Published March 2018 Natural Capital Investment Plan for Surrey 2 Natural Capital Investment Plan for Surrey
Authors: Finally we would like to thank the following for their contributions • Sarah Jane Chimbwandira to the Plan: • Mark Pearson • Paul Wickham • Jim Jones, SWT & Jon Stokes, The Tree Council (the ’Real’ Hedge Fund model) Acknowledgements • Antony Williams, Propeller Associates We would like to thank the Surrey (the business engagement model) Nature Partnership Board members • Chris Stanton, Guildford Borough for their comments and support. Council (local authority engagement We would also like to thank the with natural capital) following who have kindly provided • Matthew Woodcock, comments on this document at Forestry Commission various times during its preparation: (information on optimising • Dan Barwick, Estelle Bailey, Mike Surrey’s Biomass Resources) Packer, Simon Petley, Kevan Jones, • Alistair Yeomans, Peter Young, Paul Leinster, Paul Sylva Foundation (NaturEtrade) Mackie, Roger Wild, Mike Waite, Andrew Jamieson, Bruce Howard, • Bill Biddell, Hampton Estate (business Paul Krause, Richard Murphy. led investment funds) • The Way Design (design and printing)
All images © Jon Hawkins unless stated. This page © Marcus Wehrle Natural Capital Investment Plan for Surrey 3
Contents
Foreword 04 Executive Summary 05 Chapter 1 Introduction 06 Chapter 2 Surrey’s Natural Capital Approach 08 Chapter 3 Objectives of the Natural Capital 11 Investment Plan for Surrey Chapter 4 Taking Action: a transformative approach 12 – Role of SyNP in driving transformation in natural capital investment 12 Chapter 5 How investments will be made & 15 Opportunities for Investors Capital Investment 16 – Community led investment funds 16 – The ‘Real’ Hedge Fund 17 – Business led investment funds 18 – Guildford Borough Council Rural Economic Strategy 19 – Optimising Surrey’s Biomass Resources 20 – Hampton Estate (diversification, micro-businesses) 21 – Large scale equity and debt funds 21 – Surrey’s Natural Capital Investment Fund 22 Revenue Flow 22 – Payments for Ecosystem Services 23 Chapter 6 Where, and which, assets will be prioritised for investment? 24 Chapter 7 Implementation 2018 – 2023 27
Appendices Appendix 1 Making It Happen – Progress 2015 – 2017 30 Appendix 2 Strategic Priorities 31 Appendix 3 Implementation Activities for 2018 – 2023 32 Appendix 4 Evidence development for NCIP 34 Appendix 5 Investment Approach and Principles 34 Appendix 6 Project Assessment Framework (financial) 36 Appendix 7 Worked example for developing 38 investment products – woodlands 4 Natural Capital Investment Plan for Surrey
Foreword This Plan is a follow on companion to the previously published naturally richer: A Natural Capital Investment Strategy for Surrey.
This Natural Capital Investment Plan To put the development and maintenance Surrey’s natural capital approach set is a practical, yet visionary, document. of Surrey’s natural assets at the true out in this Plan shows that an integrated The Plan was heralded two years ago heart of economic and social planning and inclusive approach to sustainable by the publication of naturally richer: A is a big step. It depends on redressing economic prosperity, including investment Natural Capital Investment Strategy for the balance between public and private in natural capital, can start now. The Surrey. Since then much has happened to investment in accordance with the daily Plan lists imaginative ways to invest in support Surrey’s astute recognition that benefits (‘ecosystem services’) and the natural capital, ranging from community- new investment flows into natural capital long-term asset value (‘natural capital’) led funds, through local funds, to fully must be mobilised. The Government re- that both public and private interests commercial investment products, appointed the Natural Capital Committee enjoy. Public investment can be better depending on the maturity of the market. (NCC) (until at least 2020), and then asked directed to secure public benefit (not Combined with inspirational examples them to advise on the now published 25 least in farming) but finding mechanisms like the ‘Real’ Hedge Fund this Plan Year Environment Plan (25YEP). for private investment to take the lead is an effective call to action which all Alongside this the concept of public is the biggest challenge. Many receive stakeholders must heed. It provides the money for public goods has been benefits from natural assets without framework within which innovative and espoused by ministers, not least in paying anything, and as a result these bespoke solutions can be designed – underpinning a new Agriculture Act, assets are grossly underfunded. Yet local context and local community required to restructure farm payments there is increasing capital available and engagement being critical. It does so in a to replace the EU Common Agricultural a willingness to invest in natural capital way that can be replicated and scaled up. Policy. This concept is equally applicable markets, as soon as the risks and returns The Plan depends on more proactive across all natural capital assets to deliver can be crystallised. Early pioneers, as dialogue with Surrey’s two Local enhanced value. signposted by this Plan, will be at the Enterprise Partnerships, its Local forefront of these new natural capital- With similar prescience to the Investment Authorities, businesses and communities. based investment vehicles. Strategy, this Plan sets out tangible routes It does not shy away from the to create and maintain healthy natural A rapid transition from one-off examples considerable challenge ahead, not least assets in Surrey over the next 25 years. to a systemic approach is vital to in developing an investible project It should promote informed dialogue, confidently secure benefits in the long pipeline. The experience shared by Surrey as well as lead to a clear initial 5 year term. Hopefully Government will act publishing this plan, and future examples implementation programme to 2023. decisively to accelerate this process. The of its implementation, will help inform The Plan reflects the NCC’s recommended only unfulfilled recommendation of the national policy makers. Further policy approach, tailored to reflect the specific NCC was for legislation to underpin the and regulatory action to enable and needs, opportunities and priorities in 25YEP. This would provide credibility expand natural capital investment will be Surrey. The evidence amassed through and investment grade projects at scale, inevitable to deliver the 25YEP. But the reports produced by Surrey Nature accelerating delivery of this Plan, as ambition and initiative shown by Surrey Partnership as this Plan took shape, well as international commitments on in this Plan will be a lasting legacy for continues to emphasise the deep climate change and the UN’s Sustainable prompting how this transition can begin. connection between economic prosperity, Development Goals, which are all a healthy and thriving society, and a high dependent on local action. It would quality natural environment. The natural also recognise the natural capital capital approach developed in Surrey is a interdependence of local and national beacon of clarity which many outside the productivity and prosperity ambitions, as County would do well to replicate. This set out in the Government’s Industrial and plan shows complexity is not an excuse Clean Growth Strategies. Peter Young for inaction.
Peter is a Trustee of the Green Purposes Company which holds a special share in the Green Investment Bank. He is a Trustee and Council member of The Wildlife Trusts. He is an individual member of Aldersgate Group, having been a Founding Director and Chair from 2007 to 2015. He is chair of the Business Interest Group for the Valuing Nature Programme, and a member of the Programme Advisory Board. He is also on advisory boards at the School of Business and Management at Queen Mary, University of London, and the British Standards Institute. Natural Capital Investment Plan for Surrey 5
Executive Summary
• In November 2015 Surrey Nature • The Natural Capital Approach is • The most significant Partnership published naturally intended to drive a new way of richer; this document recognised the achieving systemic investment in investment opportunity at importance of Surrey’s natural capital Surrey’s natural assets and aims this stage is for a visionary assets to its economic and social to mobilise local delivery within a investor, or group of success in the past and the reliance strategic framework. This allows for investors, to provide the seed that continued and future success has the complexity of investments in on these natural assets. natural assets (in terms of scale, type) investment needed to create to be accommodated and managed in • The Natural Capital Investment Plan the transformation described a practical way. (NCIP) for Surrey sets out the broad in this Plan. The investment actions required to achieve and • Our approach in Surrey has evolved of £500,000 per year for maintain healthy natural assets in through recognising a close linkage Surrey over the next 25 years. It is between sustainable economic 3 years will be essential to designed to promote discussion and prosperity and a healthy natural leverage new funds to create comment. It also highlights the activity environment, resonating with the Surrey’s Natural Capital which has been undertaken over the ambitions of the 25YEP. Investment Fund of at least last two years as part of the thought • A transformative approach is required process of developing the natural £20M by 2023. and SyNP will deliver the change capital approach in Surrey. required, by setting up a company • SyNP will be focusing on developing • The Plan is aimed at a wide range which through its activities will create hybrid commercial and natural capital of partners, all of whom need to investment opportunities and match investments which provide some be engaged in creating the change those opportunities with investors. financial return as well as non-financial required to sustain our natural assets, returns. This will develop the credibility • The SyNP company will develop and the benefits they provide, in needed to mobilise natural capital a pipeline of investible projects, the long term. This includes Local investments. articulated in a way which resonates Enterprise Partnerships, Local with the investment community. • The multi-capital approach embedded Authorities, corporate and business It will promote these investment within the NCIP will deliver multiple partners, community, youth and opportunities and support the benefits. Healthy natural capital NGO representatives. delivery of the required change on the fundamentally underpins our response • Surrey has a very successful economy ground. This will provide investment and resilience to climate change; in which needs to adapt and innovate in opportunities over the next 5 years. order to achieve a transition to a low order to remain successful, a growing carbon economy, investment in our • Investments need to be mobilized at population and workforce which natural assets is therefore essential. a range of scales; community, business needs to be housed as well as an Well managed natural capital assets and large scale investments will all ageing population. The challenges of will require people with the right be developed. balancing these needs and recognising skills, will create jobs and will support the opportunities also presented are Surrey’s economic prosperity. driving the thinking behind the NCIP. 6 Natural Capital Investment Plan for Surrey
This Plan is a follow on companion to the previously published naturally richer: A Natural Capital Investment Strategy for Surrey1. It sets out the broad actions required to achieve and maintain healthy natural assets in Surrey over the next 25 years and is designed to promote discussion and comment.
