This chapter presents the findings of a case study carried out in the United Kingdom on scaling up the use of nature-based solutions to address water-related climate risks. Building on the initial policy framework developed, it presents insights into the United Kingdom’s enabling environment for nature-based solutions, specifically with regard to policy, governance and regulatory frameworks, as well as technical capacity and funding for nature-based solutions. It presents challenges the United Kingdom is confronted with as well as evolving good practices to address them.
Scaling up Nature-based Solutions to Tackle Water-related Climate Risks
Insights from Mexico and the United Kingdom
3. Managing water-related climate risks with nature‑based solutions in the United Kingdom
Abstract
3.1. Introduction
3.1.1. Context and objective of the case study
Healthy ecosystems and their associated services can provide effective protection against climaterelated variability and extremes. Nature-based solutions (NbS)1 have recently gained momentum as measures that can protect, sustainably manage and restore nature, with the goal of preserving and enhancing ecosystem services to help address societal goals. For example, restoring a wetland can enhance its water storage capacity, thereby reducing flood risk in neighbouring communities, contributing to better water quality and enhancing species’ habitats. NbS can be used as an alternative or complement to service provision through engineered, grey infrastructure. NbS tend to perform well across a wide range of conditions, and provide diverse benefits, making them particularly well-suited for adapting to a changing and uncertain climate (OECD, 2020[1]).
Recent OECD work on NbS has shown that despite their benefits in managing water-related climate risks, a number of bottlenecks, notably related to governance, regulations, policies and financing, hinder their uptake (OECD, 2020[1]). This chapter is one of a series of country case studies that explore existing challenges and aim to identify potential ways to overcome them. This case study provides an overview of the actors and institutions, policies, regulations, technical capacity, and financing which make up the enabling environment for water-related climate risk management in the United Kingdom. It is intended to share best practices and support policy makers in OECD countries in levelling the playing field for NbS. The series of case studies explores the following questions:
How are NbS mainstreamed into planning and investment decisions for managing water-related climate risks?
What tools and mechanisms are used to promote NbS?
3.1.2. Overview: Water-related climate risks
The United Kingdom has a temperate climate and diverse ecosystems, including woodlands, moorlands, heathlands, wetlands and coastal zones, which are home to rich biodiversity and provide additional services of high value to society, such as carbon sequestration and water filtration, as well as protection against climate-related risks, including drought and flooding (European Commission and European Environment Agency, 2011[2]; ONS, 2019[3]).
The United Kingdom is subject to a number of water-related climate risks, not least because of its long coastlines, extensive floodplains and high population density, many of which will be exacerbated by climate change. Although it has a relatively temperate climate characterised by year-round rainfall, climate change is expected to drive slight reductions in annual average rainfall in the coming decades, with seasonal distribution of rainfall expected to change with increased rainfall in the winter and decreased rainfall in the summer (OECD, 2013[4]). Extended periods of extreme rainfall are more likely to happen in the future, potentially resulting in increased risks of both fluvial and pluvial flooding by mid-century and an increase in the frequency and severity of floods even outside of recognised flood risk areas (CCC, 2017[5]).
The United Kingdom’s sea level has risen at a best-estimate rate of 1.4 mm per year since 1901, which is close to the estimated rate for global sea level (CCC, 2017[5]). Compared to averages between 1981 and 2000, and depending on emission scenarios, the sea level near London is projected to rise between 0.25 metres and 1.15 metres between 2000 and 2100 (Met Office, 2019[6]). This will exacerbate coastal flood risk, as well as accelerate the process of coastal erosion, further threatening already exposed coastal communities (CCC, 2017[5]).
It is expected that many catchments will be experiencing water deficits by 2050, ultimately leading to increased competition among sectors for this resource. Furthermore, severe heatwaves are expected to occur more frequently (CCC, 2017[5]).
