-
Biodiversity Net Gain

Biodiversity net gain

Exploring the implications for developers and landowners.

Could you benefit from the biodiversity net gain market?

Biodiversity net gain (BNG) is an initiative that aims to make sure that property development in England has a measurably positive impact on biodiversity. If you’ve been thinking about getting involved in BNG, then Environment Bank* may be able to help. They help create or enhance biodiversity on land in England** outside of a developer’s red line boundary.

Environment Bank can provide advice on the BNG market to see if it’s right for you. They also offer a ‘habitat bank’ model which works by Environment Bank taking a 30-year lease on an area of land. Their ecologists then work to transform landscapes, rebuild ecosystems and create places for nature to thrive, to fulfil BNG planning requirements. 

Environment Bank logo

To see how Environment Bank could support you, visit their website. Terms and conditions apply. 

We are committed to working alongside our clients as they explore how best to embed and comply with the new BNG legislation.

Jason Constable

Head of Real Estate, Barclays Corporate Banking

The UK has lost a larger proportion of its natural biodiversity than almost anywhere else in western Europe. As part of efforts to reverse this and support local nature recovery priorities through a consistent and transparent approach, biodiversity net gain (BNG) became law under the Town and Country Planning Act in February 2024 for larger sites (10 or more houses) and from April 2024 for smaller sites (nine or fewer)1.

The introduction of BNG represents a significant change to planning and development in the UK – the first country in the world to create a statutory BNG framework for all new construction and development2.

BNG, now mandatory for developers in England, also creates opportunities for landowners3. We convened a round table for key stakeholders (developers and landowners) to discuss the issues involved in this developing market. The information on these pages reflects, in part, insights from those discussions.

What is BNG?

BNG is a way of creating and improving natural habitats. It requires new property developments to have a positive impact (net gain) on biodiversity, so it is left in a measurably better state than before development4. The legislation requires developments to deliver a minimum 10% uplift in biodiversity from the baseline (although there are some limited exemptions – for example, for households).5

For the purposes of the legislation, biodiversity value is measured in standardised biodiversity metric depending on habitat, size, quality, location, etc and requires consultation with an ecologist6.

BNG must be delivered and managed for a 30-year period – the landowner is legally responsible for creating or enhancing the habitat and managing the habitat for that time. While statutory BNG has received broad support from government, charities, associations and private companies’, questions remain about the way in which the system will be implemented.

How can developers achieve BNG?

The approved metrics and approach for BNG measurement is administered by the Department for Environment, Food and Rural Affairs (DEFRA).

As per the legislation, developers are encouraged to follow a mitigation hierarchy of steps to achieve BNG. Details of developers’ BNG plans need to be submitted to the relevant local planning authority (LPA) as part of the planning process and won’t be agreed without them.

Once approved by the LPA, the BNG obligation is legally binding via a section 106 agreement or conservation covenant. LPAs are responsible for enforcing habitat preservation for 30 years (from the time the agreed initial habitat creation or enhancement is completed)9.

Migration hierarchy

1

Create biodiversity onsite

In the first instance, ideally, developers should create biodiversity onsite (within the red line boundary of a development site).

2

Deliver through offsite solutions

If all the BNG cannot be achieved onsite, it can be delivered through offsite solutions. This can be done either by making offsite gains on land owned outside the development site, or by buying offsite BNG units on the market (directly from landowners or through specialist intermediaries, including via habitat banks).

3

Buy statutory BNG credits

As a last resort, if BNG can’t be achieved onsite or offsite, developers may buy statutory BNG credits from the government, who will use the revenue to invest in habitat creation8.

How does BNG work for landowners?

Much of the offsite habitat restoration required for BNG is expected to be on farmland. This provides an opportunity for farmers and other landowners to secure a potential new source of revenue at a time of considerable financial uncertainty by bringing BNG units forward to the market.

Some larger estates have already taken the opportunity to put areas of unproductive land aside under the BNG framework. Smaller farmers may also have an opportunity to reassess the use of unproductive land currently used for high input food production and putting it aside for BNG to access payments available in the BNG market10.

