Making nature finance work for rural communities

Bruce Howard

21 March 2024

By Bruce Howard, Chris Short, James Elliott, Tanzir Chowdhury & Francesca Boyd

Why the worry?

In this first of this three-part blog, we take stock of why the relationship between nature finance and rural communities in the UK is now attracting attention.

Far back into history, rural landscapes have been impacted by the ebb and flow of money and influence from many different sources. Farm businesses and other stewards of rural land have earned money through the production of food and the provision of opportunities for recreation and tourism. Governments have paid for things they want to prioritise. Charities, businesses, philanthropists are all paying for what they see as important in the natural environment. Players in The National Lottery supply millions of Pounds for nature projects. There are genuine purchases too, as seen most clearly in payments for voluntary carbon credits.

What is new is that organisations now want the environmental services provided by rural land at a scale and pace not seen before. They want, for example, reductions in local flood risk that don’t involve so much concrete. They want to secure biodiversity and carbon credits to meet global commitments to customers, suppliers, investors and citizens.

Any change in the mix of money flowing into land, water and nature will be met with a wide range of responses, ranging from scepticism and fear to optimism and opportunism. Rural land is complex. Much of it has had a chequered history of ownership, use and occupancy. Rural land is both home and workplace for people with heartfelt needs and ambitions.

It is, therefore, no surprise that the prospect of an increased role of private finance and funding in rural land has rumbled people inside and outside rural areas. The concerns for some are immediate. Squeezed by economic conditions, smaller farm businesses have sold their property to larger organisations that don’t have a long-standing relationship with the people or places in question. Household name brands have sought to buy land to help deliver on their green pledges. The acquisition of land in the Cairngorms of Scotland by drinks giant BrewDog in 2021 lit a touchpaper that was hard to extinguish.

The emerging arena of nature finance is, first and foremost, about trading in the things provided by land that have not traditionally been bought and sold. This includes the carbon that can be removed from the atmosphere into soils, peatland and vegetation – or at least the avoidance of further emissions. But nature finance is also about trading in other things for which economies (and even campaign groups) have had a blind spot. An example is the ability of land to slow the flow of water and so reduce local flood risk. Likewise, there is potential for ‘nature-based’ tourism and ‘conservation grade’ foods where there is a direct financial connection with habitat improvement.

Measurable improvements in habitat and species are the next big thing for trading. No, this is not about nature being put up for sale and thrown to the mercy of market forces. Rather, it is about allowing businesses of many kinds to finance measurable biodiversity outcomes that counter-balance impacts deemed to be unavoidable (even a bowl of ‘conservation-grade’ muesli involves a production impact somewhere.).

Genuine investment can be part of this too, enabling new enterprises and projects to get up and running. Occasionally, there may be investment for the purchase of land that can deliver these unconventional services that business and wider society wants. We don’t mean “investment” in the way the government often talks of it: grants and such like. Rather, we mean the deployment of money with a view to create both financial gains and positive outcomes for the environment and people.
Over the last year, the debate about nature finance and rural communities has progressed. In the following two short commentaries, we examine what the issues are and how we should respond to the emerging (and essential) community dimension of nature finance. We will see that, while there are no easy answers, humility, integrity and creativity can secure outcomes most people are likely to accept as positive.

Understanding rural community

In this second of our blog series, we consider the different dimensions of community when understanding its relationship with nature finance

When we consider the relationship between nature finance and rural communities, the first thing is to comprehend the diversity of people under consideration. Community is about connection. This includes the social connections between the people in any one locality, the connections between places shaped by people, and cultural connections created through a shared sense of belonging.
In terms of the groups which make up a so-called rural community, these will vary greatly around the islands of the UK. Of course, there are then those who are ‘hands on’ in managing land; owners, tenants, crofters, labourers and contractors. Many of these are at the centre of rural life. Their businesses are diversified, integrating food production with things like tourism and forestry. The latter is particularly important when earnings from food and government funding doesn’t pay the bills.

In many parts of the UK, there are some particular types of community, such as crofters and those who use common land. There are then those who experience rural places more indirectly. This includes those who live in rural settings but don’t have a business relationship with the land. The levels of connection with the land will vary – from being in amongst land managers to simply having a view of a landscape or ready access to it in order to walk the dog or ride the horse. Many with property in a rural community may also spend only part of their time there.

In short, rural community is not one thing. It is often in a state of change, responding to new government schemes and the pressures that come from feelings that there are either too few or too many people. It is a complex web of relationships between people with different priorities and interests. The sense of common purpose and identity can be very strong and delineated, as such in the case of many island communities. In other cases, it is much more open-ended.

Community is a dynamic web of relationships, not a defined number of people who can be counted as ‘in’ or ‘out’. When any new source of money arises for land management, change will occur. This includes changes in the ownership, occupation or use of land. New money might change a community’s sense of belonging for better or worse. It may increase or decrease their sense of inclusion. New sources of money can result in a change of ownership, including businesses (remember Brewdog) and wealthy individuals. New networks could form, including farm clusters that combine their service provision into something larger. Newcomers may come with very good intentions, using their skills and influence for the betterment of others not themselves.

