BNG - risk to opportunity

From November 2023, most English planning permissions must secure a 10% biodiversity net gain (“BNG“) against the pre-development habitat value baseline. This has been viewed as an additional cost and barrier to development, but it offers an opportunity for owners and developers taking a longer view of property assets and masterplans to realise additional value, writes Grace Pinault.

Gold In them hills

The regime will allow BNG ‘units’ (also referred to as ‘credits’), measured using DEFRA’s BNG Metric, to be sourced off-site.  Planning Policy Guidance requires this to be justified in the mitigation hierarchy (and the Metric makes some off-site solutions slightly less favourable). BNG unit prices vary by location and by unit type; the general price is about £10,000 to £25,000 per unit, but can go as high as £35,000. The way the Metric works means that any land sitting in real estate portfolios with scope for habitat enhancement – brownfield, agricultural, or unimproved land – represents a real financial opportunity.

The Government plans to allow BNG units to be sold onwards via Natural England’s Biodiversity Gain Site Register. It is intended to be relatively straightforward in practice, as long as Natural England’s registration requirements are met. Natural England is still building the Register but it is likely to include:

  • basic site information including ownership details;
  • a Metric data file;
  • a Habitat Management/ Monitoring plan; and
  • a legal agreement securing the proposed BNG for 30 years – this will in most cases be done by a planning agreement although this could also be secured by conservation covenant.

Registration will come with an application fee which Natural England currently expects will be between £100-£1000 per application.

Double bubble

Registration requirements will be set out in Regulations. Landowners will need to carefully scrutinise them to see whether masterplans and estate strategies can be crafted to harness BNG value by:

  • Gold plating – (re)enhancing habitat that has already been secured in connection with a development project, securing and selling the gold plate element on as off-site gain;
  • Resale – selling on credits that exceed the statutory 10% requirement (even, potentially, where they were secured as part of the planning ‘sales pitch’ for a development project); and
  • Stacking – see below.

Stacking – Multiple birds, one stone

‘Stacking’ multiple enhancements at development sites is key to derisking the financial burden of incoming BNG requirements. As long as the additional land use is not incompatible with the agreed habitat management or monitoring plan, we expect BNG units can generally be attributed to newly created or enhanced habitat. Some examples of easy wins include:

  • Natural Sustainable Urban Drainage Systems – Watercourses, retention ponds, and any buffering land created for a sustainable urban drainage system could be counted as habitat under the DEFRA metric and counted for BNG purposes.
  • Nutrient & Water Neutrality – If nutrient or water mitigation is required for development consent, any created wetland or natural watercourses can contribute to a development’s BNG.
  • River Basin Management Plans – Generally any mitigation or enhancement measures as part of a River Basin Management Plan can count for BNG if it creates or enhances habitat.
  • Environmental Impacts and Habitats Regulations – A development may rely on measures to mitigate environmental impacts; if these measures involve vegetation, habitat enhancement or creation, they can count for BNG. This could include enhancements like the planting of trees or hedgerow for visual or noise screening.
  • Green Walls and Roofs – Green walls and roofs used as design elements can count for BNG as long as they meet basic technical requirements and are appropriately managed.

ESG Premiums

BNG strategies can therefore make a virtue out of a necessity and by going beyond statutory minimum requirements, potentially harness greater commercial value. This commercial value may ride on the coattails of rising trends in ESG.

The latest RICS Sustainability Report stated 57% of respondents reported investor demand for green buildings has increased and 75% of respondents in Europe reported a significant or modest rise in occupier demand for green or sustainable buildings in the last 12 months.

While much of the current focus in green buildings is dominated by operational energy efficiency or embodied carbon impacts, markets and investors are becoming more aware of natural capital’s connection to ESG and a real estate portfolio’s bottom line. The BNG regime will likely play out differently for landowners and developers given the scale of the stakeholders involved. Viewed in the round with wider commercial imperatives to enhance value through quality of place and demonstrate leadership in ESG, the biggest players will be best placed to fully communicate how the BNG strategies in their real estate portfolios links up with their wider corporate ESG efforts.

We are still a long way from a natural capital approach to ecosystem services but as investors and occupiers become more aware of biodiversity’s role in delivering natural capital, we expect developments and portfolios leveraging BNG will soon benefit from ESG premiums. We expect to watch this trend pick up momentum as BNG requirements come into force in England from November 2023.

Grace Pinault is an Associate at Dentons. This article first appeared on the firm’s Planning Law Blog.