I think that BNG presents some potentially interesting opportunities for farmers and other landowners, and also raises questions about how this emerging market will develop in the future, which we’re keen to explore with our clients.

Adam White

Head of Agriculture, Barclays UK

Key considerations for landowners

Landowners that may have suitable land but are unclear about how the market will develop could consider:

Financial implications

The potential financial benefits and risks of BNG over the long term compared to other land uses.

Planning ahead

The amount of land that could be set aside for BNG and whether a phased approach is appropriate.

Counting the cost

The costs and resource commitments for ongoing habitat management over 30 years; and tax and succession planning implications.

As a first step, landowners may wish to carry out a baseline survey of potential sites to establish their financial and ecological viability for BNG.

Developers: managing the challenges

Direct impact on commercial viability

With new BNG requirements, developers’ commercial viability may be impacted. Part of the consideration will be onsite versus offsite solutions and related ongoing maintenance costs over the 30-year legal period. Upfront additional legal and administrative costs to support planning applications (e.g. engaging with ecologists) could also impact the return on projects being developed.

Smaller housebuilders (typically delivering smaller sites) are critical for the delivery of the UK’s efforts to build more housing. Compared to the listed, housebuilders are likely to be disproportionately impacted by legal and planning costs, higher BNG unit costs and lack of in-house specialist BNG resources11.

Impact on planning

Delivery timelines are expected to be impacted as developers incorporate BNG in the design and planning stages. Some of the developers involved in our discussions highlighted a need to progress their own understanding of BNG and noted different levels of BNG understanding within LPAs. Fewer than 10% of local authorities reported that their current expertise and resources will be adequate to deliver BNG, while 85% state they will require additional professional staff to support their new responsibilities14.

DEFRA acknowledges mixed readiness for BNG among LPAs, with only 30% having suitable ecology officers in place to review planning submissions13. The Planning Advisory Services are investing in guidance and training for LPAs, and the new government have announced an extra 300 planning officers and a new “growth-focused” approach to planning as well as committing in their manifesto to restoring and protecting Britain's natural world14.

Decision: onsite or offsite?

The government has assumed a roughly 50/50 split between onsite and offsite BNG provision15. However, according to the Land Trust, 89% of developers believe availability of land for onsite BNG provision is the biggest challenge16.

In addition, developers have said that they are not best placed for ongoing management and monitoring of habitat for 30 years and therefore offsite will often be the most commercially viable option.

While offsite BNG is clearly permissible, developers said that some LPAs are reluctant to allow the offsite option under the mitigation hierarchy or are looking for offsite provision to be as close to developments as possible.

As part of the nascent biodiversity market, BNG credits currently provide limited options to developers as a last resort.

Long- term commitment

There was an acknowledgement by developers in the discussion that some do currently lack the necessary capabilities and experience in demonstrating and managing BNG on an ongoing basis. Similarly, few property management companies are set up to manage BNG habitats at present.

This raises important questions around the cost impact of a 30-year maintenance obligation – will it be covered by service charges or rolled into an overall management fee with residents paying the price, and will this additional cost be acceptable to house buyers?

There are also key questions around how BNG will be enforced over the longer term, whether LPAs have the systems in place to do this, and where the liability lies if BNG isn’t delivered.

Landowners: weighing up the opportunities

Financial benefits and risks

The emerging biodiversity market in the form of BNG provides landowners with a potential alternative source of income, but they will need to weigh up the financial benefits and long-term value of land assets set aside for BNG compared to other land uses. Committing to BNG means competing to sell units in the market and there appears to be a general reluctance to ‘sell on day one’. There may however, be an advantage for those who act early while the supply of units is limited.

This reflects the broader challenge for many farmers as their focus shifts from food production with government support to wider strategic decisions about land use that could affect asset value over the long term.

Other options may include diversification into higher value crops, accessing sustainable farming incentives or renting land out for other purposes such as solar energy.

