Natural Capital: The High-Stakes Bet in the UK’s Planning Reforms

Abstract

Natural capital, a foundational concept in ecological economics, represents the world’s stock of natural assets, encompassing elements ranging from geological formations, soils, and the atmosphere to water bodies and all living organisms. This stock provides a diverse array of ecosystem services essential for human well-being, economic productivity, and societal resilience. (en.wikipedia.org) In the United Kingdom, the critical importance of natural capital has been increasingly recognised, culminating in significant planning reforms that place its conservation, enhancement, and sustainable management at the core of national policy. These reforms underscore a strategic shift towards integrating environmental considerations into development frameworks, moving beyond traditional economic metrics to embrace a more holistic understanding of national wealth.

This comprehensive report delves into the multifaceted integration of natural capital principles within the UK’s contemporary planning reforms. It meticulously explores the legislative and policy landscape, particularly focusing on the Environment Act 2021 and its ramifications for biodiversity and land use. Furthermore, the report critically examines the methodologies employed for the economic valuation of natural capital, highlighting their application in informing policy decisions and ensuring environmental accountability. It also elucidates the frameworks and implementation of natural capital accounting, a vital tool for comprehensive environmental-economic integration. Finally, the report analyses key strategies for the preservation and sustainable management of natural capital, including the Biodiversity Net Gain (BNG) policy, the widespread adoption of nature-based solutions, and broader policy and regulatory interventions aimed at fostering a nature-positive future within the UK’s economic development trajectory.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

1. Introduction

The notion of capital has long been a cornerstone of economic theory, traditionally referring to manufactured assets like machinery, infrastructure, and financial resources that generate future income. The emergence of ecological economics in the latter half of the 20th century, however, broadened this perspective, introducing the vital concept of natural capital. This expanded definition recognises the intrinsic value and functional necessity of the natural environment as a form of capital, providing a continuous flow of essential goods and services – termed ecosystem services – that underpin all human activity and economic prosperity. (en.wikipedia.org)

Ecosystem services are the myriad benefits that humans receive from ecosystems. These include fundamental provisioning services such as clean air, potable water, food, and timber; regulating services like climate regulation, flood mitigation, disease control, and pollination; cultural services encompassing recreational, aesthetic, and spiritual benefits; and supporting services, such as nutrient cycling and primary production, which are necessary for the production of all other ecosystem services. Historically, these services have often been treated as ‘free goods’ within economic models, their value overlooked until their degradation or loss becomes acutely apparent, leading to significant societal and economic costs. The irreversible depletion of natural capital not only diminishes ecological resilience but also threatens long-term economic stability and human well-being.

In response to mounting environmental pressures, including biodiversity loss, climate change, and resource depletion, governments worldwide are increasingly seeking to integrate natural capital considerations into their core policy frameworks. The United Kingdom stands at the forefront of this global imperative, having embarked on ambitious planning reforms that explicitly embed natural capital as a pivotal element. These reforms reflect a growing consensus that sustainable development cannot be achieved without safeguarding and enhancing the natural environment. The integration of natural capital principles influences a wide spectrum of policy decisions, from national infrastructure planning and housing development to agricultural practices and land management, fundamentally reshaping the trajectory of economic growth and environmental stewardship in the UK.

This report aims to provide a detailed examination of this transformative shift in the UK’s planning paradigm. It will systematically explore the legislative foundations that mandate the consideration of natural capital, analyse the innovative economic tools developed for its valuation and accounting, and scrutinise the practical strategies being deployed for its preservation and sustainable management. By synthesising these critical dimensions, the report seeks to offer a comprehensive understanding of the opportunities, challenges, and long-term implications of embedding natural capital at the heart of the UK’s pursuit of a truly sustainable and resilient future.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

2. The Role of Natural Capital in the UK’s Planning Reforms

The recognition of natural capital as a critical asset has driven a fundamental re-evaluation of planning and development policy in the UK. This section explores the key legislative and policy developments that have integrated natural capital principles, alongside the significant challenges and controversies that have emerged during their implementation.

2.1 Policy Integration and Legislative Developments

The UK’s journey towards integrating environmental considerations into planning has evolved over decades, from early environmental protection acts to more comprehensive sustainability frameworks. The current wave of reforms represents a significant escalation of this commitment, spearheaded by landmark legislation and strategic policy documents.