It is aimed at an audience with a reasonably informed level of understanding of, and interest in, this relatively new but fast developing area of interest. We hope this Plan will be read by, and engage, those from Local Enterprise Partnerships (LEPs); Local Authorities (LAs) and Central Government; industry and business; NGO and community representatives and particularly those from the private and corporate investment community. The Plan also highlights the activity which has been undertaken (appendix 1) since publishing naturally richer as part of the thought process of developing the Natural Capital Approach in Surrey.
Surrey Nature Partnership (SyNP) was officially recognized Introduction in 2012 by DEFRA as one of England’s 48 Local Nature “Natural Capital can be Partnerships (LNP). • Our Vision is to see a healthy defined as the world’s stocks natural environment throughout of natural assets which Surrey supporting economic and social benefits. include geology, soil, air, • Our Mission is to hard wire recognition water and all living things. It is of the value of the natural environment into all decision making resulting in from this Natural Capital that more informed decisions for Surrey. It will increase recognition of the humans derive a wide range value of our natural capital and of services, often called ecosystems as critical assets for Surrey, as important as its financial, ecosystem services, which social and other capitals, and promote the need for thoughtful, sustainable make human life possible.” management of these assets. – WORLD FORUM ON NATURAL CAPITAL 2013 Natural Capital Investment Plan for Surrey 7
As a Local Nature Partnership we have adapt and innovate in order to remain identified by ONS was categorised 3 strategic priorities (shown in appendix successful; a growing population and as cultural and regulating services 2) in order to achieve the Vision workforce which needs to be housed; an (recreation, pollution control and carbon above; sustainable land management; ageing population which will increasingly sequestration). This finding was mirrored sustainable economic prosperity; and place a potentially untenable burden by the Valuing Surrey report in which health, wellbeing and quality of life for on the healthcare system. All of these the overwhelming contribution to the all our communities (residents, visitors, factors in turn put pressure on our natural £90 million value was recreational (£63 businesses). These priorities, environment which rightly has a high level million annually) with pollution control as previously stated in naturally richer of protection and which is an important and carbon sequestration also significant. reflect and build upon the national but currently grossly undervalued asset. It is important to recognise that these priorities recommended by the Natural The challenges of balancing these needs values provide a mechanism by which a Capital Committee2 in their recent and recognising the opportunities also more meaningful dialogue can be created Advice to Government on the 25 presented are driving the thinking with business and financial stakeholders. Year Environment Plan (25YEP), behind the NCIP. Vitally the importance They do not represent the full, intrinsic but importantly do so within the of Surrey’s natural assets (such as water value of many of our natural assets nor context for Surrey. and wetlands, soil, woodlands and are they intended to do so. The valuation minerals) needs to be recognised in the The Natural Capital Committee had process does, however, allow these strategic thinking and planning of Surrey’s previously advised Government3 that assets to become more visible in two LEPs, its LAs, the business community some of our natural assets are not being decision making. and similar recognition from community used sustainably, that the benefits we organisations and the people of Surrey. Recognising this and developing a derive from them are at risk and that this strategic, cohesive approach to investing has serious economic implications. There is growing awareness, particularly in Surrey’s natural capital assets will by some businesses, of their full impact In November 2015 Surrey Nature benefit business, people and wildlife. and the true scale of their dependencies Partnership published naturally richer; on natural resources (natural capital) and Such investment will require funding this document recognised the importance the associated financial and social impacts and the opportunity presented by newly of Surrey’s natural capital assets to its which result. The World Economic Forum emerging markets in the financial sector economic and social success in the past has highlighted the serious consequences is also an important driver. The size of and the reliance that continued of failing to take action to safeguard our the conservation impact investment and future success has on these natural assets; identifying biodiversity market within which Surrey’s NCIP will natural assets. loss and ecosystem collapse as one of the operate has been growing exponentially The Vision for naturally richer is to most significant risks in the 2015 Global for a number of years, particularly in the achieve a thriving, resilient and attractive Risks report5. Recently the Office of USA where the Nature Conservancy has county providing natural benefits to all National Statistics has released Ecosystem developed a NatureVest programme9 who live and work in Surrey. Service Accounts for UK natural capital with products such as its Conservation covering the period 1997 to 20156. These Note10. Most recently a report on naturally richer set the direction for accounts (which are being prepared as the scale of private investment into managing our natural assets, and the part of the work to include natural capital conservation showed that the total size Natural Capital Investment Plan (NCIP) in the UK Environmental Accounts by of private capital now committed is $8.2 now describes how we will achieve 2020) identified the partial asset value of billion and this has increased by 62% healthy natural capital and optimise UK natural capital as £761 billion in 2015. in the two years 2014 and 201511. This its value to Surrey over the next 25 This has led to business to seek ways to indicates the scale of the investment years. It does this by setting a clear mitigate its associated exposure to risk as opportunity which could develop here, implementation programme for the first well as to optimise benefits. and when coupled with the social and phase of activity towards this objective environmental benefits outlined above, covering the period 2018 – 2023. This In Surrey7 there are 250 global will be fundamental to achieving the measured progression has clearly companies; 64,000 SMEs; a GVA in objectives of the NCIP. been articulated in the Natural Capital 2015/16 of just over £40 billion (the Committee’s ‘How to Do It Guide’4 largest in the South East and growing SyNP will work to understand the size and published in 2017. in that period by 2.3%); and 1.2 million potential of these emerging markets in people supported by a huge natural Surrey and SE England as a key part of the Drivers for action in Surrey capital resource As an example the socio- Implementation Plan in appendix 3. economic value of woodlands in Surrey The drivers in Surrey include; a critically successful economy which needs to is estimated at £90 million annually8. Interestingly 58% of the national value
1 surreynaturepartnership.files.wordpress.com/2015/11/natural- 5 reports.weforum.org/global-risks-2015/?doing_wp_cron=1518621 9 naturevesttnc.org/ ly-richer-a-natural-capital-investment-strategy-for-surrey.pdf 108.2092590332031250000000#read 10 naturevesttnc.org/wp-content/uploads/2017/04/NatureVest_ 2 gov.uk/government/groups/natural-capital-committee 6 ons.gov.uk/economy/environmentalaccounts/bulletins/uk natural- Overview_Brochure_2017.pdf 3 gov.uk/government/uploads/system/uploads/attachment_data/ capital/ecosystemserviceaccounts1997to2015 11 naturevesttnc.org/pdf/Investing-in-Conservation-2016-full.pdf file/677872/ncc-advice-on-25-year-environment-plan-180131.pdf 7 nomisweb.co.uk/reports/lmp/la/1941962887/report.aspx 4 gov.uk/government/uploads/system/uploads/attachment_data/ 8 surreynaturepartnership.files.wordpress.com/2015/11/surrey-na- file/608852/ncc-natural-capital-workbook.pdf ture-partnership-valuing-surrey-summary-june-2015.pdf 8 Natural Capital Investment Plan for Surrey
Surrey’s Natural Capital Approach Natural Capital Investment Plan for Surrey 9
The Natural Capital Approach is intended to drive a new way of achieving systemic investment in Surrey’s natural assets and aims to mobilise local delivery within a strategic framework. As work on preparing the NCIP has for the Future which places an emphasis Developing evidence and progressed a clear framework has on productivity with a particular link emerged which allows for the complexity to innovation, people, infrastructure monitoring as part of the of investments in natural assets (in terms and places. The Industrial Strategy Natural Capital Approach of scale, type and service provision) to recognises the importance of natural A wealth of evidence exists at be accommodated and managed in a capital to achieving productivity international and national level to practical way. This is the Natural Capital objectives as shown in the quote below support the need for a new approach Approach which has been developed in in generating investment in our natural Surrey. It includes the use of evidence “We will work not just assets. This need for a more integrated and robust data for improved decision to preserve but to approach is echoed in the recent report making; governance and accountability; from the European Higher Level Finance as well as a framework for delivery. enhance our natural Group16. This Group reinforces the risks This echoes the Natural Capital Approach associated with failing to address the identified within A Green Future: Our 25 capital - the air, water, current degradation in natural capital; Year Plan to Improve the Environment12 soil and ecosystems that recommending that we should recently published by Government. “treat natural capital as an integrated A summary of the approach in Surrey support all forms of life whole, not as a series of standalone is presented in diagram 1 below. This issues. For example, climate change, shows the underlying strategic approach since this is an essential water, biodiversity and public health are of first producing a NC Investment basis for economic interrelated and these links should be Strategy followed by the NC Investment analysed to ensure no risks are missed”. Plan. The Investment Plan then leads growth and productivity to a clear implementation period and As part of the work of SyNP there has 13 opportunities for investors. The plan is over the long term” been a clear focus on the need for data designed to halt and reverse the current to understand underlying risks and situation of year on year decline of Between these two Strategies opportunities within this approach. natural assets (dark green arrow) as Government aims to safeguard our Developing local evidence to support well as lead to increases (green arrow). environment and future proof the our natural capital approach has been This will