Jeremy's Blog 19th January 2024: Private Capital for Environmental Work
This article by Jeremy Moody first appeared in the CAAV e-Briefing of 18th January 2024
The encouragement of private capital with and alongside public money has been a recurrent theme in government statements on environmental policy. DEFRA has set out very round figures as targets for this, calling for £500 million of private investment in “nature recovery” by 2027 and £1 billion by 2030 (perhaps 40 per cent of England’s legacy CAP money but not all necessarily agricultural or even rural). In particular, Landscape Recovery agreements with their expectations as to land management are expected to attract private money, perhaps explaining why more have been selected for development than were expected to be taken forward. Biodiversity net gain is one vehicle for this, albeit also seeking to put a cost on environmental damage.
The Scottish Government has been more direct, recognising that the Green Finance Institute saw a £20 billion funding gap this decade between its green commitments and its resources and so looking to the role that:
“responsible private investment in Scotland’s natural capital has to play in meeting our climate change targets and delivering wider benefits from our land.” (Delivering Our Vision for Scottish Agriculture, August 2022)
It has perhaps been an unspoken assumption that this is largely for the usual sources of investment finance, from funds, venture capital and the like. Yet a presentation from a venture capital background at a fringe meeting at the Oxford Farming Conference illustrated why this might not be right.
The issue of relative scale has been identified as an issue, here as for small business finance more generally. When many funds would see £25 million – if not £100 million – as a minimum allocation, this raises serious problems for the farming sector with its smaller scale of operations and finance. Farming clusters, consortia and Landscape Recovery groups may begin to be an answer, but bring complexity with cross-obligations and liabilities and challenges as personal and family businesses and ownerships change.
The overburden of transactions and monitoring costs can soon become disproportionate needing area to want them. When Microsoft did its carbon deal with Wilmot Farm in Australia that was across 10,000 acres but still for a smaller volume of carbon than the average Microsoft deal.
There is then timescale. While environmental work is typically long-term commitment with results coming over time, venture capital funds might often look to be able to exit at a profit on a five or ten year timetable. That is not only short term in this context but also requires buyers.
That leads to the observation that this activity may prove to be as much by acquisition of land with direct control than by contract with farming and landowning businesses. That internalises environmental work within the acquirer’s business but still points such environmental activity to where larger landholdings can be acquired – an issue for the UK land markets outside areas of Scotland. However, as we see in mid-Wales, commercial forestry can take on smaller units.
More generally, these issues all point to the obvious source of longer term, smaller scale, appropriate, private investment being from farmers and landowners themselves. They are long experienced in providing patient capital to their own businesses while agricultural land is one of best forms of collateral for loans. That might be for many reasons, often individual and personal, from satisfying suppliers, stewardship of the land, sporting interest, capital value or other purposes More broadly, this becomes the environmental expression of the old saying that the best fertiliser is the farmer’s own boots – but how would it be captured by Government data for its demanding targets?