Water-related risks have already produced significant social and economic damages and losses in the United Kingdom. For example, the total direct costs of flooding in England between 2002 and 2013 amounted to EUR 23 billion. The 2007 floods were particularly severe and caused approximately EUR 4.4 billion in damage (Ellis and Lundy, 2016[7]). Approximately one in six properties in England are at risk of flooding from rivers or the sea (European Commission, 2017[8]). While the examples in this case study mainly cover flood risk management, water scarcity risk exists and can translate into high economic costs. For instance, providing emergency water during a drought was estimated to be between GBP 25 billion and GBP 40 billion, in addition to the environmental and public health impacts associated with emergency response (NIC, 2018[9]).
3.2. The enabling environment for managing water-related climate risks with nature-based solutions
3.2.1. Actors and institutional arrangements
Responsibility for managing water-related risks in the United Kingdom is shared among many public and private actors and bodies at the national and subnational levels across England, Northern Ireland, Scotland and Wales (Figure 3.1). The stakeholder groups play a different role in each stage of the policy and NbS project life cycles, from planning to implementation and maintenance as well as different governance levels, including at the catchment levels.2 Key actors for implementation and maintenance include local risk management authorities (RMAs) who work in partnership to deliver flood risk management (Box 3.1).
Figure 3.1. Multi-level governance mapping of water-related risks in the United Kingdom
Notes: Actors responsible for setting the framework in England (light grey boxes), in Northern Ireland (dark blue boxes), in Scotland (dark grey boxes) and in Wales (light blue boxes). White boxes = actors responsible for implementation; red borders = risk management authorities. Rivers trusts can be found at the national level (The Rivers Trust) as well as the subnational level with 62 local rivers trusts in England. Forestry and Land Scotland plays a land manager role, whereas Scottish Forestry develops policies. The Department for Environment, Food & Rural Affairs focuses on projects in England and works closely with regional administrations in Northern Ireland, Scotland and Wales.
The Department for Environment, Food & Rural Affairs (Defra) plays a key role in promoting NbS for water-related climate risks. While Defra focuses on projects in England, it works closely with regional administrations in Northern Ireland, Scotland and Wales. It develops policies on water resources, including flooding, coastal erosion and drought, that are then implemented by RMAs at both the national, regional and local levels (Box 3.1). In addition, Defra plans and funds projects related to the use of NbS, such as through its Natural Flood Management (NFM) Programme (Defra, 2017[10]).
In England, the Environment Agency (EA), which plans, develops, manages, implements, funds and works with other stakeholders, is a non-departmental public body funded by Defra. It is responsible for environmental regulation and monitoring (it regulates water and air quality and waste management) and stakeholders need to engage with the EA to obtain environmental permits. The EA has an oversight role to steer flood risk management across England and is responsible for operational planning for managing flood, coastal erosion and drought risk. In addition, as a lead RMA, the EA specifies the responsibilities of other RMAs in England. Equivalents of the EA in Northern Ireland, Scotland and Wales are the Northern Ireland Environment Agency, the Scottish Environment Protection Agency (SEPA) and Natural Resources Wales. For instance, flood warning services are operated by SEPA in Scotland, Natural Resources Wales in Wales and the Environment Agency in England.
Box 3.1. Risk management authorities for managing floods, coastal erosion and droughts in England
The 2010 Flood and Water Management Act requires the Environment Agency to identify risk management authorities (RMAs) and specify their functions. The RMAs are required to share data and information and to co-operate with each other in order to effectively and efficiently carry out projects. The RMAs, which are mainly local and regional actors, include:
Lead local flood authorities (e.g. a city or county council) are responsible for creating, implementing and maintaining strategies for local flood risk management in their respective regions (generally surface water and ordinary watercourses), for groundwater, as well as for creating and maintaining a flood risk assets register. They also play a key role in emergency planning and recovery after a flood event.
District councils work closely with lead local flood authorities to manage local flood risk, as well as carry out flood risk management for ordinary watercourses. District councils in coastal regions can also act as coastal erosion management authorities.
Internal drainage boards are independent public bodies that are responsible for water management at the local catchment level. They cover both water management reliant on gravitational flows as well as those requiring pumping.