create a situation where an economy. Our approach in Surrey has key and this evidence is summarised in increasing proportion of recent declines similarly evolved through recognising appendix 4. are reversed, as well creating more a close linkage between sustainable A number of these reports will benefit increases in our natural assets. This economic prosperity and a healthy from being updated and there will be net increase provides the opportunity natural environment. The Clean Growth further work done to ensure other for a return on investment as well as Strategy14: Leading the way to a low natural assets receive similar analysis. enhanced service provision. carbon future reinforces the objectives This is an essential requirement in order These objectives are consistent with the outlined in the Industrial Strategy. Green to credibly develop investible assets. Governments’ objectives as outlined Finance is a key requirement in the In addition there are some recognised in the 25 YEP, Industrial Strategy and transition to a low carbon economy and gaps in evidence which will need to be Clean Growth Strategy, and provide a the delivery of clean, green growth addressed as part of the implementation local delivery mechanism. In order to with ambitious economic and of the NCIP including: environmental policies. achieve enlightened decision making • Existing investment landscape – all these aspects must be considered More recently Government has where does money come from together. The 25YEP is promoting a embarked on the development of an now and how will this change? national natural capital approach and Agriculture Bill15 to set out how public sets out how Government will achieve funding will be used in support of • Critical functional thresholds for its ambition to leave the natural farmers following Brexit. Clearly the each of the assets – understanding environment in a better condition outcome of these discussions will also what these thresholds are and how for future generations. The 25 YEP is be critical for the delivery of the NCIP. to reach them. a complementary document to the Industrial Strategy: Building a Britain Fit
12 gov.uk/government/uploads/system/uploads/attachment_data/ 14 gov.uk/government/uploads/system/uploads/attachment_data/ 16 ec.europa.eu/info/sites/info/files/180131-sustainable-finance- file/673203/25-year-environment-plan.pdf file/651916/BEIS_The_Clean_Growth_online_12.10.17.pdf final-report_en.pdf 13 gov.uk/government/uploads/system/uploads/attachment_data/ 15 gov.uk/government/publications/queens-speech-2017-what-it- file/664563/industrial-strategy-white-paper-web-ready-version.pdf means-for-you/queens-speech-2017-what-it-means-for-you 10 Natural Capital Investment Plan for Surrey
Diagram 1: Natural Capital Approach in Surrey
Net positive impact: • Climate change resilience • Social cohesion and attractiveness • Intrinsic land value assured
Sustainable management of natural capital assets; value, amount, use and return on investment naturally richer
Natural Capital Natural Capital Opportunities Investment Strategy Investment Plan for investors Increase
Evidence based approach
Payments for ecosystem Services: NaturEtrade (revenue flow for maintenance)
Regulating Provisioning Cultural Services Services Services
Natural Capital Assets of Surrey Supporting Services Decline naturally richer
Natural Capital Natural Capital Opportunities Reversible Investment Strategy Investment Plan for investors Irreversible
Evidence based approach Natural Capital Investment Plan for Surrey 11
Objectives of the Natural Capital Investment Plan
• Identify the spatial framework for the supply side (investors seeking • Inform national policy makers of prioritising work on developing investments with conservation impact). policy and regulatory barriers and investment in our natural assets. opportunities to accelerate, replicate • Develop the potential mechanisms to and expand the attractiveness of • Outline the mechanisms to achieve provide a revenue flow to maintain natural capital investments in Surrey capital investment for uplift of the assets in the long term (through and more widely. the assets to a viable, functioning payments for ecosystem services and threshold (assuming most assets are mechanisms to facilitate this. • Provide a clear set of actions to start currently in decline; this assumption is delivering the required investment for • Develop and test local natural capital in line with the information included the period 2018 to 2023. These are markets that can be scaled and within the NCC First Report17). listed in appendix 3. replicated; understand the associated • Proactively link the demand side (need supply chain and identify where and for funding of natural capital assets what type of investment is required to through conservation projects) with support these.
17 gov.uk/government/uploads/system/uploads/attachment_data/file/516707/ncc-state-natural-capital-first-report.pdf 12 Natural Capital Investment Plan for Surrey
Taking Action: a transformative model
Role of SyNP During the last two years it has We have been developing this idea, The role of the SyNP company is essential become clear that in order to informed through conversations with to the success of this approach; it was transform investment in natural Surrey’s two LEPs, businesses, LAs and a key element identified in the Credit assets to more innovative and DEFRA. SyNP will implement the NCIP, Suisse et al Conservation Finance report. diverse mechanisms a catalyst for and will deliver the change required, A transformative, incubator company that transformation is required. by setting up a company. Through its is essential to stimulate and grow the activities as an incubator and stimulator conservation impact investment market. of new approaches in natural capital We believe that the SyNP will fulfil this role by bringing investment it will achieve the required together technical expertise from various role of SyNP (and new forms of investment. It will also disciplines; conservation, business and provide a forum where new and community partners; the necessary potentially the network innovative partnerships and solutions infrastructure and engagement to rapidly can be created. of LNPs nationally) is to identify, develop and test prototype stimulate and catalyse This will also provide a strong ideas with scale up potential. governance framework within Securing funding for this company is a which decisions on how to deploy a multi-capital key component in the ability to deliver investments, and the effectiveness of the Plan. approach, with natural those investments, can be monitored and reported. This is essential to create capital at its core. certainty and confidence for the investor community. Natural Capital Investment Plan for Surrey 13
Diagram 2: naturally richer (Delivering Surrey's NCIP)
Delivery of 25 year plan • Partnership • Advocacy Delivery of Sustainable Development Goals • Statutory planning • Working groups (health, local wildlife sites, biodiversity)
Local Delivery • Local conservation organisations • Community organisations and groups • Local landowners
Transformative model naturally richer (Surrey) Fund deployment Local natural capital markets Technical specialist
Certification transparency Innovation
Convening Project pipeline Project 14 Natural Capital Investment Plan for Surrey
Over the last two years it has become players but also increased skills capacity Therefore the implementation phase increasingly clear that we are in a to develop new and innovative financial will focus on the creation of a viable transition phase between natural products and investment mechanisms. market for these products by developing assets being inadequately recognised hybrid commercial/natural capital However, in order to stimulate in decision making (and therefore investments. These hybrid investments these investments there is a need to chronically under-invested in) to the will stimulate and grow the provenance demonstrate credibility in building required future where our reliance of the approach. Examples will include these new markets and critically the on natural assets is properly valued in composting to improve soil health; ability to demonstrate a financial return; decision making. Long term investment environmental net gain; natural flood recognising that even below market and benefits will thereby be secured. management solutions; carbon storage. returns over a longer time period can This transition requires not only be helpful in constructing new products improved communication between key as can be seen in diagram 3 below.
Diagram 3: Transition to local capital markets
HYBRID natural capital/ Pure natural capital commercial investment investment (Transition stage, blended finance (primarily non-financial returns, approach with both financial and those that are not currently non-financial returns) routinely monetised) • Circular local natural capital • Chalk grassland creation/ markets developed to improve restoration soil health and reduce carbon Commercial investment • Meadow restoration through collection, processing (current business and distribution of green waste • Single species reintroductions/ as usual, primarily (composting) management financial returns) • Production of disgestate from • Biodiversity enhancement Natural capital benefit may be food waste added but usual it as a minimal • Sense of place – desirable level or activity is detrimental to • Infrastructure development – business location natural capital environmental gain
SyNP Implementation Where we Where are we now Phase 2018-2023 Howneed to be 2050will investments be made? Natural Capital Investment Plan for Surrey 15
How investments will be made. Opportunities for investors.
How investments will be made. Our investment approach and principles, Developing the project pipeline will • Applying the Project Framework as defined in naturally richer, are set out encompass the following stages: Assessment (model based on Credit in appendix 5. Suisse et al) shown in appendix 6 to • Initial collation of natural develop the projects in financial terms. This chapter addresses the key capital/green infrastructure A worked example for woodlands activities we will undertake to stimulate projects across the county. is included in appendix 7. This was investment and provides some examples • Assessment of links between these developed at a joint event with The of how this will happen. projects and other infrastructure Aldersgate Group21 in April 2017 as It describes the process we intend to projects as articulated in LEP Strategic part of the work to progress follow in order to develop investment Economic Strategies (Coast to Capital18 developing natural capital investments. products for a number of natural capital and Enterprise M319); informing the The NCIP will develop two key aspects – assets to ensure there is a pipeline of development of the LEP Local Industrial capital investment and the creation of projects and sufficient opportunities for Strategies. In addition informing revenue flow for maintenance; there is investors at different scales. Local Plans across Surrey and the potential for these to be delivered implementation of infrastructure at different scales as shown in the projects as identified within the Surrey examples below. Infrastructure Study20.