Central to this shift is the Environment Act 2021, a foundational piece of legislation designed to create a comprehensive, long-term legal framework for environmental governance in the UK post-Brexit. The Act introduces a range of legally binding targets across areas such as biodiversity, water quality, air quality, and waste reduction. Crucially for planning, the Act mandates Biodiversity Net Gain (BNG), requiring all developments (with specified exemptions, notably nationally significant infrastructure projects, NSIPs, which are subject to separate but often similar requirements) to deliver at least a 10% increase in biodiversity value compared to their baseline. (reuters.com) This statutory requirement applies broadly to projects ranging from residential housing estates to renewable energy installations, fundamentally altering the calculus for developers and planning authorities. The BNG obligation can be met on-site, through off-site habitat creation or enhancement, or by purchasing statutory biodiversity credits from Natural England, thereby establishing a market mechanism for nature recovery.

Preceding the Environment Act, the 25 Year Environment Plan (2018) articulated the UK government’s long-term vision for the environment, aiming to leave it in a better state for the next generation. This plan set out strategic goals, including clean air and water, thriving plants and wildlife, and mitigating and adapting to climate change. It explicitly recognised the concept of natural capital as a framework for achieving these ambitions, promoting a ‘natural capital approach’ to decision-making across government. The Plan laid the groundwork for the Environment Act, providing the policy context and ambition for the legislative changes that followed.

The National Planning Policy Framework (NPPF), which guides local planning authorities in England, has also evolved to reflect these environmental priorities. While previous iterations included general references to sustainable development and protecting the natural environment, the updated NPPF places greater emphasis on net environmental gain, nature recovery networks, and climate change mitigation and adaptation. It encourages local authorities to identify and protect areas of importance for biodiversity and ecosystem services and to consider natural capital in strategic planning decisions. This integration means that local plans must now demonstrate how they contribute to environmental objectives, moving beyond merely avoiding harm to actively seeking to enhance natural assets.

Furthermore, broader strategic policies such as the Net Zero Strategy and the National Infrastructure Strategy increasingly recognise the co-benefits of natural capital interventions in achieving climate goals and enhancing infrastructure resilience. For instance, nature-based solutions like sustainable drainage systems (SuDS) can simultaneously manage flood risk, improve water quality, enhance biodiversity, and provide amenity value, demonstrating the multi-functional benefits of integrating natural capital thinking into infrastructure planning.

2.2 Challenges and Controversies

The ambitious integration of natural capital into planning reforms has not been without significant challenges and robust debate. These controversies reflect the inherent complexities of balancing development pressures with environmental protection, addressing governance structures, and establishing effective market-based mechanisms for nature.

One prominent area of contention revolves around local democracy and the centralisation of power. Numerous councils across England have expressed profound concerns that proposed planning reforms undermine their autonomy and ability to shape local development in response to community needs and environmental priorities. (homebuilding.co.uk) Criticisms often cite central government housing targets that local authorities may struggle to meet without compromising protected green belt land or other sensitive natural areas. There are fears that fast-tracked processes for ‘critical infrastructure projects’ could bypass comprehensive local scrutiny, potentially leading to adverse environmental impacts. The debate around the planning bill and its implications for the green belt highlights this tension, with some viewing proposed changes as an erosion of local protections in favour of centrally driven development agendas. (homebuilding.co.uk) This democratic deficit concern is particularly acute where local communities feel their voices are being sidelined in decisions affecting their immediate environment and the natural capital assets within their localities.

A second major area of controversy centres on the effectiveness and implementation of Biodiversity Net Gain (BNG) and biodiversity offsetting mechanisms, such as habitat banking. While the principle of achieving a 10% net gain is widely supported, its practical application has raised several complex questions. Critics argue about the potential for ‘greenwashing’, where developers might simply purchase credits to fulfil obligations without genuine, ecologically meaningful gains. Concerns also include ‘additionality’, questioning whether the biodiversity enhancements would have occurred anyway, and the ‘like-for-like’ or ‘like-for-better’ principle, which dictates that losses of specific habitat types should ideally be compensated with gains of the same or a more valuable habitat. The spatial and temporal dimensions of offsetting are also challenging: an ecological loss in one area might be ‘offset’ by a gain miles away, potentially leading to fragmented habitats or a net loss of local ecosystem services. There is also the risk of ‘leakage’, where conservation efforts in one area simply displace environmental harm elsewhere. The long-term monitoring and enforcement of BNG sites, particularly off-site gains and habitat banks, are crucial to ensure that promised biodiversity enhancements are delivered and sustained over the typically 30-year monitoring period, a significant logistical and financial challenge. (en.wikipedia.org)