England’s 12 regional flood and coastal committees are responsible for identifying and managing any coastal erosion or flood risk along coastlines or across catchments. Additionally, they promote effective investment for managing coastal erosion and floods and act as a link between authorities responsible for flood risk management.
Highways authorities (e.g. Highways England) are responsible for managing highway drainage and roadside ditches.
Sources: Government of the United Kingdom (2010[11]; 2009[12]); Defra and Environment Agency (2015[13]).
Natural England a non-departmental public body funded by Defra that acts as the government’s advisor for environmental topics, specifically for protecting the country’s nature and landscapes in England. It provides advice and guidance on NFM measures, in particular to farmers involved with Countryside Stewardship,3 and frequently undertakes research on how NbS can be used to reduce flood and coastal erosion risks, and how droughts affect key ecosystems and species (Defra, 2020[14]; Natural England, n.d.[15]).
The Forestry Commission plans, develops, manages and funds projects. It is composed of Forest Services, the government’s expert forestry advisors; Forestry England, which manages the public forest estate in England; and Forest Research, which delivers forestry and tree-related research for England, Scotland and Wales. It is responsible for the management and conservation of England’s woodlands. For example, the Forestry Commission provided technical support to farmers and land managers for identifying areas where woodland planting would be most effective for managing pluvial and riverine flooding and limiting pollution and sediments reaching streams and rivers as part of the Woodlands for Water project. This was a joint project with the EA to reduce flood risk and improve water quality in the regions of Yorkshire and North East England (Environment Agency and Forestry Commission, 2019[16]). Equivalents of the Forestry Commission are the Northern Ireland Forest Service, Scottish Forestry and Natural Resources Wales.4
Finally, the Ministry of Housing, Communities and Local Government is a national government body that is responsible for setting policies and providing guidance for local planning authorities to ensure that flood risks are properly considered in planning processes. It encourages the uptake of NbS in its National Policy Planning Framework by recommending that local authorities consider the use of NFM in new property or infrastructure development projects, when appropriate (MHCLG, 2019[17]). Developers, which are required to consult local planning authorities regarding flood risks for new housing, infrastructure and community facilities, are advised to take appropriate action to avoid increasing flood risks and building on flood plains. The Northern Ireland Housing Executive; the Minister for Local Government, Housing and Planning in Scotland; and the Minister for Housing and Local Government in Wales have key roles to play in relation to housing, building standards and planning.
A large share of the land in the United Kingdom is privately owned and allocated to agricultural activities, making landowners, especially farmers, key stakeholders for managing water-related climate risks with NbS. The government is considering incentivising non-governmental stakeholders to implement NbS with payments against outcomes (e.g. allowing a private piece of land to be flooded for broader flood prevention benefits) and compensating them for potential trade-offs (e.g. potentially reducing agricultural output in the short term). Nonetheless, the process of successfully engaging landowners in NbS projects remains complex, due to a lack of clarity on responsibilities for the long-term operation and maintenance of NbS projects, funding and liability if NbS approaches ultimately fail or do not achieve their targeted goals. Establishing early and regular positive engagement with farmers and landowners helps to facilitate co‑operation (Defra, 2020[14]).
Water companies in England and Wales are responsible for managing flood risk for surface water and sewer systems, as well as flood risks from the failure of their infrastructure. They manage public water supplies and associated drought risk (Environment Agency, 2017[18]). They are also notable landowners, which has facilitated the implementation and funding of NbS projects on their own land and has helped them become forerunners for NbS. Water companies in England and Wales have been involved in the implementation of NbS on third-party land, to cost-effectively accomplish water retention and improve water quality.
Other stakeholders such as non-governmental organisations (NGOs) (e.g. The Rivers Trust, wildlife trusts, charities [e.g. National Trust, Woodland Trust]) and community groups are also involved in the implementation of NbS projects and may act as a liaison between the government and landowners (Box 3.2). Some of these organisations, such as the National Trust or the Royal Society for the Protection of Birds, are also significant landowners. Flood action groups, which gather volunteers to represent their communities in reducing flood risk, have the potential to advocate for the implementation of NbS. Engaging with them can support awareness raising and capacity building of stakeholders on the benefits of NbS for flood prevention in specific regional catchments (Short et al., 2019[19]).
