits from developers. That’s what’s allowed us to raise this capital, deliver nature restoration schemes and sell those credits to cover the cost of doing these schemes.

When we started doing this, it was a pretty rough time in the carbon market. There’d been a lot of international attention, critiques in the Guardian about some of the problems that were going on. And it was a key kind of challenge that we faced. We sat down very early days in the business and discussed this and said, how do we build something that’s going to restore trust in the carbon market and show how you can actually do this in a really responsible, impactful way? Because as part of the net zero transition, we need a functioning carbon market and we needed to be really good and actually deliver carbon impacts as well as positive environment and social impacts.

So, when we were first starting this, our kind of key goal was we need to find a partner out there who’s going to buy carbon credits in the UK at a very early stage in the market and really work with us to help show what a really good, trustable, premium quality credit can look like and how other people can get involved and have confidence in getting to the market and understand, you know, how to operate in this market and what good looks like.

So, we’re very glad to find Burges Salmon to do this. But basically what the carbon project itself at Leighon covers, Leighon is this wonderful estate which has one of the biggest and most precious remnants of ancient temperate rainforest in England, one of our rarest habitats.

And this runs right down the heart of Leighon, around the sides of the rainforest. It’s been pretty heavily grazed over years and has lost a lot of the tree cover that make up that rainforest habitat. So, what we’re trying to do is on the one half, allowing the forest to extend up the hill through natural regeneration. So, allowing the trees to kind of grow back into the landscape. And then in other areas, selectively across this stage, planting pockets of native broadleaf temperate rainforest habitat so they can connect up the existing remnants of rainforest with the other patches of rainforest throughout Dartmoor. So, this will create one of the biggest, most connected, and most beautiful habitats in England. And it’s incredibly exciting. It’s not just planting trees for carbon’s sake and getting as many trees as possible. It is restoring a rainforest from the ground up in an ecological way. And a byproduct of that is that it’s going to sequester carbon over the next 100 years. So, that’s the core of the woodland creation side of it and in doing so, this is providing huge benefits to biodiversity. So, it’s reintroducing habitat for key species like dormouse and pied flycatcher and pine martens. And we’re working on various projects to bring those back to the landscape, as well as improving water quality. So, it’s shading the rivers, it’s reducing pollutant runoff into the water, it’s adding debris for fish to live in and feed on. And alongside the biodiversity benefits, it’s also a key goal for what we’re trying to do at Oxygen is look at how we can provide positive social impact alongside positive environmental impact. So, we’re also looking at how we can provide housing in the landscape for communities to live there, create new jobs in the landscape to support rural economies, provide opportunities for education and access to nature so people can engage with what was previously a very inaccessible area, opening it up and allowing people to get there.

And then also looking at how we can provide organic regenerative food within a landscape that’s also managed for nature. So, there’s a lot going on. It’s a big, complicated, exciting project. And this is not a quick, easy, one-off project. This is going to take decades, if not hundreds of years, to actually come to fruition. So, a key part of this for us was trying to find a partner that wanted to be in this for the long-term. We weren’t looking for a one-off transaction where an organisation said, “I bought a credit, I’ve done my bit, I’m not interested in what goes on next.” We wanted someone who’d be there year after year getting a part of the Estate, getting their hands dirty, getting engaged with the volunteering and getting really excited to be part of that project.

Sarah Sackville Hamilton (14:05)

Thank you so much. yeah, Gabi and I and Mike as well have all visited the Estate, including a recent trip at the end of May, which we’ll say a bit more about in a minute. And it’s just fantastic to see the work in action. We’re now about eight months into our first year of the partnership. Chris, could you chat a bit about what progress and impact has been made on the ground at Leighon in that time and looking ahead what the upcoming milestones for the partnership are?