Furthermore, the nascent market for BNG units and habitat banking presents its own set of challenges. Developing a robust, transparent, and fair market requires clear valuation metrics, secure land tenure for nature sites, and effective governance to prevent speculation or market failure. The capacity of local planning authorities to scrutinise BNG plans, assess ecological metrics, and monitor compliance is another practical hurdle. Many councils face resource constraints and a shortage of ecological expertise, which could compromise the effective implementation of these complex policies.

Finally, the integration of natural capital also brings to the fore the inherent conflicts in land use. The UK is a densely populated country with competing demands for land for housing, infrastructure, agriculture, and nature. Applying a natural capital lens to these decisions requires difficult trade-offs and robust spatial planning. For instance, balancing the need for renewable energy infrastructure, which is vital for climate targets, with the protection of prime agricultural land or sensitive ecological sites, becomes a significant planning conundrum. The concept of ‘critical infrastructure’ projects, potentially benefiting from accelerated planning processes, underscores the ongoing tension between national development priorities and local environmental protection. (ft.com)

Navigating these challenges requires continuous dialogue, adaptive policy-making, robust scientific input, and genuine stakeholder engagement to ensure that natural capital integration genuinely leads to a more sustainable and nature-positive future for the UK.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

3. Economic Valuation of Natural Capital

Integrating natural capital into economic decision-making necessitates assigning tangible values to environmental assets and the services they provide. This section explores the theoretical underpinnings and diverse methodologies used for economic valuation, along with their practical applications in UK policy and planning.

3.1 Theoretical Underpinnings and the Need for Valuation

Traditional economic models often fail to account for the true value of natural capital and ecosystem services because many of these services are public goods or common-pool resources. They are non-excludable (difficult to prevent people from using them) and often non-rivalrous (one person’s use does not diminish another’s). Consequently, they are not traded in conventional markets, leading to market failures where their value is externalised, resulting in overexploitation and degradation. Economic valuation aims to internalise these externalities by quantifying the benefits derived from nature in monetary terms, thereby making them visible and comparable within economic analyses such as cost-benefit analyses (CBAs) and national accounts.

The concept of Total Economic Value (TEV) is commonly used to frame the different types of values attributed to natural capital. TEV disaggregates value into two main categories:

• Use Values: These relate to the direct or indirect use of an environmental asset.

  • Direct Use Values: Derived from direct interaction with nature, e.g., timber, fish, water abstraction, recreation (tourism, hiking).
  • Indirect Use Values: Derived from ecosystem functions that support human activities but are not directly consumed, e.g., pollination of crops, water purification by wetlands, flood protection provided by forests.
  • Option Values: The value of preserving an ecosystem for future potential uses, e.g., future pharmaceutical discoveries from biodiversity, or the option to enjoy a natural area in the future.

• Non-Use Values: These are values that individuals derive from the existence of an environmental asset, even if they never directly use it.

  • Existence Values: The value people place on knowing that a natural asset exists, e.g., preserving endangered species or ancient woodlands.
  • Bequest Values: The value placed on ensuring that future generations can enjoy the natural asset.
  • Altruistic Values: The value derived from knowing others can enjoy the natural asset.

By systematically identifying and quantifying these values, economic valuation seeks to provide a more comprehensive picture of the trade-offs involved in land use and development decisions, encouraging more sustainable management of natural assets.

3.2 Methods of Valuation

No single method is universally applicable, and the choice depends on the specific ecosystem service, data availability, and policy context. Valuation techniques are broadly categorised as market-based, revealed preference, or stated preference methods:

• Market-Based Valuation: These methods directly or indirectly use market prices to infer the value of natural resources or the services they provide. While straightforward for commercial natural resources, they are less suited for non-marketed ecosystem services.

