Understanding Natural Capital
A high-level guide to Soil Carbon, Biodiversity Net Gain and Nutrient Neutrality.
Growth of Natural Capital Markets
EFG promotes an outcomes-based approach where farmers are paid for the environmental services (natural capital) that they provide. This is not payment for specific practices but instead payments for measured improvements (such as the amount of carbon stored in soil). This is important as payment is based on performance.
Natural capital markets are driven by government regulation (where government mandates companies to offset their impact or contribute to environmental improvement) or by voluntary motivation (where companies look to address environmental risk by offsetting their impact or contributing to environmental improvements, usually aligned to common frameworks and targets). Although only three markets exist at present, many more market opportunities are being developed. Below provides a summary of the three existing markets EFG is focused on.
Biodiversity Net Gain
Housing and infrastructure development usually destroys natural habitat. To mitigate this impact, government ruled in 2024 that each new development over 0.2ha must measure and offset its impact on biodiversity and contribute 10% on top of this to biodiversity improvement. Biodiversity is measured in ‘Biodiversity Units’ through DEFRA’s Biodiversity Metric based on the type of habitat and the condition of the habitat. Developers can purchase Biodiversity Units from farmers & landowners who create new environmental habitats on farm and register these with Natural England.
110%
Minimum biodiversity offset required
Feb 2024
Became mandatory in England
30 Years
Duration of a habitat agreement
Benefits to farmers:
Generate a new income stream
Create biodiversity units from habitat creation or enhancement and sell them to developers seeking off-site BNG.
Retain control of your land
Entering a BNG habitat bank does not mean losing control, with management plans designed to work alongside your farming operation.
Benefit from collective strength
As part of EFG’s network, your habitat bank reaches a wider pool of buyers than you could access alone, ensuring fair value for your units.
Benefits to developers:
Professional service
Work with an experienced team who understand the biodiversity metric, helping you source units from registered habitat banks in your area.
Purchase off-site biodiversity units
Buy units from registered habitat banks in your area, created by farmers and landowners in EFG’s network.
Avoid purchase of statutory credits
Buying credits directly from Natural England should be a last resort as they are deliberately priced high to encourage market solutions.
Nutrient Neutrality
When new homes are built, the residents who move in add phosphates and nitrates to the local water system, through wastewater, surface runoff, and agricultural activity. In sensitive river catchments, this causes real ecological harm. Nutrient Neutrality requires developers to demonstrate their development won’t add to that burden, and has been mandatory in 74 catchments across England since March 2022.
Phosphate Credits
Excess phosphate harms freshwater rivers. Farmers can generate phosphate credits through projects such as taking land out of production, creating wetlands, cover cropping, and upgrading septic tanks.
Nitrate Credits
Excess nitrates are particularly damaging in sensitive harbours and estuaries. Farmers can generate nitrate credits through land management changes, wetland creation, and cover cropping.
74
Catchments affected in England
2022
Year mandatory requirements began
Nutrient neutrality credits can be either temporary or permanent. Temporary credits offset nutrient loading for a fixed period, reflecting the fact that some planning authorities require mitigation only until upgraded sewage infrastructure is in place in April 2030. Permanent credits require an irreversible land use change and provide a lasting solution. Developers often require both types, and EFG holds supply of each across its catchment networks.
Soil Carbon
Unlike BNG and Nutrient Neutrality, soil carbon is a voluntary market, buyers are typically corporates with net zero commitments rather than developers with planning conditions. This makes it a complementary income stream that can run alongside other EFG schemes. Healthy soils store vast amounts of carbon. When land is managed well, through reduced tillage, cover cropping, and diverse rotations, soil organic matter builds up, locking carbon in the ground rather than releasing it into the atmosphere. Soil carbon projects allow farmers to measure and sell these carbon sequestration outcomes to organisations seeking to offset their emissions.
Land management
Cover cropping, reduced tillage, and diverse rotations all contribute to building soil organic matter over time.
Measurement & verification
Carbon sequestration is quantified using approved methodologies and independently verified before credits are issued.
Voluntary market
Credits are sold to corporates with net zero targets – a growing pool of buyers looking for high-integrity UK farm carbon.
READY TO PARTICIPATE?
EFG can support both farmers and buyers
Whether you’re a developer needing to meet your obligations, or a farmer looking to generate income from your land, EFG has dedicated support for you.
FOR FARMERS & LANDOWNERS
Generate income from your land
Find out how EFG supports members to register projects, create habitat banks, and sell BNG and nutrient credits.
FOR DEVELOPERS & BUYERS
Meet your planning obligations
Discover how EFG can match you with the right biodiversity units and nutrient credits across England.