Chris Winter (14:31)

Sure. I think first off, all the trees are in the ground now. We’ve had our first summer and winter and got through the most vulnerable stage of early tree growth. Then again, what we touched on before was around this idea of premium quality credits. And  a key part of that for us was we wanted to make sure that the team at Burges Salmon were able to see and visualise and impact and connect with the credits they bought. I think a big part of the loss of trust and transparency in the carbon market was people buying carbon as a commodity that was an exchange and sort of lost any tangible connection to it. So, we wanted to make sure we had a really good system that was in place so that the team could understand exactly where that carbon is, what’s happening on the ground and really connect to it.

So, one the things we’ve been developing over the last 12 months is a really detailed monitoring and reporting and verification system. So, what this means is every year we fly around a LIDAR drone, which measures in kind of centimetre level detail everything that’s happening across the Estate. And then we’ve developed these really sophisticated machine learning algorithms and neural networks that can identify each single tree across the Estate in full 3D and measure super accurately how much carbon is in those trees. And then using this information, we presented this to the Burges Salmon team as an early kind of prototype with a kind of dashboard so that they can see the carbon. But a lot of what we’ve been doing is try to make a really visual connection between what’s happening on the Estate with the team so that people can see what’s going on.

And then also going beyond that, being able to go to the Estate themselves and see the trees and kind of create that connection between the carbon offset and the actual restoration that’s happening on the landscape and this level of attention to detail and extra effort that’s gone into the monitoring reporting, this is a step change in how accurate people have been in the carbon market before. It’s a huge increase in improvement to the level of accuracy and transparency and traceability of what’s happened in the carbon market. And this has been recently reflected, BZero who did an independent carbon credit rating for Oxygen’s carbon credits, which achieved AA status, the highest ever rating for nature-based solutions in the world. So, it’s really recognising the kind of quality and effort that’s been put into the scheme and the quality of the credits that have been delivered.

So, yeah, a lot of what we’ve been doing early days is getting the trees in the ground and making sure we’ve got the systems in place to monitor and report and see what’s happening on the ground to make sure those credits are really good quality.

Sarah Sackville Hamilton (17:03)

Brilliant, thank you. In terms of the in-person visits rather than the digital dashboard, as I said, I went at the end of May with a group of about 15 from Burges Salmon and we had a great time taking part in some practical conservation work. It was a very, very hot day, but we did some rhododendron clearing, and some bracken control, which was quite therapeutic, hacking at the bracken!

Chris Winter (17:31)

That’s the team getting involved in the wider stuff that’s happening outside of the tree planting project. We’re now starting, now that the trees are in, we’re looking at what the rest of the scheme can look like. So, that means taking out invasive species like Rhododendron, starting to clean up the river systems, starting to plant new hedgerows and create new ponds and create that wider mosaic of habitats, which not only provides environmental benefit and wider habitat for biodiversity, also increases the kind of resilience of the carbon and the woodland scheme by providing that kind of mix of habitats, so it’s not just trees on their own.

Sarah Sackville Hamilton (18:02)

Yeah, absolutely. And while we were down, we sort of had a tour around the wider estate and being chatted through the different bits of activity going on and how the whole puzzle fits together was just brilliant and made a real difference for our team in understanding the impact behind our credits and the value of investing, the real value of investing in nature-based solutions. And yeah, it didn’t hurt that it was the most glorious day of May sunshine. So the Estate was looking absolutely stunning, a very inspiring day out.

Gabi, I know you went down on an earlier visit quite soon after we signed the partnership.

Gabi (18:32)

Yeah, I would just echo everything that you said, Sarah. I went down with a team at the end of last year and we had a brilliant guided tour around the Estate and it really just helped to bring it to life and really understand sort of where the investment is going.

I also wanted to pick up on Chris, the MRV platform. I think that’s a really exciting part of the partnership and definitely an example of where you guys are sort of offering that wider value. We had a brilliant live demo recently from you Chris and a couple of your tech whiz colleagues, I think Laura and Doris who came into the office and showed us, sort of talked us through the prototype you’ve built and kind of explained the different AI models that they’re using to identify and estimate the carbon content at an individual tree level and then sort of how that correlates through to our credits.

