There’s a better way to fund landscape restoration than nature credits – Inside track

This post is by Henry Leveson-Gower, founder and CEO of Promoting Economic Pluralism.

Over the past decade, UK governments have doubled down on the idea that private money will plug the gap in funding for nature recovery. The Nature Markets Framework and, most recently, a government call for ideas on how to boost private investment in nature, are the latest attempts to make that promise real.

The underlying assumption is that the basic model is sound: build ‘high integrity’ nature markets and standardised credits, and the problem is simply a lack of demand. If only buyers could be nudged, encouraged or required to participate, money would flow.

But, if businesses are not buying what is on offer, the first question should be whether it is the right product, not how to cajole reluctant customers. A rethink is needed, away from treating nature as a tradeable commodity, and towards building long term, place-based ‘nature clubs’ to meet the real demand from those who depend on healthy landscapes to keep the water on, the lights working, trains running and homes protected from floods.

Nature credits haven’t resulted in major investment
The current approach has been to develop well regulated markets to pull in upfront private financing for nature-based projects, which generate saleable credits. Businesses are expected to buy credits to badge themselves as ‘nature positive’, mirroring the voluntary carbon market model and the ‘carbon neutral’ claims made by many companies.

On top of this voluntary layer, regulation requires developers to purchase Biodiversity Net Gain and nutrient credits to offset environmental damage done elsewhere. The hope is that this mixture of voluntary and mandatory demand will add up to a major new revenue stream for nature restoration.

In practice, it has not worked. Voluntary ESG (environmental, social and governance) driven demand is politically contested, with high profile initiatives, such as the Net Zero Banking Alliance, folding under pressure. Even where offsets are purchased, the logic is largely one of balancing the books, not driving a step change in the state of nature. The government’s call for ideas is an admission that this model is not generating the scale or reliability of funding needed.

The problem is not just weak demand, it is that the product – standardised, tradable ‘nature credits’ – is a poor fit for organisations that have real demand for landscape regeneration.

Functioning infrastructure needs a healthy environment
If we start from the question “who really needs thriving ecosystems to deliver their core service?”, a different picture emerges.

The most obvious candidates are infrastructure providers: water companies, flood risk management authorities, rail and road operators, and parts of the energy system. All face rising costs from degraded ecosystems.

For the water sector, deteriorating catchments mean greater risk of drought, more polluted raw water and combined sewer overflows triggered more frequently. For flood risk management, highways, rail and energy networks, more intense rainfall on compacted or degraded land means damaged assets, disruption and higher maintenance costs.

This is not about offsetting or corporate branding, it is about where existing infrastructure budgets are spent, on concrete or nature.

Water services are not replaceable
The trouble is this kind of demand does not fit the commodity market paradigm that underpins nature market thinking.

Commodity markets and, by extension, many carbon markets, rely on the idea of ‘fungibility’: one tonne of oil, or one tonne of CO₂, can be swapped for another irrespective of where it comes from. Location is irrelevant as long as units are equivalent.

Water related ecosystem services do not work that way. Catchments are complex, local systems of channels, soils, aquifers, land uses and infrastructure. If the objective is to cut sewage overflows from a particular combined sewer system, it matters enormously which flows are reduced and where. Measures that slow and store water in the upper parts of the specific sub-catchments feeding that network could help. Interventions somewhere else, even within the same river basin, may have little impact.

We need long term clubs, not one-off deals
Time is another dimension where the commodity model breaks down. Infrastructure providers need reliable, long term performance. Slowing and storing water in a catchment is not something you do once, it relies on sustained changes in land use and management, from cropping patterns and soil practices to woodland and wetland maintenance.

Over the lifetime of investments, farms can change hands, business models shift, policy incentives come and go, and the science of what works best will evolve. Floods or droughts can alter what is feasible. Short contracts with isolated land managers is not the way to manage these risks.

In ‘club’ economics, pioneered by Nobel Prize winner James Buchanan, a group of members jointly fund and govern a shared asset that provides benefits not fully open to all, but available to members on agreed terms. Members pay to join and stay in the club, and in return they have a say in how it is run and how benefits are managed.

Catchment scale ‘nature clubs’ would apply this logic to landscapes and core members could include water companies, flood authorities, highways and rail agencies, local authorities land managers, citizen scientists and community representatives.

Members benefiting from ecosystem improvements would commit to long term contributions, funding a pipeline of nature-based interventions in agreed locations. In return, they would share governance over a dedicated stewardship body responsible for planning, commissioning, monitoring and adapting interventions over time.

Instead of trading credits, the club would manage a portfolio of projects over the long term to meet explicit outcomes: fewer spills, reduced flood peaks, more resilient water supplies, healthier rivers and habitats.

Markets should turn into clubs
For private money to play a serious role in nature recovery, the government should stop assuming commodity style nature markets will do the heavy lifting and start building the institutional plumbing for catchment scale clubs. At a minimum, it should:

1. Support club development
Resources are required to build relationships and common purpose, and co-design governance rules.

2. Give regulators a mandate to support this approach
Ofwat and the Environment Agency need a mandate to develop processes that are compatible with this collaborative and adaptive approach in the context of uncertainty to avoid defaults to concrete based approaches more compatible with current regulatory systems.

3. Align existing initiatives around governance
Local Nature Recovery Strategies, conservation Site Protection Strategies, Landscape Recovery projects and emerging regional water system planning all touch the same landscapes. Clubs should be the organising framework to join these up, rather than layering new initiatives on top of one another and hoping they align by accident.

4. Set minimum governance standards
To manage significant flows of public and private money over decades, clubs will need strong governance. The government does not need to start from scratch: there are models that can be adapted. But the Department for Environment, Food and Rural Affairs should develop clear policy on club governance and inclusion, instead of confining its attention to the integrity of market transactions.

With public funds under pressure and voluntary nature markets faltering, this idea is not a soft, collaborative add-on; it is the only credible way to unlock and steward long term efficient and effective investment in the landscapes that keep society functioning.

Unless the government shifts its focus away from ever more sophisticated nature credits, towards robust, place-based clubs, we can expect more piecemeal schemes, more confusion and continued decline in the natural systems we all depend on.