  • Direct Market Pricing: Applicable to resources with established markets, e.g., timber prices, water supply costs, agricultural yields. The value is simply the market price multiplied by the quantity.
  • Avoided Cost Method: Estimates the benefits of an ecosystem service by calculating the costs that would have been incurred if that service were not available. For instance, the value of wetlands in flood regulation can be estimated by the avoided costs of building artificial flood defences or the damages from flooding.
  • Replacement Cost Method: Estimates the cost of replacing a natural service with a human-made alternative. For example, the value of natural water purification by a forest could be estimated by the cost of building and operating a water treatment plant if the natural service were lost.
  • Production Function Method: Assesses the contribution of an ecosystem service to the production of an economic good. For instance, the economic value of pollinators can be estimated by their contribution to agricultural crop yields.

• Revealed Preference Methods (Non-Market Valuation): These infer values from observed behaviours in related markets, assuming that individuals’ choices reveal their preferences for environmental quality.

  • Hedonic Pricing Method: Analyses the effect of environmental amenities (e.g., proximity to green space, air quality) on the prices of related goods, such as property values. For example, homes near a well-maintained park or with good air quality might command higher prices, with the premium reflecting the value of these environmental attributes.
  • Travel Cost Method (TCM): Estimates the recreational value of natural sites by analysing the costs (travel expenses, time) that people incur to visit them. It assumes that the amount of money and time spent reflects the value visitors place on the experience.

• Stated Preference Methods (Non-Market Valuation): These directly elicit individuals’ willingness to pay (WTP) for environmental improvements or willingness to accept (WTA) compensation for environmental degradation through surveys. They are particularly useful for non-use values where no observable market behaviour exists.

  • Contingent Valuation Method (CVM): Directly asks respondents, typically in surveys, about their WTP for a hypothetical change in environmental quality (e.g., preserving a specific habitat) or WTA compensation for its loss. While versatile, CVM can be subject to various biases, such as hypothetical bias (responses may not reflect real behaviour) or strategic bias (respondents might misrepresent their preferences).
  • Choice Modelling (CM) / Choice Experiments (CE): Presents respondents with a series of hypothetical scenarios, each with different combinations of environmental attributes and costs. By observing their choices, researchers can statistically derive the implicit value individuals place on each attribute. This method helps to mitigate some CVM biases by forcing trade-offs between attributes.

• Cost-Based Valuation: Reiterate that methods like avoided cost and replacement cost fall under this umbrella, providing practical estimates when direct market values are absent. They are generally seen as conservative estimates as they only measure the cost of replacing a service, not the full economic value of the natural asset providing it.

3.3 Applications in Policy and Planning

Economic valuation of natural capital serves as a vital tool for informed decision-making across various levels of governance in the UK:

• Informing Cost-Benefit Analysis (CBA): By assigning monetary values to ecosystem services, policymakers can conduct more comprehensive CBAs for development projects, infrastructure investments, and environmental policies. This allows for a more robust comparison of the economic benefits of development against the monetised environmental costs of natural capital degradation or, conversely, the economic benefits of conservation and restoration efforts.

• Policy Instrument Design: Valuation can inform the design of economic instruments such as payments for ecosystem services (PES), environmental taxes (e.g., for pollution), and subsidies for environmentally beneficial practices. For example, valuing the carbon sequestration potential of woodlands can justify incentives for afforestation, or valuing water purification services can underpin schemes where downstream users pay upstream landowners for maintaining healthy catchments.

• National and Strategic Planning: The UK’s commitment to achieving a ‘nature-positive’ future by 2030, in alignment with the Kunming-Montreal Global Biodiversity Framework, relies heavily on understanding the economic implications of biodiversity loss and enhancement. (en.wikipedia.org) Valuation helps to quantify the costs of inaction and the benefits of investing in natural capital, thereby justifying significant public and private investment in nature recovery networks, green infrastructure, and climate adaptation projects. The Treasury’s focus on integrating natural capital into public spending decisions and exploring tax reforms that boost productivity while considering environmental impacts exemplifies this high-level application. (ft.com)

• Corporate Reporting and Investment: As the understanding of natural capital risks and opportunities grows, businesses are increasingly required or incentivised to assess their dependencies and impacts on nature. Economic valuation provides a framework for companies to report on their natural capital footprint, attract green investment, and integrate natural capital considerations into their risk management and strategic planning.