Box 3.2. The importance of working with stakeholders for successfully developing, managing and implementing nature-based solutions projects
The Tweed Forum, an organisation that works to enhance and restore the River Tweed (England and Scotland) catchment, has been instrumental in implementing nature-based solutions (NbS) initiatives and engaging with a variety of stakeholders to deliver lasting impacts. For example, through the Eddleston Water Project, this organisation has worked to restore natural landscapes, re-meander channels, create 30 new wetlands and plant over 300 000 trees in the area on 20 different farm units. During the process, the Tweed Forum collaborated with the Scottish Environment Protection Agency (SEPA) to engage with local stakeholders, including the community, business groups, landowners and farmers (Tweed Forum, 2020[20]; European Union, 2020[21]).
In addition to the Eddleston Water Project, the Tweed Forum is working with SEPA to help restore over five kilometres of Upper Nith (south-west Scotland) in order to reconnect the river with its floodplain and allow its natural features to be restored. In order to accomplish this, both the Tweed Forum and SEPA have worked with key landowners and the local community regarding the design of the project.
Source: Tweed Forum (n.d.[22]).
3.2.2. Policies and regulatory frameworks
Policies, strategies and plans
The United Kingdom has integrated and promoted NbS in its policy framework to reduce water‑related risks as a complement to grey infrastructure (Huq and Stubbings, 2015[23]). Back in 2004, Defra promoted the creation of wetlands and washlands to address water-related climate risks in its “Making Space for Water” strategy (Defra, 2004[24]). The independent “Pitt Review”, commissioned in the aftermath of major flood events in 2007, specifically recommended that Defra, the EA and Natural England develop catchment flood management plans and shoreline management plans, with a focus on NFM approaches (Box 3.3) (Ellis and Lundy, 2016[7]; Pitt, 2008[25]). The United Kingdom has promoted NbS in different sectors for flood protection, water quality management and climate change mitigation. Notably, Defra’s Flood and Coastal Erosion Risk Management: Policy Statement prioritises the use of NbS and provides high-level policy support in favour of these approaches (Defra, 2020[26]). Table 3.1 provides an overview of national strategies and legislation related to environmental issues that support NbS and specifically address flood and drought risks. It is worth noting that NbS are not just supported in policies related to the environment, but also in sectoral policies pertaining to agriculture and water.
Box 3.3. Managing flood risks with natural flood management measures
The United Kingdom has increasingly promoted the use of nature-based solutions (NbS), notably for managing flood risks through so-called natural flood management (NFM) measures. These measures, which are a type of NbS, aim to emulate, protect or restore natural functions to reduce flooding and coastal erosion. The concepts of NbS and NFM have been gaining prominence in policy, as reflected in recent policy documents, such as Defra’s Flood and Coastal Erosion Risk Management: Policy Statement, the National Flood and Coastal Erosion Risk Management Strategy for England, and the Natural England Action Plan.
Sources: Environment Agency (2017[27]; 2020[28]); Natural England (2020[29]).
The 25 Year Environment Plan, a key overarching policy document, focuses on restoring, maintaining and managing the natural capital assets to effectively reduce flood risk and coastal erosion in England. It also defines targets for water bodies to reach good environmental status and ensuring flow for ecological services (Defra, 2018[30]). The 2020 National Flood and Coastal Erosion Risk Management Strategy for England promotes measures such as sustainable drainage systems (SuDS)5, restoring functions of river and floodplains and creating wetlands; it specifically supports the use of NbS that take a catchment-based approach6 to manage both flood and drought risk. The National Planning Policy Framework calls for NFM techniques, specifically SuDS, to be considered by developers and local authorities during planning processes (MHCLG, 2019[17]; Environment Agency, 2020[28]). The 2020 National Framework for Water Resources makes clear that regional water resource management plans must consider wider resilience benefits. In this context, five regional groups were set up to develop regional plans for England (Environment Agency, 2020[31]).