18 coast2capital.org.uk/our-current-sep 19 enterprisem3.org.uk/strategic-economic-plan/ 20 surreycc.gov.uk/environment-housing-and-planning/development-in-surrey/surrey-future/surrey-infrastructure-study 21 aldersgategroup.org.uk/ 16 Natural Capital Investment Plan for Surrey
Diagram 4 below illustrates the different from these activities can be fragmented from a potentially wide range of sources, scales at which we intend to develop both and unpredictable; by creating a more particularly private sector sources, and capital and revenue investment. The first strategic fund for the county funds can flow into an overarching Natural Capital two levels (community and business led) be deployed in a more co-ordinated and Investment Fund for Surrey. This allows are models with which we are already consistent fashion. not only increased investments but also familiar. Although investment at these allows greater consolidation of these The transformational change required scales can be improved, increased and funds for strategic deployment across is at the highest level – natural capital implemented more systemically they the county. This is articulated in investment products where funds come are more familiar scenarios. The funds Example 3 below.
Diagram 4: Capital Investment
Revenue investment Capital investment
Natural capital investment products/mechanisms • Natural capital investment fund (equality) £££ • Natural capital bond (debt)
Local natural capital investment funds (business led) ££ Revenue payments payments Revenue e.g. NaturEtrade for e.g. Payments Community natural capital investment funds £
1. Capital investment The aim is to secure capital It was identified in the first report of the mechanisms/products will need to be Natural Capital Committee in 2013 that developed for different assets and at investments in order to our natural capital assets are in decline different scales. achieve, and subsequently to and being managed unsustainably22. Over the last two years work has started Capital investment is required to first maintain, natural capital assets to develop investment mechanisms at reverse this trend, and secondly ensure at an optimally functional each of the scales shown; community, the resources are in place to maintain business and equity/debt at a county, threshold by 2050. natural assets in the longer term. It regional or national scale and examples is likely that a range of investment are shown below.
22 gov.uk/government/uploads/system/uploads/attachment_data/file/516707/ncc-state-natural-capital-first-report.pdf Natural Capital Investment Plan for Surrey 17
Example 1 – The ‘Real’ Hedge Fund Local communities, engaged to develop • Survey & monitoring of hedge condition A similar approach is now being their understanding of the biodiversity and extent by Surrey Wildlife Trust’s developed through the two main and ecosystem benefits of hedgerows Hedgerow Heroes (people taking action Catchment Partnerships in Surrey will be encouraged to invest in their as citizen scientists). (Wey Landscape Partnership and local hedge networks through a Natural River Mole Catchment Partnership23), • Hedgerow Management Plans creating Capital Investment Fund (NCIF) called encouraging people to take care of Hedgerow Recovery Networks The ‘Real’ Hedge Fund. Businesses will their local water bodies. (an example of the Nature Recovery also be encouraged to recognise the Networks predicated within the 25YEP), This type and scale of investment may benefits of maintaining good hedgerow including landscape-level resource bring in a relatively small financial return stock (farming, smallholder, equestrian, planning such as that developed as part but will generate significant non-financial permaculture, small community of SWT’s strategic approach. returns as indicated by the Hedgerow sustainable fuel projects etc.). Funds Ecosystem Services shown in the invested will be used to pay both for • Hedge rejuvenation and planting model above. local improvements or for county- This model is an excellent example of wide distribution. Funds will pay for a This model will potentially be of interest how people, businesses and communities range of activities, all of which provide to ethical investment organisations due to can take ownership of caring for their opportunities for people to take action; the concentration of ethically motivated local natural assets with support and providing social and health benefits as local communities clustered around these expertise provided by local conservation well as skills development and provision projects. This then provides a focus for organisations such as Surrey Wildlife of greater levels of data than would potential customers who may be more Trust. The ‘Real’ Hedge Fund to date has otherwise be possible. Activities include: receptive to other ethical investment raised almost £50,000 through corporate products or financial services. and individual donations.
Diagram 5: The ‘Real’ Hedge Fund
People taking action
Investment in Surrey’s natural assets
Survey & monitor Manage Natural capital investment Surrey hedgerow products/mechanisms stock inventory (km) • Natural capital investment fund (equality) • Natural capital bond (debt) Hedgerow ecosystem services • Carbon storage Local natural capital • Soil protection investment funds • fuel (business led) • pest control
Natural payments Revenue e.g. NaturEtrade for e.g. Payments • pollution Community natural capital • natural capital flood management assessment investment funds • Biodiversity 18 Natural Capital Investment Plan for Surrey
Diagram 6: Business engagement Capital Revenue Aspiration investment investment • Form a joint vision of what might be accomplished together • e.g. The opportunity to attract Natural capital and retain top staff as a result of investment moving to an inspiring place to work together with the chance to create products/ Dependence a new wetland ecosystem mechanisms (Real need) • Natural capital • Critical stage to achieve investment business engagement fund (equality) • e.g. Need to relocate • Natural capital business premises bond (debt) balanced with the desire to create a wetland area to attract wildfowl Realisation • Drive and resources Local natural required to make capital it happen investment funds • e.g. Build in sufficient (business led) joint resources to lead and project manage the creation of the new Refinement project. Also important Community
• Identify best practice to think about resources payments Revenue e.g.. NaturEtrade for e.g. Payments aspects by studying required to sustain natural key findings with a the ongoing project capital view to replicating once “built” investment funds
Example 2 – Business led investment funds. There are 3 diverse examples below of how we believe this approach will work. The overall model for engaging • for business, investment is likely to be businesses, no matter what activities related to paying for an ecosystem they undertake is shown in the service (PES) which exists today or one diagram below. which is to be jointly developed by local environmental experts and the Natural Capital Business business itself. Engagement Model • There must be a visible profit Imperatives include: impact from the industry perspective as well as being • there has to be a tangible gain for both long term and sustainable ecologically. parties to sign up.
23 catchmentbasedapproach.org/thames 24 guildford.gov.uk/ruraleconomy Natural Capital Investment Plan for Surrey 19
Example 2a – A Local Authority economic development led approach for engaging business SyNP has been working with Guildford and the attractiveness of the Surrey In July 2017 the first Leaders’ Borough Council (GBC) and Propeller landscapes are a key factor in drawing Workshop opened up this process Associates to stimulate business these visitors in to local businesses and with work to encourage a business-led engagement to develop business supporting the local economy. The GBC approach to stimulate investment led investment funds in local natural Rural Economic Strategy24 identified in a local wetland. This work is capital. This work aims to assist natural capital as one of the key currently progressing. business in recognising and mitigating assets to manage in order to deliver The diagram below shows how natural risks associated with degraded natural sustainable economic development. capital is a key facet of GBC’s economic capital e.g. flood risk leading to loss One of the Strategy’s deliverables development approach. of income. (The Valuing Surrey report (Action 7) is to highlighted an estimated loss of This work includes supporting “develop a dialogue with local business £435,000 to Guildford alone due to the businesses in recognising both and community leaders about the flooding event in December 2013). their impacts, and reliance, Borough’s Natural Capital assets and on local natural capital. However, it also aims to assist how to realise their value for the business in identifying opportunities benefit of communities, companies, to increase income e.g. the annual conservationists, country landowners value of visitors to Surrey is significant and developers.”
Diagram 7: Guildford Borough Rural DEFRA and other EM3 LEP, SCC, Skanska, Economic Framework Government Departments; Highways England, European Union until 2019, Affordable Network Rail, Openreach In order to target effort in Rural Services Network, housing and and broadband providers. engaging with business SyNP Guildford Business Forum sustainable University of Surrey 5GIC has carried out a detailed communities analysis of businesses in Surrey and their reliance Agritech, on natural assets and the ecosystem services they energy, policy, Brexit process, Strategic Infrastructure for provide. This, combined generation, and UK industrial planning, skills enterprise with the business focussed supply strategy and productivity approach provided by Propeller Associates, has Guildford, enabled a more thoughtful CLA, CPRE, Waverley and approach to be developed Forestry Rural Woking Local for business engagement. Commission, businesses, Local Plans, Parish Guildford Research and Councils (9 It allows for continued estates, farms, community philanthropic investment Environmental innovation Neighbourhood Forum, LC Energy, landscapes and dialogue plans), Surrey but also encourages NFU, National tourist venues Hills AONB, Surrey greater recognition Trust and others Community Action, of businesses reliance SCREF, Tourism SE and impacts on natural Green space Funding Quality of assets. This encourages the health and opportunities life surveys consideration of natural Landscape capital to be included as part wellbeing for management of operational business and better quality Natural capital and countryside not just within the Corporate of life Social Responsibility (CSR) vision remit. In order to further this Natural England, Surrey approach SyNP will proactively Nature Partnership, encourage the use of the Surrey Wildlife Trust, SCC Natural Capital Protocol25 for Countryside Team, GBC EAST, Parks and Leisure businesses within Surrey.