While economic valuation provides a powerful lens for decision-making, it is important to acknowledge its limitations. Not all aspects of nature can be easily monetised, and inherent ethical questions remain about placing a price on intrinsic ecological value. Nevertheless, by making previously invisible environmental benefits tangible in economic terms, valuation helps to ensure that natural capital is afforded due consideration alongside traditional economic factors in policy and planning decisions.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

4. Natural Capital Accounting

Moving beyond individual project valuation, Natural Capital Accounting (NCA) provides a systematic framework for measuring and reporting on the stocks and flows of natural resources and ecosystem services at national, regional, or even corporate scales. This section details the objectives, established frameworks, and implementation of NCA in the UK, highlighting its role in informing comprehensive environmental-economic integration.

4.1 Frameworks and Standards

Natural Capital Accounting is an interdisciplinary field that seeks to integrate environmental data with economic statistics, moving beyond the limitations of Gross Domestic Product (GDP) as a sole indicator of national well-being and sustainability. The primary objective of NCA is to provide a comprehensive and consistent set of accounts that reveal the contribution of nature to the economy and society, tracking changes in the quantity and quality of natural assets over time. This enables policymakers to monitor environmental degradation, assess the sustainability of resource use, and identify opportunities for natural capital enhancement.

The internationally recognised standard for natural capital accounting is the System of Environmental-Economic Accounting (SEEA). Developed by the United Nations Statistical Commission, the SEEA provides a framework for organising statistical data linking environmental information to economic information. It consists of two main parts: (en.wikipedia.org)

• SEEA Central Framework (SEEA-CF): Adopted as an international statistical standard in 2012, the SEEA-CF focuses on physical and monetary accounts for individual environmental assets (e.g., forests, water resources, minerals) and the flows of materials and energy between the environment and the economy (e.g., water abstraction, energy consumption, waste generation). It allows for the compilation of accounts for environmental taxes, subsidies, environmental protection expenditure, and the environmental goods and services sector.

• SEEA Ecosystem Accounts (SEEA-EA): Building on the Central Framework, the SEEA-EA, adopted in 2021, focuses on ecosystem assets and the services they provide. It shifts the focus from individual resources to the ecosystems that provide multiple services. SEEA-EA measures the extent of ecosystems (e.g., hectares of woodland, wetlands), their condition (e.g., biodiversity, soil health), and the biophysical and monetary flows of ecosystem services (e.g., carbon sequestration, flood regulation, recreation). This framework is particularly relevant for understanding biodiversity, ecosystem health, and the delivery of multiple benefits from nature.

Both components of SEEA provide a consistent framework for compiling data, ensuring comparability across countries and over time, and offering a robust basis for integrating natural capital information into national economic accounts.

4.2 Implementation in the UK

The UK has been a pioneer in developing and implementing natural capital accounting at a national level. The Office for National Statistics (ONS), in collaboration with the Department for Environment, Food & Rural Affairs (Defra), has been systematically compiling UK Natural Capital Accounts since 2012. This initiative is a core component of the UK’s 25 Year Environment Plan and aims to provide a comprehensive understanding of the relationship between the economy and the environment, facilitating informed decision-making.

The UK Natural Capital Accounts follow the principles of the SEEA-EA, measuring the extent, condition, and services provided by various natural assets across different environmental realms. These include:

• Woodland Accounts: Measuring area, condition, timber stocks, and services like carbon sequestration, air filtration, and recreation.
• Freshwater Accounts: Covering rivers, lakes, and groundwaters, assessing water abstraction, water quality, and services such as water supply and flood regulation.
• Marine and Coastal Accounts: Quantifying assets like marine habitats, fish stocks, and services such as food provision, coastal protection, and carbon sequestration.
• Agricultural Accounts: Focusing on soil quality, biodiversity within agricultural landscapes, and food provision.
• Urban Accounts: Assessing green spaces, urban trees, and services like air purification, noise reduction, and mental health benefits in urban areas.
• Peatland Accounts: Quantifying the area and condition of peatlands and their critical role in carbon storage and water regulation.

For each asset, the ONS compiles both physical accounts (e.g., hectares of forest, cubic metres of water) and monetary accounts (e.g., the value of carbon sequestration, recreational value of national parks). The monetary accounts often leverage the economic valuation methods discussed in Section 3, applying them systematically across national assets.

