The London-based alternative asset manager will use the investment to expand its network of biodiversity hotspots, which will generate income through the sale of credits.
Gresham House has launched a fund seeking to raise £300m (€350m) to help restore biodiversity in the UK, with backing from insurance and advisory firm Willis Towers Watson (WTW). It hopes to benefit from the implementation of new rules requiring land developers in England to build biodiversity improvements into their plans if their schemes are to get the go-ahead.
The Gresham House Biodiversity Co-Invest (GHBC) LP fund will invest in the development of so-called ‘habitat banks’, created by Gresham House’s Environment Bank Limited (EBL) business. The size of WTW’s commitment to the fund was not disclosed.
Habitat banks are typically on non-productive farmland or other land converted into biodiversity hotspots with a guarantee that they will be maintained as such over several decades. These then generate so-called Biodiversity Net Gain (BNG) units, introduced as part of new UK environmental legislation, that can be sold to developers to help meet their biodiversity uplift obligations, or sold to other buyers seeking to bolster their green credentials.
Under the new BNG regime, which came into force last month, developers operating in England will now need to achieve a biodiversity net gain of at least 10% for their sites to be granted planning permission. If they cannot generate the required gains themselves on site, they will need to do so elsewhere or buy verified credits from other parties. These rules currently do not apply in other areas of the UK.
Biodiversity gains achieved by EBL’s habitat banks in turning areas of non-arable farmland into woodlands, wetlands, and grasslands will generate sellable BNG units based on BNG metrics established by the UK government.
Gresham House said EBL provided developers with a one-stop solution to the challenges posed by the BNG requirements, while the sale of BNG units would help generate “strong financial returns” for investors in the fund.
Growing investment opportunities
The UK is one of the first countries in the world to make such a BNG scheme mandatory. Gresham House believes this has the potential to create a new market worth hundreds of millions of pounds annually, which will also provide a blueprint for other countries to follow.
Since a global biodiversity agreement was signed at the COP15 biodiversity summit in December 2022, efforts to improve the environment for nature-related investment has gathered momentum.
In June 2023, the UK and French governments launched an initiative to stimulate the growth of global biodiversity credits markets. Meanwhile, the Taskforce on Nature-related Financial Disclosures (TNFD) said at the World Economic Forum meeting in Davos in January that 320 organisations from more than 46 countries had committed to making nature-related disclosures based on its recommendations
Specialised fund
Gresham House says EBL is the only national-scale operator of its type, with 23 habitat banks already operating across England, typically measuring around 20-100 hectares each. Backing from the new fund will support a scale-up to meet an expected rise in demand. EBL plans to create around 8,000 hectares of habitat banks by 2026, which, it says, has the potential to increase species diversity by 20 times across the country.
Peter Bachmann, managing director of sustainable infrastructure at Gresham House, told Impact investor he believed interest was growing in biodiversity-related funds that could show clear additionality and intentionality from their investments, rather than more broadly-based nature-related funds.
“We have effectively created a new infrastructure class with this, and we expect to attract institutional grade investors that want to make a really tangible impact on nature,” he said.
“Ours is a dedicated greenfield fund, and we are building these habitat banks from scratch with LP money. So, it’s very easy to say one pound in of investment creates an easily defined number of hectares of new biodiversity, which is something that’s very attractive to institutional investors, endowments and foundations,” he added.
Improving biodiversity measurement
Efforts to create measures of global biodiversity improvement as a basis for sellable credits, similar to carbon credits, have met criticism in some quarters on the grounds that the high number and diversity of variables involved in measuring gains are far higher than is the case when assessing greenhouse gas emissions reductions. Detractors say that makes it hard for investors to get an accurate picture of the benefits of biodiversity measures, while a focus on carbon emissions would also produce gains in biodiversity through, for example, reforestation.
Bachmann acknowledged biodiversity measurement remained complex but said that the world’s fast-deteriorating ecosystems also required specific mechanisms to drive investment. He said increasingly sophisticated tools, such as soil sampling and bio-acoustics, were making it easier to track and quantify change to transparently show the year-on year improvement that investors and regulators want to see.
Reviving natural habitats also helps to reduce levels of greenhouse gases in the atmosphere. Gresham House says nature-based solutions such as habitat banks, if implemented globally can provide up to 10 gigatons of CO2 savings per year – equivalent to the combined emissions of the US, the US and Japan.
So Yeun Lim, global head of infrastructure research at London-based WTW, said there was a clear need for new, investible nature-based solutions, given growing demand from investors seeking to establish nature positive credentials.
“This type of solution provides an opportunity to deliver environmental impact alongside risk-adjusted financial returns in the natural capital space,” she said.
Gresham House has been ramping up its efforts to provide such opportunities over recent years, as CEO Tony Halwood told Impact Investor earlier in February.
The institution is now planning to launch its third British Sustainable Infrastructure Strategy (BSIF) fund, following the final close of BSIF II at $570m in November 2023. BSIF III, which has a funding target of $950m, will also invest in EBL to generate BNG units, as part of its wider investment remit.