25 naturalcapitalcoalition.org/protocol/ 20 Natural Natural Capital Capital Investment Investment Plan Plan for for Surrey Surrey
Example 2b – Optimising Surrey’s Biomass Resources Surrey has around 40,000 ha of This material is then applied woodland growing at more than to the farmland benefiting the 200,000m3 per year. If two thirds natural soil asset; the mulch of this woodland were actively adds organic matter to the soils managed it would provide around improving rain penetration 20,000m³ of conifer sawlogs; and water retention; thereby 10,000m3 of broadleaved sawlogs improving crop yield and reducing and 100,000m3 of low quality the risk and impact of flooding. wood suitable for woodfuel This type of operation could (which has an energy value of utilise the arisings from a much approximately 200,000MWh, wider range of land management equivalent to 20M litres of activities such as heathland heating oil per year). The wider management, arboriculture and ‘tree scape’ (additional biomass the lower quality biomass from from tree management in hedges, woodlands. streets and gardens) is estimated SyNP company will develop the to add another third to this investment opportunity here to resource26. provide the infrastructure required The proportion which is currently to increase the number of these harvested is increasing but needs type of hubs across Surrey. to be far greater to support Strategically located across the greater resilience in our woods to county this would allow a network storms, pests and disease. of locations to be developed which are able to collect, process Open habitats are also a key part and distribute green waste to of Surrey’s landscape and natural be redeployed either as forms of capital; previously estimated the energy or to increase soil health. biomass ‘yield’ from heathland would be equivalent to 1 m3 of Creating these local natural wood per ha per year. capital markets will not only benefit the natural asset but will Markets for woodfuel have also support the local economy, progressed phenomenally over not least through creating jobs. the last 15 years with key business success stories in Surrey including In order to promote and support LC Energy27 – who amongst other the development of these customers supply Heathrow’s businesses work needs to be done woodfuelled CHP power plant. to understand the supply chain Highfield School28 provides a from land management activities superb example of a business creating the biomass; through utilising its’ own wood to provide to the end user. The next step its’ own heat needs. is to identify gaps in the supply chain and make appropriate Examples of the types of local investments to address these business that can stimulate gaps. These investments will and sustain local natural capital be in infrastructure to facilitate markets include collation and improved natural capital, rather processing hubs such as GK than directly in natural capital Benford & Co, Down Farm itself, but provides a good near Odiham29. This business example of the type of hybrid takes arboricultural and garden investment required at this stage maintenance ‘arisings’ for a gate with, critically, financial as well fee and processes this material as non-financial returns being into firewood, high quality generated. woodchips and mulched compost.
26 Pers comm Matthew Woodcock, Forestry Commission 27 lcenergy.co.uk/ 28 highfieldschool.org.uk/Renewable-Energy 29 downfarmodiham.co.uk/ NaturalNatural Capital Capital Investment Investment Plan Plan for for Surrey Surrey 21
Example 2c – Hampton Estate Hampton Estate is a family owned excellent. The inclusion of a biomass The businesses located there find the and run traditional agricultural estate district heating system utilises the setting adds real value to their business located on the southern slopes of the extensive timber reserves on the estate with one commenting Hogs Back within the Surrey Hills Area and provides a fully sustainable heating “our overseas visitors in particular enjoy of Outstanding Natural Beauty. The system for the development, one of visiting the office in the countryside 2250 acres of historic parkland, grazing the first of its kind. and are often amazed at finding such meadows, arable fields, award winning The offices are home to a variety high tech businesses located in the woodlands and traditional farmyards of businesses (local, national and heart of the Surrey Hills.” form the backbone of the estate which international) who value the attractive, is home to a myriad of businesses SyNP company will work to progress high quality office setting including and opportunities. Hampton Estate this significant opportunity to invest the provision of the highest quality thrives on its rural diversity yet in developing a network of buildings communications such as Superfast retains its beauty and original across the county designed to fulfil broadband. The businesses benefit agricultural purpose. a range of purposes. These buildings from being located at the heart of may be used as small business centres One aspect has been the commercial a rural setting, within a working in attractive locations as in the opportunity to provide attractive, high farm environment. The offices are example above but in addition can quality office space for businesses to designed in a way which offers access provide community facilities, high rent. Shoelands Farm, for many years to the farming environment without quality office space for casual use, a dairy farm, has been converted to compromising the business working education and visitor centres. The key high specification rural offices. The environment. In addition to the high requirement will be investment in the attractive traditional chalk and brick quality surroundings businesses building infrastructure to provide high buildings lend themselves well to office benefit from a more community based quality facilities such as Superfast conversion amidst a rural landscape. approach, with regular get-togethers broadband, high specification office However Farnham and Guildford are and other benefits such as a well and/or community space and critically only 5 miles to the west and east behaved dog friendly policy with surroundings with a high natural, respectively and the local road network specially provided dog walk! landscape quality. means that communications are
Example 3 Large scale investment funds (private and public). Model for developing investment as an objective in the 25YEP. In order It is clear that bundling of assets and products is shown below in diagram to achieve many of the infrastructure development of a blended finance 8 (modified from Credit Suisse et al projects required over the next 20 approach in this transition phase of the model) and is used as the basis years, debt finance will need to be next 5 years will be important. This will for developing large scale, private raised. There will be an opportunity to make the investments more attractive and public natural capital structure these bonds with an ‘aligned to investors by reducing risk and investment products. use of proceeds’ allowing investment increasing consistency and certainty. into natural assets. One European city This area is currently the most The overall approach being developed that has recently adopted this approach challenging to develop. is shown in the diagram below based is Malm� in Sweden who launched on the model in the Credit Suisse report There are a few real life examples a Green Bond Framework for future Conservation Finance: From Niche to currently in action but it is the objective development within the city30 mainstream (the building of an asset of SyNP to progress solutions in this in November 2017. class). This would lead to the creation area over the next 5 years. In addition we will investigate the of a Natural Capital Investment Fund for One clear ambition is to pilot a options of developing an equity based Surrey which would be created from a natural capital bond for Surrey product for Surrey similar to the range of products and which could be e.g. an investment associated with conservation note issued annually deployed strategically across the county development leading to environmental through NatureVest31. to deliver investment in natural assets. net gain; an approach clearly set out The initial target for this Fund is £20M.
30 malmo.se/download/18.3bf12ae215f9d265979db3f3/1511166814294/City+of+Malmo+Green+Bond+Framework+final.pdf 31 naturevesttnc.org/get-involved/investment-opportunity/ 22 Natural Capital Investment Plan for Surrey
2. Revenue flow The other essential aim of this financial Payments for Ecosystem Services One example of a tool which could strategy is to maintain the restored/ schemes (recommendations from facilitate this market development is enhanced natural capital assets at an the PES Report by BioRegional are an NaturEtrade32. This allows landowners optimally functional threshold. This example). However, it is important and managers to contract directly will ensure the long term provision of from a scale perspective to develop a with purchasers of services, e.g. required ecosystem services. mechanism which allows the market in water companies, in a simple and ecosystem services to mature as well straightforward manner. It is also There is a clear link between revenue as self-regulate. In order to achieve a important to ensure that the approach investment and the services being transformation in which PES is systemic taken ensures the benefits flow to those provided. Businesses, landowners, rather than being dependent on the who participate in the scheme rather individuals, corporates are more likely right set of circumstances at the right than being received irrespective of to pay for a clearly defined service in time (as is currently the case) there participation. the long term. needs to be a standalone SyNP will facilitate the further There are a number of mechanisms mechanism available. development of tools such as which will potentially deliver this NaturEtrade and other mechanisms revenue flow including bespoke to systematise PES.
Diagram 8: Developing Investment Products Model
Surrey’s Natural Capital Investment Fund
Funds Financial vehicle Investment Projects Investors • Water & wetlands • Surrey green bond/ Financial • Public • Woodlands hedgerows Surrey conservation return • Private • Net gain (habitat banking) note/pensions including • Minerals Cash flow(s) • Local business NCIF Non philanthropic • Agriculture (soil quality) Conservation • Community NCIF financial Impact Return
Vehicles use distinct Diverse investor expectations • Scaling strategies regarding • Risk mitigation strategies • Return • Project maturities • Risk • Impact • Transparency of underlying assets • Exit
Opportunities for Investors SyNP, through the activities of the company, will create and market opportunities for investors at different scales. Investors will range from private individuals to communities; corporates to institutional investors; central and local government. The most significant investment this Plan. The investment of £500,000 Some ideas for potential investments are opportunity at this stage for a visionary per year for 3 years will be essential to included below but much of this work investor, or group of investors, is to leverage new funds to create Surrey’s will be developed during the period provide the seed investment needed to Natural Capital Investment Fund of at 2018 – 2023. create the transformation described in least £20M by 2023.
