How to assess the impact of biodiversity net gain requirements on development projects in England

Against a backdrop of exponential nature loss, there is an increased global focus on environmental issues and, for businesses, on the consequent compliance with measures put in place to tackle the issue.

In England, biodiversity net gain, or BNG, is one of the measures being introduced to mitigate nature loss. BNG is quickly becoming a commonly referenced term in the development sphere as its impending compliance obligations are looming. Mandatory BNG was enshrined in the Environment Act 2021 which obtained Royal Assent in November 2021. The requirement is currently expected to apply to all new developments under the Town and Country Planning Act 1990 from November 2023 (and April 2024 for small sites), and for Nationally Significant Infrastructure Projects from November 2025 at the latest.

What will be required and what are the principal considerations for which developers should begin to account?

What does BNG involve?

Biodiversity is a key element of "natural capital", being the natural assets that humans rely on for a wide range of what are commonly called "ecosystem services". These include food and water, climate regulation and natural food defences.

It has been estimated by the Taskforce for Nature-related Financial Disclosures that more than half of the world's economic output is moderately or highly reliant on nature. The BNG measures which are due to come into effect later this year aim to preserve and protect this natural capital. 

The core BNG requirement is that the value of the natural habitat post-development provides at least a 10% net gain. The gain must be maintained for at least 30 years and can be delivered both onsite and offsite.  

Onsite habitat creation and enhancement will be the most cost effective solution to BNG compliance. This is due to the way biodiversity units are calculated, the ability to streamline the legal documentation by capturing the BNG requirements within a section 106 (Town and Country Planning Act 1990) agreement, and the attractiveness of onsite delivery to the Local Planning Authority (LPA) because of the benefits to local infrastructure and biodiversity.  

Where the delivery of BNG onsite is not achievable, a developer can deliver BNG offsite. This may either be on other land owned by the developer or on third party land. Land used to deliver offsite BNG must meet the necessary criteria, including that the land is managed in accordance with a Habitat Management and Monitoring Plan.

Offsite biodiversity units may also be available via a natural capital market solution.

Generally, offsite BNG carries additional risks such as reliable credit generation, how to ensure ongoing compliance and the costs associated with negotiating the relevant contracts.

Key considerations for effective BNG

Given the various ways to approach BNG compliance, there are a number of considerations to account for when ensuring effective BNG is being delivered.

One of the main considerations is around additionality – is the land already being enhanced for another purpose, such as the generation of carbon offset credits? If so, there is a risk that this would be classed as double-counting and the same land could not be used for BNG.

Developers should also consider where they are delivering BNG and to which development they intend to allocate the resulting biodiversity units.

To the extent that BNG value is being delivered onsite and all the units are being allocated to the connected development, then it would be logical to include the relevant BNG land within the redline boundary for the planning application. However, if some of the value being delivered onsite is to be allocated to an alternative development, then this will need to be made clear to the LPA as part of the planning application (for example, showing this as other land within the developer's control within a blueline boundary).

As a general rule, when planning a BNG enhancement scheme for commercial purposes (that is, selling biodiversity units to a buyer), the relevant enhancement areas should be parcelled up and demarcated on a plan so that the associated BNG can be clearly allocated to buyers and their developments in future as may be required.

Calculating biodiversity units

The calculation of biodiversity units is currently carried out in accordance with the Natural England Biodiversity Metric 4.0. This metric calculates the current onsite baseline and is used to determine the onsite enhancement needed as part of the development to achieve the requisite number of biodiversity units. The same process will be applied to any offsite gain allocated to the development to give a combined net change.

Biodiversity units are broken down into different types: (1) habitat areas; (2) hedgerow; and (3) watercourse. If a development is interfering with one type of unit more than another, this is where the focus for enhancement needs to be. There is a need for "like for like" compensation/enhancement as opposed to substitution/alternative habitats.

To work out the true value of the net change there are a number of multipliers that must be factored in to give an overall percentage of change. These factors can have a significant impact on developer applications and what is required to deliver the BNG.

While BNG enhancement can be located anywhere in England, where it is delivered has implications on the metric and quantum of enhancement businesses need to deliver. This is known as the spatial multiplier.

If the BNG enhancement is offsite within the LPA's boundary the multiplier is set to x1, however if the offsite enhancement is outside the LPA's boundary then the multiplier is lowered to x0.75 or even x0.5 depending on the distance. On the other hand, multipliers can be up to x1.15 where the offsite enhancement is located on land which has been identified by the LPA as strategically important to the Local Nature Recovery Network.

There are also temporal and risk multipliers. In line with the need to urgently protect and preserve certain habitats, the longer it would take enhancement elements to deliver the associated biodiversity benefit, the less one is rewarded in the metric – this is the temporal multiplier.

Similarly, the risk multiplier means that the more difficult an element of enhancement is in terms of delivering the benefit, the less the metric benefits the developer.

Natural capital markets

Natural capital markets are developing for the purchase of biodiversity units, as well as other environmental credits in response to environmental development obligations such as BNG.

These markets operate by landholders dedicating part of their land for the nature-based project, and generating biodiversity units or environmental credits. Developers purchase biodiversity units, bidding in the market for a price they are willing to pay. A market operator runs the market and the contractual relationships sit between the developer/market operator and the landholder/market operator. Once the project has been delivered by the landholder it will be verified by the market operator and the biodiversity units are used by the developer to fulfil their project development obligation.

There are a number of benefits to a natural capital market solution, including that there is certainty that the generated biodiversity units will be accepted by the LPA, who will have approved the marketplace, and that they present cost-certainty for developers at an early stage in the project. 

Osborne Clarke comment

The implications of BNG compliance are far-reaching for both developers and landholders.

Developers need to start engaging with their new BNG compliance obligations and will need to consider their strategy for achieving BNG in the short and longer term.

Landholders should consider what opportunities might be open to them, for example whether they can stack biodiversity units and other environmental credits to receive multiple payments for the same project and generate income from their land parcel in a new, innovative way.

LPAs are wielding the power for BNG compliance. Their current focus seems to be on the delivery of a scheme of BNG enhancement by the developer rather than the LPA accepting straightforward financial contributions. They are also showing a preference for onsite BNG within their locality as well as exercising their discretion to require more than a 10% biodiversity net gain. This evolving landscape is becoming increasingly hard to navigate for developers operating on a national scale who will need to adjust to any regional discrepancies.

In addition, there are a number of complex legal documents required to secure BNG enhancement. These include new provisions in section 106 agreements, conservation covenants for delivery of offsite gain, as well as unilateral undertakings, credit supply agreements for securing biodiversity units and, accordingly, there is a need for extensive due diligence around these documents.

Osborne Clarke recently hosted a webinar that sought to decipher the impending BNG requirements, the developing marketplace for the trading of biodiversity units and the solutions being deployed. While this article provides a summary of some of the principal discussion points, please see the recording should you wish to learn more.

Our experts are on hand to provide support and advice as you seek to navigate through the evolving biodiversity landscape.

This Insight was drafted with the assistance of Lauren Gardner, trainee solicitor.