Natural capital assessment toolkit

Following the passing into law of the Agriculture Act in December 2020, it has never been more important to consider what a natural capital assessment might involve. There is some helpful guidance from DEFRA, Natural England, the Natural Capital Committee and on our Natural Capital Hub. The key points are set out in this article.

What is natural capital?

Natural capital is the sum of the earth’s natural assets including our ecosystems, geology, soil, air and water. Humans derive a wide range of services from these elements, directly and indirectly, including food, clean air and water, energy, climate regulation, carbon storage, natural flood defences, pollination and recreation. Originally coined in the 1970s, natural capital is not a new concept, though its inclusion in Government policy marks a turning point.

A natural capital approach

A natural capital assessment relies on what DEFRA has called ‘a natural capital approach’. The premise of a natural capital approach is that goods and services produced from the natural environment are essential to life, and so natural capital is central to the sustainability of the economy. Putting a value on natural capital aims to ensure its inclusion in decision-making and policy, as evidenced by both the Agriculture Act 2020 and the Environment Bill, which show how natural capital will be central to future agricultural policies and initiatives.

DEFRA’s recommendation when adopting a natural capital approach is to first establish the motivations behind the project or the purpose in considering environmental services, and let that determine the process. As the natural capital approach develops, transparency in methodology – including its uncertainties and limitations – will be crucial.

Enclosed farmland

The guidance from DEFRA recognises ‘Enclosed Farmland’ as one of eight Broad Habitat Types in the UK and describes it as being of ‘great cultural significance’ (though it is acknowledged that farming will also occur in other habitat categories). Enclosed Farmland is, of course, credited with supplying the majority of the UK’s food, with crops being recognised as being a tangible output of natural capital, directly contributing to society’s welfare.

ELMS

Current natural capital ‘initiatives’ include the new Environmental Land Management Scheme (“ELMS”) the introduction of which has now been formalised by the Agriculture Act 2020, under which farmers can expect to be rewarded for the environmental, social and cultural benefits their actions and enterprises on their land give to the general public.

Natural capital accounting

Natural capital accounting has the potential to enable environmental health to be monitored over time and be reported on in the same way as unemployment, for example. However, DEFRA’s guidance recognises that natural capital accounting is just one aspect of a natural capital approach and qualitative data and the context must also be considered. DEFRA acknowledges that early attempts at natural capital accounting may be imprecise, but will in most cases be useful nonetheless. For farming, natural capital accounting differs from traditional accounting models because of its focus on how the ecosystem contributes to the agriculture, among other things, rather than measuring crop production.

Economic and scientific data

What is particularly evident from DEFRA’s guidance is how much economic and scientific data is already available to assist practitioners. In addition, an increasing amount of work is being undertaken to create a usable framework to enable the ecological services which flow from different habitats and natural assets to be recognised. While DEFRA’s guidance by no means provides answers to all questions practitioners will have, particularly in relation to the level of funding which will be available, there is a comprehensive collection of resources and information on hand, which gives an indication of what is to come. Readers may also find Natural England’s National Natural Capital Atlas: Mapping Indicators report of interest in terms of baseline levels of natural capital (published 13 February 2020).