Long-term commitment

Landowners may be understandably cautious about committing land to BNG for 30 years given the embryonic state of the market and uncertainty over the value of BNG units.

There are also concerns over ongoing management costs over the 30-year period given that payments are made upfront and the need to factor in cost inflation. The implications if landowners are unable to maintain land to the required standards for the full 30-year term is also uncertain.

However, BNG may bring other potential long-term benefits in terms of supporting land adaptation and meeting other environmental regulations.

Many landowners also emphasise the importance of effective involvement and communication with local rural communities over the long-term to ‘tell the BNG story’.

A phased approach?

Many of the landowners and farmers we have spoken to say they are unlikely to set aside a high proportion of their land for BNG, but the possibility of starting small and expanding later, or creating units upfront and banking them for future sale, appears more feasible.

Assessing land use and value, particularly less productive land, is an important first step that farmers are encouraged to take. There are a range of third-party tools and advisers available in the market offering these services.

This can allow for the development of a wider management plan for the whole farm or estate which can deliver BNG units over time.

Tax and succession implications

Landowners’ concerns around how BNG land will be treated for tax purposes, including its income tax and capital gains implications, appear to have been clarified in the Finance Act 2024. Agricultural property relief from inheritance tax is to be extended from 6 April 2025 to land managed under environmental agreements with the UK government, public bodies, local authorities and approved responsible bodies6.

This should allow landowners to continue to pass on land to future generations without facing hefty tax bills – a particularly important consideration given the 30-year BNG commitment.

The future: further developing the BNG market

The arrival of mandatory BNG throws up a range of longer-term questions, which both developers and landowners may wish to consider.

Where will we be in 30 years’ time?

The 30-year BNG timeframe creates market uncertainty due to possible changes in policy direction under future governments, such as revised housebuilding commitments or changes resulting from concerns over longer-term UK food security. This may call in to question the long-term value of agricultural land in general, and of units set aside for BNG over such an extended period.

Is BNG the first step towards broader environmental net gain?

In time, BNG could well lead to the introduction of a broader environmental net gain framework, encompassing not just natural habitat conservation but carbon sequestration, flood management and other environmental ecosystems, as part of a broader reassessment of the use of UK land resources, which could provide further attractive opportunities for landowners.

What could be the impact of voluntary BNG markets?

As more private players enter the biodiversity space and big corporates seek to demonstrate their Environmental, Social and Governance (ESG) credentials to meet regulatory requirements, in a similar way to the development of carbon trading, there could be an even greater demand for BNG credits from outside the housebuilding sector that may impact market dynamics.

What is the role of intermediaries in the BNG market?

Intermediaries are likely to be critical in facilitating the effective market mechanisms necessary to make offsite BNG delivery as easy as possible. For example, one such intermediary already active in the BNG market, Environment Bank, provides nationwide access to habitat banks of BNG units and is committed to working towards solutions that work for both developers and landowners.

Get in touch

Our dedicated and experienced Real Estate and Agriculture industry teams can help you navigate the opportunities and challenges facing the sector including BNG.

Contact us

Get in touch

To discuss your business requirements and how Barclays can support you, contact us today.

Success in action

Homing in on biodiversity

Homing in on biodiversity

Find out how leading UK house builder Bellway Homes is adapting its development approach to the new biodiversity net gain (BNG) framework.

Pioneering land management

Pioneering land management

Alscot Estate launched its first biodiversity net gain (BNG) site in April 2020. Find out how they've taken a lead in creating BNG units for sale to developers.

You may be interested in

Industry expertise

Real Estate

There’s more to building houses than just bricks and mortar.

Solutions

Corporate Lending

If you want to recapitalise, refinance, consolidate your debt or finance a new project or acquisition, we offer a range of debt products to help your business.

Solutions

Property Finance

From bilateral loans to syndicated and capital market deals, we can support you with property financing solutions.

Agriculture
Industry expertise

Agriculture

It’s easy to see the bigger picture when you head off the beaten track. We’re with you every muddy step of the way.