Source · Select Committees · Environmental Audit Committee
Recommendation 31
31
Accepted
Nature markets face inherent complexities in trading non-fungible, location-specific natural capital assets.
Conclusion
Our inquiry has found many financial mechanisms that can be employed to fund nature recovery: nature markets are one piece of the puzzle. Natural capital assets cannot be directly traded with the same ease as carbon dioxide allowances or carbon credits, owing to their inherent locational basis. In addition to complexities of measurement, the Nature Markets Framework requires nature credits to be non-fungible, as they must be traceable. Units are therefore not interchangeable: the flow of goods in nature markets cannot be traded in the same way as fungible goods such as coffee or crude oil. (Conclusion, Paragraph 166)
Government Response Summary
The government agrees that biodiversity is location-specific and that markets must reflect this, highlighting the BNG scheme, development of domestic standards, rejection of international biodiversity offsetting, and exploring regulatory oversight through the VCNM consultation.
Government Response
Accepted
HM Government
Accepted
We agree that biodiversity is inherently location-specific and that any markets for biodiversity credits should reflect this. This is why developer obligations under the BNG scheme in England are calculated on the basis of a metric that recognises the value of mitigating impacts on or near the impact site where feasible. We are also supporting the development of robust domestic standards to support investment from sectors not covered by BNG through the British Standards Institution’s Nature Investment Standards programme. A biodiversity standard is in development and will be designed to ensure that credits reflect UK-specific ecological conditions and deliver genuine, measurable and lasting outcomes. This approach aligns with international frameworks for biodiversity credits such as the International Advisory Panel on Biodiversity Credits, which the UK co-sponsored with France, and explicitly rejects international biodiversity offsetting – ensuring that compensation remains “local-to-local” and “like-for-like.” To safeguard market integrity and reduce the risk of offshoring environmental harm, we are strengthening governance and exploring options to clarify and strengthen the regulatory oversight of these markets through the Voluntary Carbon and Nature Markets (VCNM) consultation. This includes testing models for oversight that clarify regulatory responsibilities and enhance coordination between environmental, financial and consumer regulators. The consultation also explores the introduction of market rules and an assurance framework to support high-integrity crediting schemes, backed by independent verification. We are also focused on ensuring that the growth of UK nature markets does not pose risks to financial resilience. Proposals under the VCNM consultation aim to improve transparency and accountability through the promotion of strengthened disclosures and test how transition planning can help. By reinforcing standards, market oversight, and domestic supply development, we are ensuring nature markets in the UK operate with integrity and support resilient investment in nature recovery.