I think Chris, as you said, you sort of showed us how that data will be visualised and communicated to us, which is a really important part of it. And I think that granularity and accessibility of the data and that platform which we will all have access to are brilliant for us not only for this sort of enhanced monitoring and transparency benefits but also to help us kind of communicate and educate about the impact of the project. I think it was also great to have that opportunity in the demo session for us to kind of feed back to you as you’re developing the platform so that you could sort of tweak it and adapt it to meet our needs. And I think that’s a really great example of the strong collaboration that really underpins our partnership. And yeah, we’re all really excited to see the platform, how it progresses and when it goes live.

Sarah Sackville Hamilton (20:19)

Thanks, Gabi. And I think sort of changing focus slightly, but building on that theme of collaboration you’ve just mentioned.  These types of projects are complex. Lots of people and companies operating across the voluntary carbon market are going to be grappling with those complexities and I think seeing similar issues. Gabi and George, if you could reflect on our progress so far, are there any lessons that you think we can share with the market in terms of what’s worked well in the partnership as well as what aspects have been more challenging for us to wrestle with? And on a positive front, let’s start with what’s worked well.

George Pawley (20:56)

I think for me, what’s worked well is that the fact we did a great deal in the first place. There’s not enough transactions in voluntary carbon market. I think the fact that Burges Salmon were willing to take a lead on this and probably learn by doing to some extent. And I think that was certainly the case on our side as well, was really exciting.

It does take a lot of energy and lot of motivation on both sides to want to deliver something really impactful. So that’s amazing. Obviously incredibly importantly, the investment the firm has made is helping us to fund this nature restoration at scale and providing all the biodiversity benefits that go with that, which go far beyond carbon, which is absolutely fantastic. For us as Oxygen Conservation, I think it’s a real proof point that our projects deliver real impact and they can and should command a premium price as a result. It’s really, really important for us.

We’re on a mission to turn natural capital into a mainstream asset class and deals like this are incredible milestones. We have to be able to show investors that what we’re doing is scalable and can deliver financial returns because these deals stimulate the market and hopefully encourage others to act.

So, I think for me, aside from the nuts and bolts and what we managed to get agreed, they’re the fundamentals and that’s why we’re so excited and proud of this partnership.

Sarah Sackville Hamilton (22:12)

Gabi, what are your thoughts on what’s worked particularly well so far?

Gabi (22:17)

Yeah, I would echo much of what you said, George. I think in terms of this being sort of quite a novel and bespoke model and that actually getting the deal over the line, I think what really shines through in that is the collaboration piece. And I think we know collaboration across the natural capital markets is really key for solving some of the sort of teething issues and helping to sort of encourage more private investment into nature recovery, which is so essential.

And it’s been great for us to be able to sort of go beyond advising clients in the markets to be actively kind of contributing to that wider market development and kind of setting an example in that way. I think I would also say, I think for each of us, the sort of long-term partnership structure creates real benefits.

I think for Burges Salmon, a key piece is that sort of having the opportunity to fix the price of credits early acts as a hedge against the risk of future price inflation and volatility in the market. And that in turn helps us with sort of internal forecasting and budgeting for our kind of long-term transition planning and effectively sort of puts a price on carbon for us, which I think is really interesting and valuable. And it also gives us kind of security of supply to high quality, locally generated credits, which mitigates the risk of scarcity in the market due to increasing demand going forwards.

Sarah Sackville Hamilton (23:42)

Great, thank you Gabi. And Gabi and George again, how about the challenges that we’ve had to address and overcome so far in the partnership?

George Pawley (23:50)

Yeah, I think Gabi mentioned collaboration. I think that was really important because, you know, we worked on the contract across quite a few months and it was a case of, you know, identifying and resolving issues effectively as they presented themselves in real time. There was lots we had to figure out and I think we both learned a lot through the process.