32 NaturEtrade.ox.ac.uk/about Natural Capital Investment Plan for Surrey 23
Investments up to £25,000 effectively towards restoring the natural and at Woking Palace on the Lower environment for the sustainable use of Wey. These would partially resolve Investments at this scale could be made its essential resources, whilst preserving current failures in fish, invertebrates at any of the investment levels identified. other valued heritage assets, to benefit and macrophytes; offer increased Communities and local businesses both people and wildlife today and in local flood alleviation capacity; partly investing at this scale would primarily the future”. address local phosphate failures; receive non-financial benefits e.g. a increase recreational opportunities; The Wey Landscape Partnership; made community investing £10,000 to plant a and contribute to local delivery of up of the Environment Agency, Natural community hedge would receive social Biodiversity 2020 Priority habitat England, relevant local authorities and health benefits, improvements to restoration/creation targets. their local place but any financial returns and utilities, the Wey Valley Fisheries would be minimal. Consultative Association, Surrey and • Fish passage mitigation projects on Hampshire Wildlife Trusts, the National all key identified migratory barriers The creation of a conservation note for Trust, River Wey Trust and Northern throughout the catchment, contributing Surrey would allow investments of up Wey Trust. The top three issues in the directly to the local recovery of to £25,000 for a financial return as well catchment are diffuse pollution from populations of threatened Priority as the benefits to conservation. The rural areas; barriers to natural fish fish species, such as Brown trout, current model for this is the Conservation movements & migration; and Atlantic salmon & European eel; 33 Note offered by NatureVest in the US invasive non-native species. with associated recreational & which offers returns up to 2.25% for an fisheries provisioning benefits. investment of £25,000 over 1, 3 or 5 The mix of projects to achieve the stated years. This fund has benefited over 200 vision provide an opportunity, and The returns from these investments conservation projects since it began catalyst, to attract match funding to will again be a mix of financial and in 2012, as well as offering investors a deliver a multiple benefit programme non-financial returns. Benefits to financial return. of work that will also address Water costs ratios for wetland creation Framework Directive (WFD) issues projects range between 3:1 to 9:1 One important consideration for and move water-bodies towards ‘good’ in some circumstances35. investment projects is that they will status. The returns generated from this require criteria to be identified which investment will be a mix of financial 2. North Downs Biodiversity ensures benefit to the associated natural (from improved angling/recreation Opportunity Area capital asset as well as, in the transition opportunities) and non-financial An investment of £100,000 in a stage, financial returns. We will develop returns (water quality, wetland habitat focussed landscape scale area such as a set of criteria during 2018 taking improvements etc.). Work is on-going to the Biodiversity Opportunity Areas in a lead from those set by The Nature further quantify these returns. Conservancy in ‘What Makes the North Downs would allow a range a NatureVest Deal’34. Investment of of interventions to be made and the effectiveness of these interventions Investments from £100,000 ' £100,000 per year. assessed. Examples include working to more than £1M • Implement Lower Wey Oxbow with clusters of farmers and other Restoration Project to re-connect landowners to support their management Investments at this scale would allow former meanders to the main Wey river of land which provides the greatest a focus on a landscape scale approach, channel. This would enhance riparian environmental benefit whilst remaining supporting Nature Recovery Networks as habitats & restore river function on viable and vibrant businesses. It will indicated in the 25YEP and the associated several heavily modified water-bodies also generate additional jobs and more benefits this brings. in lower catchment sustainable management in the future. These areas provide the ideal scale Examples of these larger scale • Wey Diffuse Advice Project operational at which to develop local, low carbon, investments may well emerge initially throughout catchment. This would natural capital markets through activities within the water environment. Significant greatly extend a proven mechanism of such as green waste recycling, work has already been undertaken, in reducing the impacts of rural and urban biomass processing. particular by the Environment Agency, diffuse pollution, thus partially resolving to understand the costs and benefits of catchment-wide phosphate failures Further work needs to be done to quantify certain interventions and outcomes. the detailed benefits derived from the Investment of £1m 1. River Wey Catchment investment and this will be pursued in (additional measures) collaboration with the North Downs Management Plan Facilitation Group. • Major river floodplain restoration “Our Vision is for a healthy and diverse projects at Bishops Meadow & Snails catchment where all interested sectors, Lynch on the North Wey in Farnham, groups or individuals may contribute
33 nature.org/about-us/conservation-note-brochure-1.pdf 34 naturevesttnc.org/business-lines/?intc=nvest.header.projects 35 gov.uk/government/uploads/system/uploads/attachment_data/file/516725/ncc-state-natural-capital-third-report.pdf 24 Natural Capital Investment Plan for Surrey
Where, and which, assets will be invested in? Natural Capital Investment Plan for Surrey 25
This chapter will focus on the priority location and types of natural capital assets for investment as part of the project pipeline and the process which will be followed. These assets are water and wetlands, woodlands, soil and minerals.
Location One of the key factors identified as spatial framework which indicates where Authorities in Surrey. The map below a challenge for implementing large investments should most effectively shows the BOAs and their relationship scale investments in natural capital is be made to create maximum returns; with the urban fabric of the County. ensuring the knowledge of where these economically, socially and ecologically. BOAs represent the starting point for investments should be deployed is These areas in Surrey are called a Nature Recovery Network within available. Surrey, as in most of the South Biodiversity Opportunity Areas36 (BOAs) Surrey as identified in the 25YEP. East of England, has a well-developed and are recognised by Local Planning
Map: Biodiversity Opportunity Area in Surrey
Surrey Biodiversity Opportunity Areas Urban
36 surreynaturepartnership.files.wordpress.com/2014/11/biodiversity-opportunity-areas_surrey-nature-partnership_20151.pdf 26 Natural Capital Investment Plan for Surrey
There is a detailed statement associated with each of the BOAs which provides information on the natural character of the areas as well as an overview of the socio-economic aspects. These statements also provide clear biodiversity targets aimed at achieving the outcomes stated in the Government’s Biodiversity 2020 Strategy.
Diagram 9: Types of assets to be initially addressed
Revenue investment Capital investment In long term to ensure In natural assets to achieve optimum benefits maintained – Water and functioning threshold (water, air, soil, PES (clean water, energy, wetlands (catchment woodlands and hedgerows) pollination etc) partnerships)
Payments for Woodlands and ecosystem hedgerows services (PES)
Multiple benefits; health and well-being, Investment mechanisms economic prosperity, sustainable land use
Infrastructure development Agriculture (environmental (soil quality) net gain)
Non-renewable assets (minerals) Natural Capital Investment Plan for Surrey 27
Implementation 2018 – 2023 28 Natural Natural Capital Capital Investment Investment Plan Plan for for Surrey Surrey
In order to deliver the Natural Capital Investment Plan there are a number of key outcomes required within the next 12 months: The first and most important priority is to set up and fund the SyNP company to implement the NCIP and drive the change required. The immediate focus for effort over the next few months will be as follows. • Prepare a funding proposal (and associated business plan) for the company and use this to secure appropriate seed funding to operate for a minimum of 3 years. • Implement key activities including: – identification and collation of a suite of projects to create a pipeline of investible products – fully worked up models to develop the investment products for a number of natural capital assets – raising awareness with investors regarding the investment opportunity. The funding level to achieve this is estimated as £500,000 per year for a minimum of 3 years. It is anticipated that the company will be able to develop other sources of funding to support its work (and the SyNP) after this period. This funding will cover the employment of key staff and, critically, access to key technical expertise such as investment management, development of investment products, economic development expertise. It will also provide an operating budget to deliver key projects as listed in appendix 3 as well as continue the important convening role with partner organisations such as The Aldersgate Group. In addition it will support appropriate research and development of tools to facilitate the use of data and evidence in growing these investments. NaturalNatural Capital Capital Investment Investment Plan Plan for for Surrey Surrey 29
Key objectives will be to: • Gain wide acceptance of the • Evidence development natural Natural Capital Approach within assets and finance– further Surrey. Engage and influence key develop Natural Capital Asset decision makers including both Register and Natural Capital LEPs, local authorities, business Accounts including Corporate NCA leaders, NGOs and communities. for a variety of landowners and at a range of scales. In order to target • Create a significant Natural Capital effort with regard to the right Investment Fund (as shown in type of investment for the right Example 3 diagram above) of investor it will be essential to have at least £20M to strategically a detailed understanding of the deliver investments. existing investment landscape, the Key projects are detailed in business community and analysis of local markets. Preparing robust appendix 3 and a summary projects which can be presented as of the required outcomes is investment opportunities means included below: greater clarity is required with regard to the stocks and flows • Natural Capital Investment Funds – of natural assets at different designed to stimulate investments scales and within different types at different scales and from of management. different types of investors • Monitoring and transparency – • Project Pipeline development – it is essential that we are able to This is one of the key activities; demonstrate the effectiveness of the development of a pipeline of this approach in delivering greater investible products is essential to investment in, and therefore the success of the NCIP and scaling improved condition of our natural up beyond Surrey. This requires assets; ensuring provision of existing conservation projects services in the future. Transparency to be expressed as investment and accountability are an essential opportunities within a robust ingredient in creating successful financial framework as set out in investment products for our natural the NCIP. assets. SyNP is ideally placed to be • Environmental Net Gain – the accountable body for implement a net gain approach in these investments. Surrey – this is likely to be one of • Natural Capital Market the key mechanisms for improving development – in order to create the ability to make natural capital market economies that will be investments associated with sustainable over 25 years and infrastructure development. beyond it is essential to understand how these markets will work to support jobs, skills and also deliver healthy natural capital. 30 Natural Capital Investment Plan for Surrey
Appendices
Appendix 1 – naturally richer: A Natural Capital Investment Strategy for Surrey.
