Lawyers, clients and natural capital

Answer

What’s natural capital?

‘Natural capital’ is the term given to the natural habitats and resources (eg, soil, water and living organisms) that provide environmental, social and economic benefits to humans. Increasingly, attention is being given to efforts to maintain and improve nature's stock of natural capital resources due to the heightened awareness of the impacts of climate change. This has been reflected in recent UK legislation, which implements legal requirements to preserve natural habitats.

What new legislation is in place to support natural capital?

A key example is the Environment Act 2021, which introduced an obligation for most new developments to produce a 10% uplift in biodiversity from pre-development levels (known as biodiversity net gain). The Levelling-up and Regeneration Act 2023 introduces obligations on sewerage undertakers to upgrade infrastructure and on developers to mitigate adverse increases in phosphate and nitrate levels caused by developments within sensitive catchment areas.

Legal and regulatory obligations to preserve natural resources have therefore increasingly become a challenge to businesses' strategies and an increasing focus for businesses as part of wider environmental, social and governance considerations.

Looking at land development, where do lawyers come in?

There’s a wide range of ways that lawyers can support clients on natural capital matters. One obvious area is advising clients dealing with real estate development.

The obligation to preserve and enhance natural capital assets in developments has necessitated advice from specialist lawyers to parties involved in all stages of transactions that involve land assets. Natural capital considerations initially arise as part of due diligence enquiries on development sites. Lawyers must assess any restrictions, rights or other entries that appear on the titles to development land that may affect the ability to deal with the natural capital resources as planned.

Developers must also be alive to how natural capital issues will affect applications for planning permission. Local authorities and responsible bodies are tasked with implementing conservation efforts and therefore incorporate statutory obligations into planning regimes. Developers will often enter into a contract with their local authority as a term of planning permission. This agreement will oblige the person giving those covenants to perform biodiversity-producing and/or nutrient mitigation activities on designated development land to create biodiversity improvements and offset adverse nutrient impacts in protected areas. Clients therefore may need advice on entering into agreements with local authorities to ensure compliance with obligations that are increasingly becoming a key focus of planning regimes.

What if the developer can’t meet the obligations at the development site?

Development works will almost always generate adverse impacts on existing nature and therefore developers will need to consider how they’ll satisfy their planning obligations for that development. It may or may not be possible to satisfy the requirements ‘on-site’.

To overcome this challenge, a market is developing for off-site mitigation schemes. Under these schemes, a landowner can create improvement works to increase biodiversity on their land, reduce nutrient pollution or sequester carbon (eg, through the creation of additional 

woodland), and any uplift created by the off-site landowner generates 'credits', which can be sold to developers to meet the requirements at their development sites.

Specialist legal advice is therefore important to ensure that developers and landowners alike are compliant with the relevant regulations, but also have the appropriate risk apportionment between the parties involved.

In addition to the direct arrangements with the land itself, there will also be considerations around personal and business tax as well as funding structures.

Conclusion

Natural capital is a fast-moving area of law and presents an opportunity for lawyers in diverse disciplines to add value for clients as they navigate new statutory environmental protections and transition to a greener, more sustainable future.

Tobe Obi and Alex Southall are trainee solicitors at Michelmores LLP.