So I think going through some of the challenging and knotty areas of delivering a carbon deal, you know, such as things like shortfall, really, tricky to get right. You know, we had to find a fair balance, apportioning risk kind of fairly, you know, on the basis of, you know, a buyer who’s coming in and paying for a premium project and needing to ensure that you’ve got suitable protections if things go wrong, but also both parties being acutely aware that there’s inherently some risk in nature projects that aren’t within either of our control and we need to find a commercial solution for those. So, that was one area in particular.

I think we spent a lot of time playing around with ideas and structures to how we get this right and we produced the right result, which works for the buyer, for the project developer, and for the seller of the credits.

Gabi (24:56)

Yeah, absolutely, George. I think in terms of sort of our approach to developing the kind of framework and the agreement, there wasn’t sort of a standard form template that we were working from that kind of fit our vision and ambition. So, it was absolutely a case of kind of drafting something bespoke, which always comes with its challenges. But I think it’s true that sort of for every carbon and nature project, there are differences and sort of particular nuances that need to be addressed. And in our practice, we’re sort of used to having to craft contracts that kind of cater to the particularities of different projects and risks, risk profiles and transactions. So, it was definitely helpful that we could kind of draw on that experience in this space. But I think there was also a good amount of creativity involved, which made for an exciting process.

George Pawley (25:52)

No, absolutely. I think, you know, for us, you know, having our first deal with a law firm as a counterparty, it was actually fantastic because we, in some other deals, you might have left a few stones unturned, but obviously that’s not how it’s going to work with a law firm, which is awesome. So, you know, we really got into some, you know, some points that really helped shape our wider thinking on how we should structure these deals. So, unlikely things like, you know, what’s going to happen if in the event that the Estate gets sold and you end up working with a different partner who has got a very different mission. That was really interesting to work through. And obviously we also have to think about things like, you’re investing into the project as whole, which is fantastic and that’s what we want because we want to deliver a partnership. We might also develop other natural capital products from the Estate and to what extent are they relevant to what Burges Salmon may want across nature, for instance.

George Pawley (26:42)

If we, if it’s not of interest to you or your firm or the firm or your clients, then perhaps how do we sell them in a way which respects the  overlying kind of objectives that Gabi mentioned about ensuring that we kind of delivering long-term improvement, that we’re partnering with the right people and the right values. So really interesting to work through all those. And obviously ultimately this is also a commercial deal.

So we have, so we have to work through things like exclusivity, volume commitments, you know, how we work together across marketing and events and even IP rights. So, you know, it’s a, it’s a really kind of complex deal yeah, really, really pleased to have kind of delivered that in a really collaborative way, which is hopefully really beneficial to us both, but also, you we want to talk to the market about how we did it and explain some of the tricky bits that we’ve overcome together because ultimately that will hopefully move the market forward. A lot of people aren’t going to want to engage in the market because they’re concerned they just don’t know what to do. We don’t know what the settled position is on termination or default or things like that. And so we really want to work through that and then be able to say that we figured this out, we think this is the best approach and we think it’s commercial and investable.

Sarah Sackville Hamilton (27:44)

Gabi, if I could just pick two of those knottier issues that George has just mentioned, would you be happy to chat through a bit more sort of what the issue was and how we addressed it? And the first one I thought would be great is shortfall, and then the second one is transfers of interest in the Estate.

Gabi (28:01)

Yeah, absolutely. Yeah, I think on shortfall, George, as you mentioned, this is sort of a key area and a key concern for Burges Salmon, as I think is the case for sort of any buyer of carbon credits. It’s about ensuring that there are appropriate remedies available should an event occur that does lead to shortfall in the quantity of Pending Issuance Units or verified units delivered as compared with the number that was anticipated at the time of purchase. The Woodland Carbon Code buffer scheme does offer some protection for verified carbon units, but it doesn’t for lost PIUs.