Making It Happen Progress
Surrey Nature Partnership will drive the The Natural Capital Approach in Surrey is now clearly articulated within development of a natural capital approach this Plan which also contains an implementation programme for the to decision making and investment within period 2018-2023. Surrey through delivery of a 25 year plan. We will develop a detailed Action Plan for the period 2016 – 2021. We will undertake continued dialogue with Since publication of naturally richer we have continued to develop a stakeholders across the county to engage community of stakeholders who will deliver the natural capital approach in them in the need to invest in our natural Surrey. There will be workshops held in 2018 to continue this work. capital and to understand the benefits of so Investor workshops were held in April and November 2017 in partnership doing, as well as the impacts and risks of not with the Aldersgate Group to solve some of the challenges around investing making such investments. in natural capital. We will continue to make best use of existing This work is ongoing with both Catchment Partnerships implementing mechanisms including the Catchment Based project delivery. Approach through the Wey Landscape Partnership and River Mole Catchment Partnerships initially, through environmental land management payments and through policy interventions such as Biodiversity Opportunity areas. As part of this process we will develop and Ongoing – responses to Local Plans include appropriate reference to increase key policy links with Local Plans natural capital. across the county as well as within the Surrey Infrastructure Plan. We will help individuals and organisations Achieved through meetings, speaking opportunities etc. locally to understand economic, social and cultural value of nature, their impact on it and interaction with it and use this to make better decisions for both local and national benefit. We will continue to develop the key projects Included within appendix 4. that have been the foundation of this Strategy: Valuing Surrey – we will further develop our Natural Capital Asset Check on further habitats to be completed. understanding of the value of our natural capital assets and how best to invest in them Biodiversity Offsetting – we will continue to Habitat banking to be piloted in two authorities. explore the use of offsetting as a tool with which to achieve the no net loss, and ideally net gain ambition stated as a priority Business – we will continue to work with Business engagement developed with Propeller Associates businesses to develop new and innovative ways of managing our natural capital assets Natural Capital Investment Plan for Surrey 31
Making It Happen Progress
Health – we will continue to develop the accessibility of existing greenspaces for recreational, leisure and cultural purposes to support the health and well-being of our communities as well as creating new greenspaces in the most needed areas. Research – we will continue to work closely A close relationship has been forged with University of Surrey. with academic partners on promoting research into the most effective ways of embedding and implementing a natural capital approach. We will identify strengths and weaknesses of This is being delivered through the Investor workshops. different funding approaches and therefore direct the best investment mechanisms into the best schemes. We will continue to develop our understanding of the most successful business models and the elements of those that are successful We will develop a pipeline of investible Included within this Investment Plan. products by bringing together traditional conservation and land management expertise with financial investment expertise. We will create an investment fund to support delivery of strategically identified natural capital investments. We will deliver a series of case studies Under development. which will provide guidance and best practice for replicating different approaches across Surrey. We will identify strategically significant Included within this Investment Plan. investments across Surrey. We will advocate a Corporate Natural In addition we will support the Natural Capital Protocol as a key tool Capital Accounting Approach to the business for understanding the importance of natural capital to their business. community across Surrey which includes 250 global companies and 63,000 SMEs.
Appendix 2 – Strategic Priorities
Sustainable land management ■ Business location – we will promote Health, well-being and quality of life ■ Halt losses of natural capital – we will a healthy attractive environment ■ We aim to bring more benefits – to strive to halt net loss and degradation which enhances the desirability of more people, where they live and across the county. Surrey for business. work. We will target the reduction ■ Enhance and expand – we will seek ■ Developing skills – we will support the of risks (pollution, flooding) and the net gains in the quality and quantity development of skills to enhance enhancement of benefits, improving of natural capital through positive natural capital investment and opportunities for exercise, recreation management, habitat restoration management as part of a wider and mitigating the impacts of and re-creation. approach to sustainable growth. climate change. Sustainable economic prosperity ■ New space for business and local ■ We recognise the need for additional housing in the county and will support ■ Supporting the creation of jobs – government – we will support the appropriate housing development. through the development and testing of development of new business models new local natural capital markets and opportunities to provide multiple partnership benefits. 32 Natural Capital Investment Plan for Surrey
Appendix 3 – Activity required to implement the NCIP 2018 – 2023
Type of activity Purpose of activity
Projects Natural Capital Investment Funds To stimulate investments at different scales and from different types of investors. ■ Community led e.g. hedgerows, local water bodies. ■ Business led e.g. Guildford BC, biomass, farmer clusters. ■ Large scale investment e.g. bond, conservation note – transformation from current business as usual model to future natural capital investment model. Promote a deeper mutual understanding between investors and providers of conservation projects to deliver scalability and replicability. Develop mechanisms for capital investment as outlined in the report Credit Suisse et al Conservation Finance: From Niche to Mainstream. Project Pipeline (initial focus This is one of the key activities; the development of a pipeline of investible products on woodlands, wetlands, is essential to the success of the NCIP and scaling up beyond Surrey. This requires hedgerows, soil and minerals) existing conservation projects to be expressed as investment opportunities within a robust financial framework as set out in the NCIP. ■ Collate existing conservation projects across Surrey including those identified through the CaBA. ■ Cross reference these projects with other infrastructure development in Surrey, including net gain opportunities associated with the road and rail network. ■ Assess the projects against the Project Assessment Framework to articulate the investment opportunity. ■ Once initial pipeline is in place, begin to identify future opportunities over the next 25 years. Environmental net gain Implement a net gain approach in Surrey – this is likely to be one of the key mechanisms for improving the ability to make natural capital investments associated with infrastructure development. ■ Update the previously prepared report from The Environment Bank showing the scope for a net gain approach in Surrey plus associated Habitat Creation Register. ■ Identify opportunities to create woodlands and plant hedgerows to provide multiple functions such as improvement in air quality and flood alleviation. As part of this work with partners to research impact of these interventions on health, well being and biodiversity. ■ Develop and secure funding for a habitat bank in Surrey. ■ Prepare a 'How to' guide on net gain for developers and local authorities, launch and embed through running a series of events. Evidence – natural assets Natural Capital Asset It is essential to have a baseline of our existing natural assets and their condition in Register for Surrey order to properly assess the investment required over the next 25 years and beyond. ■ Prepare a complete natural capital asset register for Surrey (woodlands done in Valuing Surrey) extending the work to other habitats with water and soil as priorities. ■ Prepare a condition assessment of our natural assets. ■ Carry out an assessment of functionality of these assets and how far below critical functioning threshold they are plus an analysis of the investment required to address this. ■ Carry out a Soil Health Audit for key selected areas Natural Capital Investment Plan for Surrey 33
Type of activity Purpose of activity
Evidence – financial Create a financial evidence base In order to target effort with regard to the right type of investment for the right investor it will be essential to have a detailed understanding of the existing investment landscape, the business community and analysis of local markets ■ Extend and complete a targeted analysis of businesses in Surrey regarding their impact on and risk associated with under-investment in natural capital, both now and in the future. ■ Identify existing natural capital investments (both public and private) and develop a strategy to transition to increased private investment (recognising private benefits currently received for free) supported by ongoing public investment to secure public and private benefits in the long term. ■ Carry out market analysis to understand the size and potential for growth within the natural capital investment market in Surrey (and ideally SE England and nationally). ■ Work with University of Surrey to understand Product Life Cycle Assessment if applied to natural capital investments. ■ Work with NaturEtrade and others to further develop tools which will facilitate trading in ecosystem services. Consider learning that may be gained from carbon offsetting models. Natural Capital Accounts In order to prepare robust projects which can be presented as investment (including an assessment of opportunities greater clarity is required with regard to the stocks and flows of natural Ecosystem Services provided). assets at different scales and within different types of management. Therefore the Accounts will be prepared for: projects suggested will develop our understanding of this. ■ Hedgerows ■ Bonhurst Farm (SWT) ■ Surrey County Council Estate ■ Surrey Hills Area of Outstanding Natural Beauty ■ North Downs Biodiversity Opportunity Areas ND02 & ND03 ■ Selected corporates or major landowners within Surrey Monitoring & accountability Monitoring It is essential that we are able to demonstrate the effectiveness of this approach in delivering greater investment in, and therefore improved condition of our natural assets; ensuring provision of services in the future. ■ Develop, or use existing, metrics to assess effectiveness of this approach. SyNP certification/standards Transparency and accountability are an essential ingredient in creating successful investment products for our natural assets. SyNP is ideally placed to be the accountable body for these investments. ■ In partnership with others, such as BSI, support the development of standards and deliver through SyNP. ■ Promote the use of the Natural Capital Protocol to businesses in Surrey Natural Capital Market Development Local natural capital markets In order to create market economies that will be sustainable over 25 years and beyond it is essential to understand how these markets will work to support jobs, skills and also deliver healthy natural capital. ■ Identify key supply chain gaps in delivering well managed natural capital and supporting the transition to a low carbon economy. Identify the investment required to address these gaps. 34 Natural Capital Investment Plan for Surrey
Appendix 4 – Evidence developed for the NCIP
■ A Natural Resource Balance Sheet for In addition the SyNP Biodiversity Working This report was commissioned to Surrey (December 2014, prepared for Group have prepared a Habitat Creation assess the key PES mechanisms for Surrey Connects by BioRegional)37 Register to identify areas where net gain water catchments in the UK, with an projects should be prioritised. These will assessment of strengths and weaknesses This report was commissioned to provide be considered as part of developing the of each and recommendations a baseline regarding natural resource project pipeline (appendix 3). for a market based PES model for consumption within Surrey. UK catchments. ■ Valuing Surrey (May 2015, eftec)39 ■ Biodiversity Offsetting (April 2015, ■ State of Surrey’s Nature (SyNP The Environment Bank)38 This project focussed on developing Biodiversity Working Group, May an understanding of the value of the The Surrey Nature Partnership has a 2017)41 county’s natural assets which underpin statutory role, through the Duty to the provision of ecosystem services This document provides a current Co-operate, in strategic planning from which we benefit. A Natural Capital stock-take of the county’s biodiversity. matters in Surrey. Asset Check (NCAC) for the woodlands The report aims to quantify our most In cases where impact from development in Surrey found that there was a socio- threatened wildlife but also celebrates is unavoidable, implementing a net gain economic annual value that woodlands why Surrey’s biodiversity is so special. approach for biodiversity provides a tool provided of £90 million. It is essential This will help clarify our responsibilities that may be used by Local Authorities to understand what the baseline of to both national and international to compensate biodiversity loss. This is our natural assets is in order to assess conservation, and serve to further where conservation activities – which progress in reversing decline and inform our priorities at the county level. will deliver a clear and measurable ensuring assets are correctly invested in It will also be a base-line from which to benefit to biodiversity – take place in over the long term to secure benefits. measure future biodiversity trends and compensation for damage caused by Therefore further work will be done to changes. developments. This project explored complete NCAC on other assets within ■ Biodiversity2020 (unpublished, eftec) the scope of adopting a net gain Surrey (see appendix 3). approach in Surrey. This report assessed the value to Surrey ■ Market Based Mechanisms for in socio-economic terms of achieving the Payments for Ecosystem Services Biodiversity 2020 targets for two of our PES (May 2015, BioRegional)40 key assets, woodlands and water.