The implementation of NCA in the UK faces several challenges, including the availability and quality of detailed environmental data, especially for condition accounts and highly localised ecosystem services. Methodological consistency in valuing non-market services across different asset types is also an ongoing area of research and refinement. Despite these challenges, the UK’s natural capital accounts are increasingly being used to:

• Inform National Policy: Provide evidence for the 25 Year Environment Plan targets, inform environmental protection policies, and guide investment in natural infrastructure.
• Integrate into Public Finance: The Treasury’s Green Book, which guides public investment, increasingly incorporates natural capital considerations, encouraging government departments to consider the environmental impacts and benefits of their spending decisions.
• Support Regional and Local Planning: While compiled nationally, the disaggregated data from natural capital accounts can inform strategic environmental assessments (SEAs) and local plan development, helping authorities identify key natural assets and ecosystem service flows within their jurisdictions.
• Promote Corporate Awareness: Encourage businesses to understand their reliance on and impact on natural capital, fostering more sustainable business practices and reporting frameworks.

By providing a comprehensive and systematic view of the environment’s contribution to national wealth and well-being, natural capital accounting is a crucial step towards embedding environmental sustainability at the heart of economic governance and planning in the UK.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

5. Strategies for Preservation and Sustainable Management

The UK’s commitment to a nature-positive future is being translated into a suite of innovative strategies aimed at preserving, restoring, and sustainably managing its natural capital. These approaches range from regulatory requirements for developers to large-scale landscape interventions and significant policy and financial reforms.

5.1 Biodiversity Net Gain (BNG)

The Biodiversity Net Gain (BNG) policy, mandated by the Environment Act 2021, represents a landmark shift in planning regulations, moving from a mitigation-focused approach to one of demonstrable enhancement. From January 2025 (with an exemption for small sites until April 2025), developers in England are legally required to achieve at least a 10% net gain in biodiversity value compared to the pre-development baseline. (reuters.com)

The calculation of BNG relies on a ‘Statutory Biodiversity Metric’ developed by Natural England. This metric quantifies biodiversity value by assessing habitat distinctiveness (e.g., woodland, grassland, wetland), condition (e.g., poor, moderate, good), and strategic significance (e.g., location within a nature recovery network). The metric provides a standardised, transparent way to compare the biodiversity value of a site before and after development, ensuring that the 10% gain is quantifiable and verifiable.

The policy operates on a clear hierarchy to achieve the net gain, prioritising on-site solutions:

1. Avoid: Developers must first seek to avoid adverse impacts on biodiversity as much as possible.
2. Mitigate: Where impacts cannot be avoided, they must be minimised through appropriate design and construction methods.
3. Restore/Compensate On-site: Any residual biodiversity loss should be compensated for by creating or enhancing habitats within the development site itself.
4. Off-site Provision: If on-site BNG is not feasible or sufficient, developers can purchase ‘registered off-site gains’ from landowners who have created or enhanced habitats specifically for BNG purposes. These off-site locations are typically managed for a minimum of 30 years.
5. Statutory Credits: As a last resort, if both on-site and registered off-site options are unavailable, developers can purchase statutory biodiversity credits from Natural England. The revenue from these credits is used to invest in strategic nature recovery projects elsewhere in England.

The introduction of habitat banks is a key component of the off-site BNG mechanism. Habitat banks are areas of land where habitat creation or enhancement is undertaken, in advance of biodiversity losses, to generate BNG units for sale to developers. (en.wikipedia.org) These are typically long-term commitments, often involving private landowners or conservation organisations who manage the land for biodiversity benefits. Natural England is tasked with establishing a national register of BNG sites and credits, providing transparency and ensuring accountability.

Challenges for BNG implementation include ensuring the ecological equivalence of offset sites, preventing ‘perverse incentives’ (e.g., degrading habitat to then ‘improve’ it for BNG), securing long-term management and monitoring of sites for 30 years, and building the capacity of local planning authorities to scrutinise and enforce BNG plans effectively. Despite these, BNG represents a significant step towards embedding nature recovery within the planning system and driving private investment into environmental enhancement.

