Habitat Banking

Finance generally refers to repayable investments which come with an additional interest payment. With green finance, investors will often accept a lower rate of return in exchange for positive social and/or environmental impact. Investment for green finance comes from specialist banks and financial institutions, individuals and specific social investment organisations.

Globally, around $350 billion is needed by 2030 to protect, enhance and restore nature. Grant and government funding simply cannot cover this huge cost, but green finance provides a solution by financing environmental projects that create a revenue stream so that investors are repaid and the money can be recycled to fund further opportunities.

Habitat banking is one form of green finance. A habitat bank allows investors to finance habitat restoration and creation. The investor receives their original investment plus interest and is also rewarded with environmental returns, such as improvements to nature – woodlands, meadows, rivers and lakes etc – and enhanced access for people.

Under the Environment Act 2021, developers are required to deliver a biodiversity net gain of at least 10%. This means they have to not only make up for the biodiversity lost or destroyed through development, but to actively increase net biodiversity.

If developers are not able to do this on the land on which they’re building, they can purchase biodiversity units to ensure compliance with this 10% target somewhere else. Landowners or managers who are able to create and enhance biodiversity elsewhere can become sellers of biodiversity units.

Habitat banking provides a way for landowners – in this case local authorities – to create or restore a habitat in advance and “bank” the resulting biodiversity units. These units can then be purchased by developers seeking to comply with the mandatory 10% net gain.

The sale of biodiversity units means the investor who provided the finance gets their initial investment back with interest and information about the environmental impact of their funding. The sale of biodiversity units also provides a critical revenue stream for local authorities to maintain the newly restored or created habitat for a minimum of 30 years, and quite possibly even longer. This is referred to as an endowment.

An endowment for a medium sized city could be tens of millions of pounds over 30 years. This could form a critical revenue stream for local authorities looking to fund ongoing habitat improvement activity.

Once sold, all biodiversity units are held on a national register, and during the 30-year lifetime, sites will be subject to periodic external checks to ensure they are being maintained appropriately.