Appendix 5 – Investment Approach & Principles
Value Risk ■ In the past economic decisions have ■ We recognise there are potential been made without calculating risks and opportunity costs for anywhere near the true value of the intervening and not intervening, natural environment. Now we must and to consider and balance ensure natural capital is reflected more these while pursuing our vision. fully in important plans. Investment Valuation ■ To prioritise ‘investments’ where ■ We believe that economic valuations lasting and multiple benefits are can contribute to powerful arguments most likely to be achieved and for the conservation and enhancement represent the best possible value. of natural capital and the wider understanding of the real value they provide us.
37 surreynaturepartnership.files.wordpress.com/2014/09/a-resource-balance-sheet-for-surrey_report_final_v3.pdf 38 surreynaturepartnership.files.wordpress.com/2015/11/surrey-nature-partnership-biodiversity-offsetting-summary-june-2015.pdf 39 surreynaturepartnership.files.wordpress.com/2015/11/surrey-nature-partnership-valuing-surrey-summary-june-2015.pdf 40 Aldersgate Report, unpublished 41 surreynaturepartnership.files.wordpress.com/2014/11/state-of-surreys-nature_web.pdf NaturalNatural Capital Capital Investment Investment Plan Plan for for Surrey Surrey 35 36 Natural Natural Capital Capital Investment Investment Plan Plan for for Surrey Surrey
Appendix 6 – Project Assessment Framework (financial) (outlined in the Credit Suisse et al Conservation Finance report)
1. Market 2. Project
• Regulatory Framework – is a certain legal framework • Risk mitigation strategies – what risk mitigation required and does it exist elsewhere? strategies are available and can they be bundled across projects? • Growth – is the market growing and can it absorb rapid growth of 1 project type? • Scaleability – does the same set of environmental conditions exist elsewhere? • Maturity – how big, transparent and volatile is the market? Is there public trading? • Maturity of business case – does the project Do forward markets exist? build on a proven concept? • Type of generated cash flow –is the cash flow generated from sustainable commodities, credit markets, tourism fees or other sources? • Certificates/labels/endorsements – does the projects implement a recognised label or standard? • Geography – is it based in stable, developed countries? Or emerging economies? • Measurable conservation impact – are conservation results quantifiable? How? • Visibility/innovation premium – is the approach novel enough to attract attention? NaturalNatural Capital Capital Investment Investment Plan Plan for for Surrey Surrey 37
3. Financials 4. Management
• Average annualised return on investment – • Distinctive capabilities – does the management how profitable is the project? team have the right capabilities for the project? • Anticipated duration of financing – • Track record – has the management team how long does it take? implemented such a project before? • Total financing volume – how big is it? • Which external advisors will be engaged and how will they be identified? • Guarantee structure – does any entity guarantee invested principal or return? • What risk management strategy is in place? • Collateral structure – does collateral exist to lend against? • Trusted lead investor – did another trusted investor commit to the project? • Fee structure – are any applicable fees commensurate with the effort and complexity of the project? • Volatility – is there historic data on the volatility of valuation or a targeted volatility of the product? • What other returns are resultant from the project and can they be monetised? • How will the long term revenue costs of the project be met? 38 Natural Capital Investment Plan for Surrey
Appendix 7
Worked example of the initial Surrey’s 41,225 ha of woodland ■ The existence (non-use) value of produces an estimated £90million wildlife in Surrey’s woodland to the scoping document prepared of value every year for the subset of local population is estimated to for woodlands in Surrey, next environmental goods and benefits around £2 million a year. assessed which include: step is applying the modified Other environmental goods and Project Assessment Framework ■ Approximately 800 tonnes of air services that are of value have not been in appendix 7. pollutants are removed from the quantified or monetised in this work, county’s air by Surrey’s woodland including woodfuel and water regulating Description worth £13 million through the services (quantity of water/flooding and avoided healthcare cost; quality of water) of woodland. Surrey is the most wooded county in England with approximately 24% ■ Carbon removed from the These multiple benefits from woodlands woodland cover and was the subject of atmosphere by woodland within can be secured in the future through the Natural Capital Asset Check carried Surrey is estimated to be over 350,000 effective and efficient management of out by eftec and summarised here. tonnes a year valued at £12 million; this natural capital asset. ■ Each year around 18 million visits are The project on the right considers one Key findings from the natural made to Surrey’s woodland valued at important aspect which is the 800 capital account analysis for £63 million; tonnes of air pollutant removed annually with an associated health care cost Surrey’s woodland. ■ The main market benefit of woodland saving of £13 million and suggests that is timber production in Surrey ■ The extent of woodland within Surrey proactively, strategically providing urban which is estimated to be in excess is 41,225 ha; trees and woodlands would provide of 150,000m3 of timber worth £2.5 significant financial, social and health ■ 87% of Surrey’s woodland is million a year, the fourth largest benefits. There is an opportunity to broadleaved (36,071 ha) and 98% is monetary value provided by the provide additional woodlands in areas over 2 hectares in size (40,400 ha); county’s woodland; where air pollution and associated ■ Approximately 17% of Surrey’s ■ The three largest sources of value health care issues are highest, using woodland (7,000 ha) is under nature from Surrey’s woodland are not iTrees (itreetools.org/) as a citizen conservation management but reflected in market prices. Non- science engagement opportunity to only 3% (1,237 ha) is coppiced (an market benefits of carbon and air inform the requirement for street important management technique quality regulation (£24m) are both trees and woodlands in more urban for wildlife); estimated to be worth several times locations. The London iTree project ■ Around 68% of Surrey’s woodland the market benefits of timber (£2.5m), published a report in December 2015 is privately owned (28,012 ha) with and in turn are much smaller than which highlights the potential benefits the remaining 32% (13,213 ha) being recreational values (£63m) of the of forestry.gov.uk/london-itree. There is under ownership of public bodies and county’s woodland; scope to extend the project to consider environmental trusts. flood alleviation benefits as well. Natural Capital Investment Plan for Surrey 39
Scoping the Pilot Project
Description Benefits Beneficiaries Risk Scalability Replicability Potential Potential of work Mitigation Investors Mechanism
1. Carry out ■ Evidence to inform ■ Asthma ■ 6 landowners ■ Need a pilot ■ Property ■ How to iTrees survey planning decisions sufferers own 60% of first developers/ bundle the to identify woodland in house ecosystem existing ■ Decrease costs ■ Economic Surrey ■ Which builders services resource in in local care – air – NHS and elements can locations (join pollution, flood employers ■ Increase be replicated ■ Government ■ How to up urban & alleviation increasing measurement taking into bundle the rural) with productivity of existing account level ■ NHS benefits and high and low ■ Access to data in the woodland of complexity beneficiaries air pollution. workplace ■ Landowners ■ Support future ■ How big does ■ Standards are 2. Develop a decisions e.g. local ■ People it need to be important ■ LEPs programme authorities suffering with before we to give the Private of tree mental health launch the market ■ investors planting in ■ People can speak a issues project confidence areas of high common language e.g. ■ A suite of air pollution ■ Species ■ Strategic certification investors/ and monitor ■ Help prioritise tree planting beneficiaries incidence of ■ Investors – increases ■ Do we Create a common together e.g. air pollution ■ scalability need more currency forest bond related ■ Government standards or disease. ■ Competition Optimal space to use work with Needs a ■ ■ Increased with other ■ ones already strong local 3. Assess house prices home ■ Optimal distance in place authority associated counties – from trees to get ■ Reduced flood vying for new ■ Make this benefits from house mitigation business common opportunities. decreased air insurance pollution and flood practice premiums ■ Map out alleviation landowners Property ■ in Surrey ■ Decreased cardio- developers vascular disease – future ■ Residents contributors ■ Give as a range of the risks – to sell to ■ Insurance ■ Resource investors companies efficiency
■ Create a risk register ■ Local authorities ■ Future urban design guidance is essential to influence future urban planning
■ Robust evidence to develop a systematic approach 40 Natural Capital Investment Plan for Surrey
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