So, contracts are really key for putting the Woodland Carbon Code buffer scheme rules on a contractual footing and kind of defining what remedies should apply in cases of losses of PIUs. I think as this is a long-term investment for a buyer, in this case Burges Salmon, a primary consideration is agreeing remedies that could sort of sufficiently mitigate any future losses and act effectively as a hedge against inflation of prices in the carbon market, as I touched on before.

You said, George, and this is obviously true, that nature-based projects carry inherent risks, we can’t completely control nature and it’s really important for both parties to kind of recognise this and come up with something reasonable that works for everyone and that’s something that we’ve always been really clear on with our clients when advising them.

In terms of how we actually catered for this, one example is by distinguishing between how avoidable loss, so loss arising from negligence or seller default should be dealt with as compared with unavoidable loss, so loss caused by things like natural disasters outside of the seller’s control.

And another example is tailoring remedies, so they reflect how the risk profile of the project will evolve over the project period. So, for example, in the establishment phase where there’s sort of more active management on the ground versus the kind of maturity phase when the woodland is more sort of established and mature where there’s potentially less intervention involved.

I think what was really good is sort of that we worked through the risks together carefully and crafted a bespoke hierarchy of remedies that provides both us and you guys, I think, with a level of clarity, whilst also allowing for flexibility and fairness in the approach. But I think this is a really good example of why when entering into these contracts, it’s so important to have that sort of strong relationship of trust between the parties. On transfers of interests in the Estate, so looking at things like estate disposal, I think another key consideration from a buyer’s perspective is protecting the woodland in the long-term to ensure the carbon sequestration delivered is permanent and to safeguard the value of the firm’s investment. I think that’s particularly important in PIU purchases in the UK, where there’s a relatively long time scale for PIUs to convert to verified units. And one of the main risks in this context is, as I said, the land being sold and protections for the project falling away before the PIUs have been transferred or verified. So, to mitigate that risk, we agreed a mechanism that requires Oxygen to contractually flow down its obligations under the Woodland Carbon Code to any incoming landowner should you decide to sell the Estate during the project.

And it’s worth saying here, it is impractical to expect to get a prohibition on a landowner dealing with the Estate in most cases. What those sort of flow down contractual provisions mean is that for any new landowner coming into the Estate, they’d be bound to deliver the project on the land and deliver the units to, to Burges Salmon. So ensuring continuity of the project and protecting the firm’s investment.

I think another important factor here was ensuring that any incoming landowner is suitable and appropriate as a replacement partner, George, which you touched on. And I think this just comes back to that sort of relationship of trust. You wouldn’t, as a buyer, want your new landowner to have a kind of a record of nature damage or sort of wilful environmental harm.

I think we got to a point where we agreed provisions that kind of provide us with a sufficient level of comfort that any future replacement partner won’t sort of prejudice the project or Burges Salmon’s interests.

Sarah Sackville Hamilton (32:35)

Thank you so much, Gabi. That was a brilliant bit of insight into those two knotty issues. In the time we’ve got remaining together today, I wanted to take a bit of a step back from our specific partnership and have a look at the wider natural capital landscape in the UK. It’s a very fast-moving space. There have been various recent developments in both law and policy that are going to be affecting nature-based projects across the country. So I thought it would be great to chat through some of those briefly. I’ll share a few of my thoughts first and then it would be great, Chris, if you could be ready to share your thinking as well.

For my part, I think there’s a clear policy focus in the UK on driving private investment into natural capital and recognising its role as critical natural infrastructure. We can see this in the Government’s Environmental Improvement Plan that was published last year, in sector-specific nature-positive transition pathways that have been developed since, and then in the land use framework for England that was published a few months ago. But there are barriers that need to be overcome to drive that private investment into natural capital. Those include the complexity and uncertainty of engaging in nature markets, the limited supply at the moment of high integrity verified UK carbon and nature credits and the lack at the moment of an incentive or imperative to buy most forms of nature-based credit.