Table 3.1. Selected bills and policies with relevance to nature-based solutions in the United Kingdom
Sources: Defra (2020[32]; 2020[33]; 2018[30]; 2018[34]; 2020[26]); MHCLG (2019[17]); Environment Agency (2020[28]); Ministry for Environment, Energy and Rural Affairs (2020[35]).
To demonstrate its commitment in pursuing the use of NbS, England set several targets it seeks to reach as part of its 25 Year Environment Plan. Although they were not always established with the purpose of managing water-related risks but rather for mitigating climate change, they can provide co‑benefits that contribute to the management of water-related risks. The targets include, for example, the restoration of 75% of 1 million hectares of terrestrial and freshwater protected sites or the increase of England’s woodland to a 12% cover by 2060 (Defra, 2018[30]; 2019[36]).
Legal and regulatory frameworks
The regulatory environment has a powerful influence on the opportunity and feasibility of using NbS. The revised National Policy Planning Framework, which sets out the government's planning policies and how these are expected to be applied, provides an important push in support of green infrastructure. It specifically encourages local authorities, which are in charge of developing local planning policies and of granting construction licences and permits through which they can promote the use of NbS, to maintain and enhance green infrastructure. It also specifically encourages developers to incorporate NFM techniques to address water-related risks in new housing and other developments when these approaches are appropriate (MHCLG, 2019[17]). Specifically on forest management, the United Kingdom defined requirements and guidelines for sustainable forest management in its UK Forestry Standard, which regulates forestry and includes specific requirements to avoid an increased risk of flooding. It also considers how a woodland creation project can contribute to flood risk management (Forestry Commission, 2020[37]).
There are challenges that remain due to the inherent (and perceived) complexity of legal processes and the variety of land- and resource-use regulations for implementing NbS. The United Kingdom relies on specific planning tools such as catchment flood plans, shoreline plans and water level plans, general land‑use planning and damage liability rules for managing flood risk. Case study interviewees flagged the difficulty of navigating the variety of local flood risk management strategies developed by lead local flood authorities. An additional issue concerns legal ownership and accountability. The lack of understanding regarding who is responsible for NbS projects over time proves to be an obstacle: landowners, and those leasing land, are often concerned over liability for potential maintenance, damage to land and a loss of control of their land. Therefore, it is important that risks and responsibilities are clearly identified and when appropriate, the government can step in to take on liability (Defra, 2020[14]). NbS are by nature often considered at a landscape or catchment scale and therefore involve a number of stakeholders and require significant multi-stakeholder collaboration.
These complexities stem from the need for NbS projects to reflect context specificities. In practice, this need translates into additional time, costs and resources to adequately prepare the assessments for implementing NbS projects. Local authorities rely on having the right information for their decision-making processes, particularly when assessments (e.g. environmental impact assessment or cost-benefit analysis of proposed flood risk reduction measures and financing options) are required (Defra and Environment Agency, 2014[38]). Defra underlines the uncertain costs and flood risk management benefits of NbS and the high modelling costs of these measures (Defra, 2020[14]). For example, large public investment infrastructure projects are appraised on the basis of cost-benefit analysis, which requires monetised data points. Difficult-to-monetise benefits – such as many of the co-benefits generated by NbS – may be under- or not valued at all (Defra, 2019[39]). While cost-benefit analysis can be difficult to undertake with NbS types of projects, several studies have attempted to quantify the benefits of NbS, some of which are highlighted in Box 3.4. Case study interviewees noted that this complexity can have high transaction costs, leading to grey infrastructure solutions being favoured due to the perceived “greater guarantee” of flood risk management benefits.