5.2 Nature-Based Solutions (NbS)

Nature-based Solutions (NbS) are defined by the International Union for Conservation of Nature (IUCN) as ‘actions to protect, sustainably manage and restore natural or modified ecosystems that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits’. NbS are a cornerstone of the UK’s natural capital strategy, offering multi-functional benefits across climate change mitigation and adaptation, disaster risk reduction, water security, food security, and human health.

Key NbS being implemented across the UK include:

• Rewilding: This approach involves the large-scale restoration of ecosystems to the point where nature can take care of itself. In the UK, examples like the Knepp Estate in Sussex and initiatives in the Cairngorms demonstrate how rewilding can lead to significant biodiversity recovery (e.g., reintroduction of lost species, creation of dynamic habitats) while also providing ecosystem services such as carbon sequestration, natural flood management, and nature-based tourism. Rewilding can also generate economic benefits through ecotourism and sustainable land management practices.

• Forestry and Afforestation: Increasing tree cover is a vital NbS for climate change mitigation (carbon sequestration), flood risk reduction (slowing water runoff), improving air quality, and enhancing biodiversity. The UK has ambitious tree-planting targets, supported by initiatives like the England Trees Action Plan. Strategic woodland creation is often planned to connect existing habitats, form ‘nature recovery networks’, and provide recreational opportunities.

• Peatland Restoration: Peatlands are the UK’s largest terrestrial carbon store, holding more carbon than all the UK’s forests combined. Degraded peatlands release carbon, contribute to water discolouration, and reduce biodiversity. Extensive restoration efforts, such as those led by Natural England and local wildlife trusts, involve re-wetting peat bogs and stabilising erosion, which are crucial for climate targets, water quality, and unique peatland biodiversity.

• Sustainable Drainage Systems (SuDS): These are designed to manage surface water runoff in urban and peri-urban areas through natural processes. Examples include permeable pavements, rain gardens, green roofs, and attenuation ponds. SuDS reduce flood risk, improve water quality by filtering pollutants, enhance urban biodiversity, and provide attractive green spaces that improve human well-being.

• Saltmarsh and Seagrass Restoration: Coastal ecosystems like saltmarshes and seagrass beds are highly effective ‘blue carbon’ sinks, absorbing and storing vast amounts of carbon. They also provide vital coastal defence against erosion and storm surges, create nurseries for fish, and support marine biodiversity. Restoration projects are underway across the UK to restore these critical habitats.

NbS typically require integrated planning across different land uses and scales, often involving collaboration between public bodies, private landowners, conservation groups, and local communities. Their multi-benefit nature makes them attractive investments, drawing increasing attention from public funding schemes and emerging private finance mechanisms.

5.3 Policy and Regulatory Measures

Beyond BNG and NbS, the UK government has introduced a broader array of policy and regulatory measures to embed natural capital considerations more deeply into economic activity and land management.

• Environmental Land Management Schemes (ELMs): These schemes are a cornerstone of the post-Brexit agricultural policy, replacing the European Union’s Common Agricultural Policy (CAP). ELMs pivot agricultural subsidies away from land area towards ‘public money for public goods’. They comprise three main components:

  • Sustainable Farming Incentive: Pays farmers for environmentally friendly practices like soil health improvements, hedgerow management, and integrated pest management.
  • Local Nature Recovery: Supports collaborative projects at a local level to create and restore habitats, improve water quality, and enhance biodiversity, often contributing to Nature Recovery Networks.
  • Landscape Recovery: Funds large-scale, long-term projects to deliver significant environmental benefits, such as rewilding, major woodland creation, or peatland restoration.
    These schemes incentivise farmers and land managers to protect and enhance natural capital on their land, fostering a shift towards more sustainable and nature-friendly farming practices.