For the voluntary markets like voluntary carbon, there isn’t at the moment a regulatory framework to provide investor confidence in the quality and integrity of the credits that that corporates are purchasing. This means that the legwork is currently done by a patchwork of different market assurance standards and by the legal agreements that that we’ve just been talking about to cover project delivery and credit sales. And that all increases the complexity of engaging with these markets. It’s one thing, complexity is a delightful challenge if you’ve got a law firm, but for other people accessing these markets as buyer, that’s tricky.

There’s a DEFRA-backed BSI Nature Investment Standards programme that’s seeking to help to address these issues by serving as a robust assurance system that’s common across all nature markets. So, it’ll be interesting to see what comes of that.

The voluntary nature of these markets also means that there isn’t a regulatory requirement to participate. So, the market success at the moment is relying on businesses building their own internal business case for investing in nature. Regulatory levers are going to be important to delivering the scale of nature recovery that’s required in this country and for unlocking the necessary private investment to make that real. Disclosure standards are going to be part of this. We’ve got some recent proposals to make disclosure against the UK sustainability reporting standards mandatory for some organisations, and that I think would be a significant development in this space.

Another important regulatory lever is obviously compliance markets. So, as well as voluntary markets like carbon, we’ve got a mandatory portion of the market. So, compliance markets like biodiversity net gain, those have also got plenty going on and aren’t without their challenges. We’ve got ongoing legislative changes, proposals and delays which are creating some uncertainty. For example, various new exemptions to the mandatory BNG requirement have recently been introduced. The date for bringing nationally significant infrastructure projects within the scope of mandatory BNG keeps being pushed back. And then sort of my last bit I was going to mention is that there are ongoing delays and challenges surrounding the integration of nature-based solutions like the Woodland Carbon Code projects into the UK emissions trading scheme.

So, overall there’s a lot going on, but the lack of regulatory certainty is a real challenge to investor confidence. Chris, could I pause there for your thoughts on all of this?

Chris Winter (36:12)

Yeah, I mean, you summed it up well, there is a lot going on and I’ll preface what I’m about to say with the UK is a global leader in natural capital, nature restoration, environmental policy.

The policies that are here are incredibly supportive of this market and in a lot of ways they have really bold leadership. For example, BNG is a globally leading policy, mandating biodiversity, offsetting. There’s some really great stuff that’s happening in the UK, not without its challenges. And I think we’re recording this in the middle of London Climate Action Week. There is a lot of talk.

There’s kind of been a common theme I felt throughout the week of talk about what is the role of government in these sorts of markets? Do we want them to be heavily involved or should it be stepping back and allowing the market to take over? And it is a really kind of interesting, you know, back and forth at the moment about what the Government should be doing. Broadly the sort of there’s kind of two areas where I think there is a really key opportunity for Government. You talked on demand, but that seems to be the key thing at the moment. The voluntary carbon market, it doesn’t have significant demand for units at the moment. Demand is growing and as we move towards 2030, 2040, 2050, people are increasingly setting targets and we’re seeing demand for credits grow over time. But as you said, this is still a voluntary market and it’s not compliance driven. So, we’re depending on the will of corporates and organisations to do the right thing. I think there is a much greater role for Government to sure up demand in the market.

A lot of talk about integrating Woodland Carbon Code into the Emissions Trading Scheme. That would provide a systemic change in the market and compel companies to offset their emissions through woodland creation, which I think could be really positive for the market. But getting that over the line politically, that’s not without its challenges and it’s been talked about for probably five years, so it’s not happening quickly. And we’ve seen with biodiversity net gain, there was this incredible political push to get that over the line, get that into legislation, which created this new market. And we saw hundreds of millions of pounds being invested into nature restoration across England to deliver BNG projects. We then saw a new Labour Government come in, step back from BNG and say, we’re going to actually pull the entire market. And then U-turn on that and say, well, we’re just going to tweak it around the sides. But that level of uncertainty, it just is extremely difficult to raise money for long-term projects that deliver nature restoration, not knowing if the next government is going to be supportive of it or pull it back. So, that sort of uncertainty around demand is really difficult for governments to get right.