If any initiative driving nature finance wants to understand a rural community, the best starting point is to be present in the community. They need to take the time to understand what is already happening. If you are the ‘outsider’ be clear on who you are but hold back on floating ideas or grand plans; challenges arise when anyone enters with a set idea of what should happen. Whilst a deep detailed understanding of the community may not be achievable in the project’s timeframe it can be possible to gain some understanding of the pre-existing context through engaging with parish councils, NGOs and community groups that already exist. Of course, not all groups within rural communities reflect the full diversity of everyone who could be involved or will be involved in the future. Third sector organisations often have good intent, but don’t necessarily hold the moral high ground in terms of how land should be used.
Understanding the community allows for dialogue around the changing landscape. It’s about evolving the conversation of land, what it’s for, what it means and who benefits from it. There’s an opportunity as we see these changes to bring those not traditionally part of the conversation into it.

The way forward

In this final part of our blog on the relationship between rural community and nature finance, we consider what is already happening to shape the future and what the best approach is.

Each jurisdiction of the UK has a unique cultural connection to land and land managers. The way forward on nature finance will involve locally and regional responses suited to the diverse social and economic settings found around these islands.
Scotland is ahead on the task of steering nature finance towards ways that will deliver positive outcomes for the many dimensions of rural community. Much of this thinking is embodied in the good practice guidance on delivering community benefits from land, published by the Scottish Land Commission in November 2023. A major prompt for this guidance was the growing interest in private finance for nature-based carbon and other aspects of finance and investment in natural capital. As per the Scottish Government’s Interim Principles for Responsible Investment in Natural Capital, published in 2022, the emphasis is on the shared benefits from new flows of money in the rural environment.

The Commission’s guidance emphasises the need to ensure changes to land management yield benefits for people in any geographical area are proportionate and appropriate to the local context. It points to the need for far more than mere public engagement on new proposals affecting the use and management of land. Instead, it highlights governance of new projects as key, including community ownership or tenure. Examples such as the Tayvallich Initiative on the west coast of Scotland are cited as good practice. The Tayvallich Initiative draws together many parts of the rural community in this area. There has been a written agreement between a new landowner – Highlands Rewilding – and the Tayvallich Initiative, to ensure a partnership geared at financial outcomes for investors and local people as habitat is restored.

Soon after the Scottish Land Commission Guidance was published, Finance Earth, Federated Hermes and a group of environmental charities published a set of nine Principles for Nature Markets. Several of these highlight the need for community benefit in the trading of units of carbon and biodiversity. Alongside these Principles, the integrity of nature finance is key to the work of the BSI (British Standards Institution) to form a set of standards for nature ‘investment’.

Thanks to the work of Nature Finance Fife and partners, a Community Benefit Standard is now being developed through a local catchment-based project in this part of Scotland. This will, no doubt, make a major contribution to thinking and action on the relationship between rural communities and nature finance.

Even before the current surge in interest in high integrity nature finance, there was plenty of policy direction to inform what this should look like. For instance, in Wales – a jurisdiction that is, on the whole, sceptical of the merits of nature finance – the principles for the Sustainable Management of Natural Resources refer to the importance of participation, collaboration and co-operation in improving the environment. While not binding on buyers in nature markets, these principles provide a clear direction for the type of environmental restoration project that this part of the UK wants to encourage.

At the end of 2023, the big question is whether guidance, principles and standards are going to discourage controversial nature finance transactions, and whether they will drive innovation and positive outcomes. There is opportunity for all involved to prove their intentions by working with rural communities. It will be challenging, for all the reasons outlined in the first and second of these blog posts. Initiatives such as RePlanet are showing how community-benefit can be wired into finance for biodiversity restoration. According to this project developer, 60% of the proceeds of new projects flow to beneficiaries ‘on the ground’. There is also, a potential role for community banking in enabling habitat restoration projects to get off the ground.

At the same time, there is a perpetual risk that those who make their business from land may be put off from participating in nature finance transactions if they fear that there will be unbounded calls for them to share the hard-won rewards of their nature-based enterprises with their neighbours. There will always be a delicate balance between rights and responsibilities.
The future is one of nature finance becoming interwoven with social finance. Just as imposing nature recovery (or rewilding) on rural communities risks push-back, so does private finance. The main risk is one of paralysis, whereby heavy critique stifles otherwise well-intentioned innovation in how we fund and finance nature recovery in our nature-depleted rural areas. But by working with the diverse communities that steward our land, water and nature, the future could be bright.

This blog is informed by discussions in a webinar delivered by Chris Short Associate Professor in Environmental Governance at University of Gloucestershire, James Elliott, Senior policy adviser at Green Alliance, Tanzir Chowdhury Principal Economist at Eunomia Research & Consulting on the theme of nature finance and rural communities, delivered in February 2023 and hosted by EKN.