The Government's recent planning reform proposals, as outlined in the Planning Reform Working Paper on Development and Nature Recovery, aim to transform how environmental outcomes and mitigation are achieved. These reforms propose a shift from project-specific measures to strategic interventions and could potentially affect the biodiversity net gain (BNG) market.

Pay-as-you-go Development

The Government's proposals, set to be implemented through the Planning and Infrastructure Bill, focus on pooling contributions from developments to fund strategic environmental projects. The proposals seek to:

• amend existing legislation such as the Habitats Regulations¹ and the Wildlife and Countryside Act 1981, to help streamline the development consent process (but without lowering environmental protections); and
• establish Nature Restoration Funds to allow developers to offset the environmental impacts of their development through a single contribution payment.

Instead of a developer trying to relocate various species of importance on site (such as great crested newts or bats) or providing compensatory habitat on site, it could pay into the Nature Restoration Fund to contribute to strategic scale schemes to support the relevant habitats or species. The scope of the Nature Restoration Funds is still yet to be determined and will likely vary geographically as the Nature Restoration Funds will be tied to actual schemes implemented to compensate for habitat or species loss. 

The detail of the proposals is still to be confirmed, but subject to additional changes to the NPPF and PPG, we anticipate under the new regime developers will:

• still have to demonstrate compliance with the NPPF requirement to enhance the natural environment and provide a net gain for biodiversity;
• comply with the mitigation hierarchy in accordance with the NPPF and PPG; and
• if compensatory measures are needed, rely on contributions to the Nature Restoration Fund (insofar as the Nature Restoration Fund delivers the relevant compensatory measures).

Stacking

Schemes to offset the environmental impact of development can sometimes be stacked on the same land (insofar as they are compatible with each other). For example, a residential developer may opt to build a SuDS onsite to:

• offset flood risk (an EIA Regulations² and NPPF issue);
• lower the development's nutrient impact (a Habitat Regulations issue); and
• deliver BNG (a Town and Country Planning Act 1990 and NPPF requirement).

We expect the Nature Restoration Funds will be used by Government to deliver multiple natural capital schemes and stack those schemes on the same land to maximise the use of the land. Natural capital developers who deploy natural capital schemes to offset the environmental impact of other development may view the Nature Restoration Funds as potential competition. Once the scope of the Nature Restoration Funds is confirmed, the Government's offset schemes will directly compete with other developer-led offset schemes in the relevant geographic area.

BNG Market Competition

Although the Working Paper confirms that the proposals will not amend the mandatory BNG regime, the proposals are likely to affect the BNG market. BNG is generally compatible with most other natural capital schemes so if the Government (or grant-funded body) is implementing various natural capital schemes, we would expect the Government to also register any BNG generated by the schemes, insofar as is possible. The Government's working paper is explicit that the Nature Restoration Fund contributions will not include BNG – if the Government does register BNG arising from these schemes, it would be purchased separately and allocated via Natural England's Biodiversity Gain Site Register in the usual fashion prescribed by law.

Legal agreements to secure BNG will burden the land for at least 30 years, so both developers and Councils that are considering establishing new habitat banks will want certainty that they are bringing forward BNG supply for unmet demand. The Government's current proposals may cool the appetite to implement new BNG habitat banks until the Nature Restoration Fund proposals are clear.

Commercial Implications for Natural Capital Markets

Natural capital developers will prioritise having a right to wind up their natural capital scheme in case the Government's proposed planning reforms makes their schemes unviable. Building in an 'exit' into the legal agreements to secure a natural capital scheme is already a sought-after commercial position. It will be even more important as the Government proposes to deliver its own natural capital schemes that may compete with developer-led or Council-led schemes.

For example, many registered habitat banks are secured on the basis that the landowner can wind-up the scheme in respect of any unallocated BNG; this allows the landowner to release the land from BNG obligations in case the BNG demand slows or if there is an oversupply of BNG units. This means that the land will not be unnecessarily burdened by BNG obligations (which are at least 30 years long).

Some natural capital schemes, unlike BNG, need to be provided in perpetuity (e.g. Suitable Alternative Natural Green Space). An exit from these potentially long obligations (such as 80-125 years) is even more critical for natural capital developers and investors. The proposed will not affect the general commercial basis for allowing exits from natural capital schemes – if an ability to wind up the scheme is allowed by the enforcing entity, it is generally only allowable to wind-up the scheme in respect of any natural capital that has not already been allocated or sold.

Until the Government provides additional detail on which types of natural capital schemes will be delivered via Nature Restoration Funds (and by whom), there is a risk that the appetite to deploy new natural capital schemes will cool. Natural capital developers may instead prioritise having a right to wind up their natural capital scheme in case the Government's proposed planning reforms makes their schemes unviable.

Conclusion

While the government's working paper aims to enhance environmental outcomes through strategic interventions, it does not signal the end of BNG or natural capital schemes. Instead, it presents a welcome opportunity for developers to more easily offset the environmental impact of their developments. Privately delivered natural capital schemes may compete with the Government's Nature Restoration Funds, so the additional detail on the working paper is needed to bring certainty to stakeholders in natural capital markets- This additional certainty will clarify natural capital schemes will still be viable. In the interim, natural capital developers will seek to secure rights to wind up their schemes to ensure that they can release the land from onerous obligations in case there is an oversupply of environmental offsets.

1. The Conservation of Habitats and Species Regulations 2017↩
2. The Town and Country Planning (Environmental Impact Assessment) Regulations 2017↩