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UK biodiversity net gain legislation presents risks and opportunities

The goal of the law is to establish standardized practices for developers in England to create and improve habitats.
Aerial top view of a deforested part of rainforest with many palm trees

15/05/2024 · 8 minute read

 The UK Government’s introduction of biodiversity net gain (BNG) legislation in February 2024 represents one of the most significant shifts in planning regulations in decades. The legislation, which is part of the Environment Act, aims to ensure that wildlife habitats are left in a measurably better state after development takes place and, as such, is likely to play a crucial role in restoring and preserving nature.

The drivers behind the legislation, the risks associated with delivering BNG, and the role insurance can play in mitigating those risks were among the subjects discussed at Marsh’s Biodiversity Net Gain Forum hosted by Marsh McLennan’s Swenja Surminski, Managing Director of Climate and Sustainability and Marsh’s William Butler, Vice President of Construction in London in April. Below is a summary of the key issues discussed at the event to support developers in navigating this new legislation.

Why biodiversity and nature loss matter

Biodiversity loss and ecosystem collapse are identified as top longer-term risks (over 10 years) in The Global Risks Report 2024. Net zero targets cannot be achieved without nature which plays a massive role in capturing and sequestrating carbon. Nature can also help us deal with climate impacts. Mangroves, for example, protect our coastlines while forests play a huge role in capturing and sequestering carbon. And while environmental degradation is not a new challenge, the present scale of biodiversity loss, degradation of ecosystems, soil depletion, pollution, and loss of arable land resulting from land use, natural resource exploitation, pollution, invasive species, and climate effects is unprecedented.

What is biodiversity net gain?

In England, when developers undertake a project, BNG legislation mandates that they must provide a minimum of 10% biodiversity net gain by the end of the development, and the habitat they create or enhance must be maintained for a minimum of 30 years.

The goal of the law is to establish standardized practices for developers in England to create and improve habitats. Several developers have delivered BNG voluntarily for many years because, among other factors, they recognized the need to create an improvement in the environment for their own internal ESG action plans. However, amid the array of biodiversity metrics and different local expectations and requirements concerning habitats, developers often lacked the means to effectively track or measure their efforts.

Following the legislation’s introduction, any party involved in a development, including landowner, construction company, and ecologist, will use the same metric to identify an uplift in biodiversity — that is, the increase or improvement in the overall diversity and abundance of plant and animal species and the habitats they require in order to survive. This metric is used across all habitat types, ranging from urban green roofs and walls to high-quality upland or coastal habitats. Available data and science inform the values and include risk factors to assume degrees of failure.

The metric is designed to provide a standardized system to bring about a quantifiable measure for biodiversity and habitat gain. This not only offers an incentive to local landowners to focus on biodiversity provision but provides planning agents with better means to measure and track developers’ activities in this area. The government intends to extend BNG to nationally significant infrastructure projects, such as those relating to energy, roads, and ports, following a consultation period. There is also growing interest in linking BNG to flood resiliency among some local authorities and insurers.

Can developers buy biodiversity credits?

Developers are expected to achieve biodiversity improvements within the project’s designated boundaries. This is to ensure most developments contribute directly to the local ecosystem and surrounding environment. If the improvements cannot be achieved onsite, there are provisions to realize these offsite — locally or further afield — by contracting with farmers, NGOs, or creating a land bank for conservation purposes, for example. The purchase of statuary biodiversity credits is an option of last resort and is intentionally the most expensive route to attaining BNG. These credits are only accessible to developers who can demonstrate that there are no other viable methods to achieve biodiversity enhancements within their project.

Legally, establishing how BNG will be achieved is a requirement once planning permission for a project has been granted. In practice, BNG becomes a material consideration in the planning process, as a developer can only start a project after the consenting authority is satisfied biodiversity enhancements can be delivered.

How do you enforce the obligation to maintain a habitat for 30 years?

There have been instances in the past where green infrastructure was put in place at the beginning of a project but was not maintained. Following the new legislation, part of the process of getting a project approved will depend on developers setting out a management plan describing how a habitat will be managed and maintained for 30 years. Developers or landowners in charge of a habitat will have to regularly report to authorities, and the area will be subject to periodic checks.

To some extent, agreements of this length are business as usual for developers. There are parallels between the 30-year habitat requirement and long-term management of common parts and other assets. The wording of these types of agreements around enforceability is key. Typically, if a company engages a third party to maintain an asset for 30 years, payment is not made in full at the outset. Payment generally takes place on a rolling basis to incentivize the contracting party to perform.

If planners or landowners breach the obligation to maintain a habitat for the 30-year period, they are liable to an injunction ordering them to rectify the situation. Meanwhile, the local authority potentially has the right to deliver the BNG itself and recover the costs from the developer, although it may not take this route because of limited resources.

Ecologists play a significant role in many projects

Ecologists are in heavy demand at a time when there is a shortage of skilled ecological workers. Ecology is increasingly viewed as a field on the same level as architecture and engineering, as the potential ecological liabilities of projects are acknowledged.

Delivering BNG requires ecological assessments and the development of a biodiversity strategy. This is likely to include a baseline ecology survey on a development site to assess its ecological characteristics and biodiversity, as well as a habitat condition assessment to evaluate the health, quality, and overall state of the ecosystem. Ecologists then work with the project’s developers and architects to assess what needs to be put back on the site, whether grassland, woodland, or a pond to deliver a 10% BNG. Where this is not possible, a developer may be advised of the need to consider offsite options.

Ecologists generally recommend delivering like-for-like ecological compensation. For example, they are likely to advise creating high distinctiveness habitats (possessing exceptional characteristics) where a development impacts those environments. This is due to the challenges of getting such habitats in the right condition. For instance, creating a functioning wetland ecosystem could be difficult, so unless a developer is building on a wetland, committing to creating that type of habitat may not be advisable. A wetland built in a dry soil may last a couple years, for example, not the full 30 years of liability.

There are a range of data sets available to help analyze and address biodiversity loss. The Taskforce on Nature-related Financial Disclosures (TNFD), for example, requires companies to undertake risk assessments and materiality analysis.

Insurance can protect against nature risks

Companies are undoubtedly increasingly exposed to risk as a result of the loss of nature. There are, however, innovative risk transfer solutions that can help businesses manage nature-related risks and accelerate their transition to nature-positive operating models. Across Marsh McLennan, we work with clients to help them identify, assess, and address nature loss from a risk perspective. Using analytical tools, we can explore the double materiality: the impact of businesses on biodiversity, and vice versa.

BNG is now an essential part of the insured, insurer, broker conversation regarding nature. It is relevant for all the associated parties of a development project including landowners, contractors, environmental investment agencies, land banks, and landscape architects, as well as the developer and local authority.

At the inception of the project, it is crucial that all stakeholders assess the risks associated with BNG. For example, issues relating to ecological constraints on available sites should be evaluated. Developers may encounter difficulties in meeting the 10% BNG condition in certain locations, particularly those situated in woodland areas. Smaller, constrained sites may also struggle to deliver the required habitats needed within their boundary, particularly if the biodiversity baseline is higher.

The impact of potential risks such as climate change and other damage to habitats during the 30-year period that they must be maintained and enhanced also needs to be evaluated and possibly transferred. The ecological and financial risks of contracting to third parties to maintain those habitats should be considered. In general, the earlier BNG is integrated into a project, the easier it will be to deliver gains and mitigate any associated risk.

To explore, quantify, and insure risks associated with BNG, please contact your Marsh advisor.

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