Conservation covenants for investors

WRITING on the MacFarlanes website, Henry Vane, Nicole Mitchell and Rachel Richardson set out how a legal innovation could unlock nature markets for green finance.

They say that “developers, companies and funds are queuing up to invest in the countryside. They want to do (or be seen to do) the right thing, they want to offset their emissions and discharge their legal obligations, and sometimes they want to make money through owning environmental assets that may increase in value.

“In the UK alone, the Government expects annual private investment in nature to reach £500m a year by 2027 and more than £1bn a year by 2030, which may be a conservative estimate.

But, they say “Meaningful ecological change takes decades and requires large areas, but there is no consensus on how to structure investment so it is secure, future proof, government-approved and capable of binding multiple/successive landowners.

“Conservation covenants may be the answer.”

Conservation covenants were introduced into law by the Environment Act 2021 (the Act), and are agreements (either indefinite or time-limited) between a landowner and a “responsible body” to manage land for a “conservation purpose” and for the public good.

They came into law on 30 September 2022, but since the Government has not yet opened applications to register responsible bodies, market participants are unable to enter into them at this stage. Further guidance is expected imminently, and presumably the government will open applications at the same time.

The article authors say that conservation covenants are better than the current investment options because:

You do not need to own or lease the land, which can be expensive;

  • They bind land more tightly than typical covenants – successors in title will take subject to the positive as well as negative obligations and there is no need to own neighbouring land
  • They are more robust than contracts for environmental services (natural capital agreements) because they bind the land and not just the parties (who are liable to die or become insolvent)
  • They can efficiently hold together multiple landowners on the same (or potentially different) terms, with a single responsible body enforcing
  • You can choose your own enforcing responsible body

Responsible bodies are the magic ingredient. They ensure the landowner abides by the conservation covenant terms and that the environmental services provided are valid, which will give confidence to governments, investors and the market. Tax allowances and other incentives may follow.

They say that through the Environment Act 2021, the UK government has committed to halt the decline in species populations by 2030 and then increase populations by at least 10% by 2042. This will require significant policy change, capital and private sector effort.

“Conservation covenants may be the tool to unlock the door to this nature-positive future. Financial products will need to evolve to meet these demands and, as such, asset managers and other financial services market participants have an important role to play.”

Full article and more information here


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