• Investment in Natural Capital and Green Finance: There is a growing focus on mobilising both public and private finance for natural capital projects. The UK government aims to facilitate investment in nature by exploring new funding mechanisms, such as private markets for ecosystem services (e.g., voluntary carbon markets for woodland creation, biodiversity credits for BNG). The Green Finance Strategy outlines plans to make the UK a global leader in green finance, encouraging investment in activities that deliver environmental benefits. This includes the development of green bonds and other financial instruments tailored to natural capital assets. Scotland, in particular, has seen significant interest in natural capital investment, although concerns about speculative ‘land rushes’ in rural areas highlight the need for careful regulation to ensure genuine environmental benefits and fair returns. (ft.com)

• Spatial Planning and Strategic Environmental Assessment (SEA): The broader planning framework continues to evolve to integrate natural capital at different scales. National and regional strategies increasingly require assessments of their impacts on natural capital and ecosystem services. Strategic Environmental Assessment (SEA) and Environmental Impact Assessment (EIA) processes are crucial regulatory tools that mandate the identification, assessment, and mitigation of potential environmental impacts of plans, programmes, and projects, including those on biodiversity and natural capital. The ongoing overhaul of planning policy, including proposed reforms to speed up ‘critical’ infrastructure projects, seeks to balance the need for expedited development with robust environmental safeguards. (ft.com)

• Cross-Government Collaboration: Effective natural capital management requires joined-up policy-making across government departments. Defra (Department for Environment, Food & Rural Affairs) works closely with DLUHC (Department for Levelling Up, Housing and Communities), HM Treasury, and the Department for Energy Security and Net Zero (DESNZ) to ensure that environmental considerations are integrated into housing, infrastructure, energy, and fiscal policies. This holistic approach is essential to avoid siloed decision-making that could undermine natural capital objectives.

These interconnected strategies collectively aim to foster a systemic shift in how the UK values, manages, and invests in its natural environment, moving towards a future where economic growth is intrinsically linked with the health and resilience of natural capital.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

6. Conclusion

The integration of natural capital into the United Kingdom’s planning reforms represents a profound and transformative shift towards a more sustainable and resilient development paradigm. No longer are the environment and economy treated as separate entities; instead, natural capital is increasingly recognised as the foundational asset underpinning human well-being and long-term prosperity. This report has meticulously detailed the legislative and policy mechanisms, the economic tools, and the practical strategies that are shaping this evolving landscape.

The Environment Act 2021, with its statutory requirement for a 10% Biodiversity Net Gain, is a pivotal legislative development, demonstrating a clear commitment to not just mitigate environmental harm but to actively enhance biodiversity through development. This, alongside the evolving National Planning Policy Framework and broader environmental plans, signals a clear intent to embed nature recovery at the heart of land use and development decisions. The UK’s pioneering work in economic valuation of natural capital and the comprehensive compilation of national natural capital accounts provide the essential data and analytical frameworks to inform these policy decisions, making the previously ‘invisible’ economic contributions of nature transparent and actionable.

Furthermore, the widespread adoption of nature-based solutions, from large-scale rewilding initiatives and peatland restoration to the integration of sustainable drainage systems in urban areas, underscores a proactive approach to managing environmental challenges with multi-functional benefits. The reforms in agricultural policy through the Environmental Land Management Schemes exemplify a crucial shift towards incentivising sustainable farming practices that deliver public goods, including environmental enhancement. Coupled with the drive for green finance and the growing recognition of private sector investment potential in natural capital, these strategies aim to create a self-sustaining ecosystem of environmental stewardship.

Despite this ambitious agenda, significant challenges persist. Concerns regarding the centralisation of planning power and its impact on local democracy, the complexities and potential pitfalls of biodiversity offsetting mechanisms, and the perennial tensions arising from competing land-use demands require continuous attention and adaptive governance. Ensuring effective monitoring and enforcement of BNG, building capacity within local authorities, and fostering genuine public engagement are critical for the long-term success and legitimacy of these reforms.

Looking ahead, the UK’s journey towards a truly nature-positive future will demand ongoing commitment, innovation, and collaboration across all sectors of society. Continued investment in scientific research and data infrastructure will be crucial for refining valuation and accounting methodologies. The development of robust, transparent markets for ecosystem services will be vital to unlock further private finance. Ultimately, the successful integration of natural capital into planning reforms is not merely a technical exercise but a societal imperative, crucial for securing a resilient, biodiverse, and prosperous future for the UK and setting a precedent for global environmental governance.

Many thanks to our sponsor Focus 360 Energy who helped us prepare this research report.

References

• ‘Natural capital.’ Wikipedia, last modified August 2025. (en.wikipedia.org)

• ‘Nature-positive.’ Wikipedia, last modified June 2025. (en.wikipedia.org)

• ‘Biodiversity banking.’ Wikipedia, last modified July 2025. (en.wikipedia.org)

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