Environmental Audit Committee launches inquiry on the role of natural capital in the green economy

The UK is one of the most nature-depleted counties in the world and has lost more wildlife than any other G7 country. The Environmental Audit Committee’s new inquiry on the role of natural capital in the green economy seeks to understand how Government policy is supporting and promoting investment in nature recovery.

The Government has committed to leaving the environment “in a better state than we found it” and to reversing biodiversity loss globally by 2030. Ministers have announced a number of steps to meet these goals, including the piloting of a Natural Capital and Ecosystem Assessment, the introduction of a mandatory biodiversity net gain requirement in the Environment Act (from November 2023) and working with the Taskforce on Nature-related Financial Disclosures to develop metrics for companies and financial institutions to embed into their investment decision making.

Earlier this year in its Nature Markets Framework, the Environment Secretary stated that measures such as carbon sequestration, clean water, biodiversity and natural flood management remained “systematically undervalued” in the UK economy, and the Government set out further plans to support the flow of private finance to support the ‘nature positive economy’.

Natural capital, defined by Professor Sir Partha Dasgupta in his 2021 review of the economics of biodiversity, is “the stock of renewable and non-renewable natural assets (e.g. ecosystems) that yield a flow of benefits to people (i.e. ecosystem services). The term ‘natural capital’ is used to emphasise it is a capital asset, like produced capital (roads and buildings) and human capital (knowledge and skills).”

As part of this new inquiry, the Committee seeks to understand whether the Government’s policies to promote natural capital and investment in biodiversity protection is adequate. It will look at the role private investment can make, and how the UK might develop world-leading markets in natural capital assets while avoiding the ‘greenwashing’ of investments.

Environmental Audit Committee Chairman, Rt Hon Philip Dunne MP, said:

“Nature and biodiversity are declining at an alarming rate in the UK, and adequate safeguards must be embedded to avoid any further loss. The financial sector will have a significant role to play in promoting the development and enhancement of the nation’s natural capital – from air to water, soil to forests – as the UK economy begins to embrace the economics of biodiversity.

“The Committee seeks to understand how the UK’s markets in natural capital are developing, and whether the frameworks that have been put in place, and the measures being encouraged by Ministers, are sufficient to promote investment in nature recovery while establishing the UK as a leading financial centre for nature positive investment.

“We will look at measures to prevent greenwashing in the natural capital sector so that the investment and policies really do make a material and nature positive difference to environmental recovery and levels of biodiversity across the UK.

“I encourage anyone engaged in the development of natural capital markets to contribute to our inquiry.”

Terms of reference

The Committee invites written submissions via its website addressing any or all of the issues raised in the following terms of reference, by 17:00 on Friday 22^nd September 2023.

1. What potential contribution can private capital investment make to measures to secure nature recovery?
2. How can investment best be aligned with environmental benefits, so as to achieve or surpass the Government’s targets for nature recovery?
3. What measures are necessary to (a) establish and (b) maintain the high-integrity markets in ecosystem services which are expected to attract private investment? What confidence do investors currently have in the UK’s arrangements for these markets?
4. What contribution will data from the Natural Capital and Ecosystem Assessment (NCEA) programme make to the objective measurement of changes in environmental outcomes?
5. How can the proposed UK Green Taxonomy support high-quality investments which deliver genuine benefits to nature? What financial disclosures should the taxonomy require?
6. How can the operation of natural capital markets ensure genuine net gains for nature? How do such markets address the risk of ‘greenwashing’ of investments and the offsetting of natural recovery in the UK against environmental degradation elsewhere?
7. What role can the UK’s financial markets play in developing the flow of international capital into the development of natural capital in the UK and globally?
8. What role does the UK have in establishing international standards for natural capital investments, alongside other jurisdictions and financial centres?

Notes to editors:

• This inquiry develops work undertaken by a predecessor Committee in its inquiry into Green finance (which reported in 2014). It also builds on the work undertaken in its biodiversity and ecosystems inquiry (which reported in 2021). In both inquiries the Committee examined in depth the role that the economy plays in environmental and nature sustainability, and in the latter, the Committee considered the Dasgupta review’s recommendations.