Box 3.4. Making the economic case for using nature-based solutions to address flood risk
A growing number of studies are making the economic case for incorporating nature-based solutions (NbS) to address flood risks in the United Kingdom. For example, London’s “urban forest” of over 8.5 million trees is estimated to provide approximately EUR 3 million worth of flood mitigation benefits annually. Similarly, a modelling study showed that the installation of NbS approaches along the River Deben (Suffolk) could save up to 31% annually in average damages to both farmland and properties. The Research Agency of the Forestry Commission estimated the value of the flood regulation service provided by forests in Great Britain to range between GPB 92.7 million per year for summer-type floods and GPB 344.2 million per year for winter-type floods. Nonetheless, many co-benefits such as in terms of human health and biodiversity remain difficult to quantify and are delivered over a long-term time frame, which makes it challenging to integrate into existing methods to assess, value or monitor projects.
Sources: Treeconomics (2015[40]); Environment Agency (2017[27]); Broadmeadow et al. (2018[41]).
3.2.3. Tools and technical capacity
A solid knowledge and information base on the types and uses of NbS helps raise awareness about NbS as an alternative to grey solutions. Significant efforts have been undertaken to improve the information base on NbS, as noted by the case study interviewees. To that end, Defra requires the NbS pilot projects it funds to produce monitoring information that can then be used to strengthen the evidence base and develop context-specific information (e.g. the degree to which NbS can increase aquifer recharge to address drought risks can vary).
A range of other tools and guidance work are available to practitioners to share best practice and support NbS project-level implementation (Table 3.2). For example, the United Kingdom’s experience with NbS has been recently summarised in the Evidence Directory, which draws together examples from over 60 successful NbS case studies to share good practices and lessons, as well as analysis of cost-benefit ratios, amongst flood risk management practitioners and other responsible bodies. This experience has helped to identify the current state of knowledge about the effectiveness of these measures (Environment Agency, 2017[42]).
Table 3.2. Guidance and toolboxes to support nature-based solutions practitioners
Sources: Environment Agency (2018[48]; 2016[46]); SEPA (2015[43]); Cbec (2017[44]); Cumbria Strategic Flood Partnership (2017[49]); CIRIA (2018[50]).
3.2.4. Funding and finance
While there is no comprehensive estimate of the level of public and private investment in NbS in the United Kingdom, case study interviewees find that it appears to be steadily increasing in line with policy priorities, remaining though at a much lower level than funding for grey infrastructure, which reaches several billions of euros.
Public funding is an important source of finance to kick-start and cover any risks that may arise from NbS projects. A number of public funding sources are available for NbS (Table 3.3). The United Kingdom’s 2020 Budget allocates EUR 710 million to the Nature for Climate Fund to support the creation, restoration and management of woodland and peatland habitats, plant more than 40 million trees ,and restore 35 000 hectares of peatland in England. EUR 33 million of it has been brought forward as part of the EUR 88 million Green Recovery Challenge Fund to make funds readily available. Projects funded in Round 1 will restore woodland, peatland and wetland habitats and plant over 800 000 trees by March 2022.
Defra provides the majority of its funding for flood and coastal erosion risk management projects, including for NbS, to the EA as grant-in-aid.7 The EA spends the funding directly on managing flood risk, but it also passes some of this funding on as capital grants for flood or coastal erosion defence improvements to local authorities or internal drainage boards. The rules defining the level of the grant payment were revised in 2020 to better reflect wider environmental benefits (Defra, 2019[39]; 2020[14]; Environment Agency, 2020[51]).
Public funding is sometimes channelled through or complemented by NGOs, philanthropies, communities or private companies (such as property developers or water companies), as it is acknowledged that multiple actors derive different benefits from an NbS and can potentially co-fund an NbS. The government encourages NGOs to implement NbS projects against flood risks through Defra’s NFM Programme that dedicates half of its funding to NGO-led projects. Since 2017, Defra has allocated over EUR 16 million to projects across England for natural flood defences. Over 50 individual projects, including for restoring floodplains and planting of trees, have been supported (Defra, 2017[10]). Many NbS projects benefit from grant funding and donations (e.g. EU funding,8 public grants or subsidies, philanthropic contributions, crowdfunding) to support efforts such as education, training, awareness raising, project support and monitoring. Box 3.5 shows that partners are joining forces to find innovative financing solutions for NbS.