I think on the supply side, there is this sort of increasing morass of legislation, regulation, protocol standards around carbon markets, which I think is a reaction to some of the stuff that happened in the past. There was a need for better standards and better quality principles.

But now it feels like there’s almost so many, it’s very difficult to know which are the right ones and how to navigate that. And I think some sort of approach to coordinate and simplify and just make it clearer how you can act in this market in a good way, it would be really useful. And I think almost the last thing we need at this stage is another set of standards into the garden market. And then at the same time, think supply side, we all have these great big targets across the UK to deliver nature restoration. Doing it from a practical development point of view, it’s really, really difficult, really expensive and really complex. And government support to deliver these schemes would be hugely beneficial. I think the way the UK government thinks about big critical national infrastructure projects like HS2 or other big projects like that, there is huge push to get these schemes over the line to simplify planning process and make them happen.

I think we need that sort of energy and push to get big nature restoration schemes over the line because otherwise they just sort of sit in this category of very difficult to approve and very complex schemes. We’ve just had two in Scotland that have been delayed by a year for extra survey work and regulation that was not anticipated at the beginning of the projects. And that kind of year delay, that means a million trees in a tree nursery have got to wait for a year before they can be planted, which creates huge risks to the supply chain. A number of fencing contractors and other smaller companies are now out of work for a year. It puts such incredible pressure on these really big complicated schemes that think helping to one, say that these are really important schemes and we want to support them and get them through and then actually facilitating and allowing nature restoration. That would be really positive for making it easier to get nature restoration schemes delivered.

Sarah Sackville Hamilton (40:44)

Great, thank you, Chris. Yeah, absolutely agree. There is a lot that can and should be done to help these projects and make them a reality, particularly the landscape scale recovery. Just before we wrap up, I thought it would be really nice to finish on a very positive note by hearing a bit about what’s on the horizon for Oxygen Conservation in the UK and following your exciting recent announcement in Europe as well.

And how do you think our work together fits into this, George and Chris?

Chris Winter (41:12)

So, we’re really excited about the next few months. We’ve just appointed the director of Europe, I think, I mean, touching on political risks and issues. We see there’s a huge opportunity in Europe at the moment. There is a great deal of political support at the EU for looking at nature restoration and a lot of really positive policies are coming on and kind of catching up with where the UK has been the last 5, 10 years. So, we’re kind of seeing that opportunity in Europe of the next wave of nature restoration opportunities are there. And we’re really excited to look at what’s been happening in the UK and all the market systems and the work we’ve done for you around how you contract and develop risk management solutions and how you deliver these schemes. There’s a great opportunity to take what we’ve done in the UK and scale it across Europe and then into other countries. So, we’re really excited about that as an opportunity over the next 12, 24 months.

The work we’ve done with you guys has put us in a really good position to understand how these markets can be scaled internationally.

Sarah Sackville Hamilton (42:13)

Great. What a fantastic note to end on. Special thank you to you, George and Chris, for joining us for this episode of Environment Matters and to Gabi for another interesting discussion. I’m so looking forward to sharing more about our carbon partnership as it progresses. As carbon and nature markets continue to take shape, it’s clear to me and I think to the market generally that collaboration is going to be key to overcoming the challenges and seizing the opportunities that there are for everyone in this area. So yeah, thank you everyone for a great discussion.

George Pawley (42:43)

Thank you.

Chris Winter (42:44)

Thank you.

Gabi (42:44)

Thanks, Sarah.

Michael Barlow (42:49)

Thanks to all of you for listening to this episode of Environment Matters. We hope you enjoyed the episode. This and all of our other podcasts are available on Apple, Spotify, or wherever you listen to your podcasts, so please look out for our future episodes. If you would like to know more about our Environment or Natural Capital teams and how our experts can work with you, you can contact me and the rest of our team via our website.