In addition, the United Kingdom incentivises landowners, farmers and foresters to implement actions on private land (e.g. planting woodlands, hedge planting or floodplain restoration) that deliver environmental benefits such as improved water quality, climate change mitigation and flood management. These schemes, among others, include the Environmental Land Management9 and the Countryside Stewardship schemes (Defra and Natural England, 2019[52]; Defra, 2020[53]). Support to woodland creation has enhanced payment rates (e.g. the English Woodland Grant Scheme) or is targeted to priority catchments to deliver flood risk management benefits or to provide riparian shade to maintain lower water temperatures (e.g. the Countryside Stewardship).
Woodland creation projects that contribute to flood risk management can leverage government funding through the Woodland Carbon Code and the Woodland Carbon Guarantee, a government incentive. They mainly aim to further develop domestic carbon markets and are not explicitly aimed at flood risk management.10
As noted by case study interviewees, the availability of funding for monitoring and maintenance remains an issue for project implementation. This can lead to wariness amongst landholders, as they do not want to bind themselves to potentially costly long-term maintenance or unknown expenses in the case of an NbS project’s failure. Funders are concerned over uncertainty surrounding the duration of a scheme, maintenance obligations, the availability of future funding, possibilities to demonstrate the value and the effectiveness of NbS installed by third parties (Defra, 2020[14]). Monitoring is now a requirement for projects funded under Defra NFM Programme.
Table 3.3. Examples of public funding mechanisms and sources available for nature-based solutions in the United Kingdom
* Will be phased out and replaced by environmental land management schemes in 2024, which is designed to replace the EU’s Common Agricultural Policy.
Sources: HM Treasury (2020[54]); Defra (2020[14]; 2020[55]); EnTrade (2020[56]); Environment Agency (2020[57]).
Despite different public funding sources being available for NbS projects, practitioners often face difficulties in accessing funding (Defra, 2020[14]). Complex application processes requiring modelling and the production of evidence impede access to certain funding. Case study interviewees also raised the challenge that innovative funding mechanisms often have a higher perception of risk and uncertainty due to their newness, which can hinder their use.
Public sources have proven to be important in mobilising additional private sources of finance, as it is often difficult to secure private financing and move towards a loan-based model for NbS projects due to the lack of clear revenue stream. Defra and the EA recently set up the natural environment Investment Readiness Fund, which will commit up to EUR 10 million to help prepare projects that could be suitable for commercial investment. The aim is to broaden the funding base with private sector investment in natural environment projects by stimulating a pipeline of projects that can generate revenue from ecosystem services and attract repayable investment (Environment Agency, 2020[58]).
Box 3.5. Developing innovative financing solutions for investment in Greater Manchester
Greater Manchester is the first city-region in the United Kingdom to have successfully developed a Natural Capital Investment Plan. It aims to encourage investment in the natural environment, including nature-based solutions (NbS) such as wetland creations, sustainable draining schemes and peatland restoration, to secure financial and social returns and engage the local community. The plan identifies a pipeline of projects and potential investors.
One project that contributes to delivering this plan is the IGNITION project, which brings together 12 partners from local government, universities, non-governmental organisations and business to develop financing solutions and encourage investment in the city’s environment. Backed by EUR 4.5 million from the EU’s Urban Innovation Actions initiative, it is intended to be the first model that facilitates major investments in large-scale environmental projects. The UK Green Building Council, one of the project’s partners, mapped the benefits of NbS across its primary impact areas, to show how these approaches can benefit businesses.
Sources: eftec, Environmental Finance and Countryscape (2019[59]); Greater Manchester Combined Authority (2020[60]).
To attract private financing for NbS, Defra, the EA, the Esmée Fairbairn Foundation and Triodos Bank UK joined forces to provide seed grants to four NbS pilot projects,11 to be complemented by private funding. One of these projects, led by The Rivers Trust and United Utilities in partnership, aims to use NbS in the River Wyre catchment to reduce the frequency of flooding. To improve the business case, the private funds are to be reimbursed by the potential beneficiaries by the NbS project, which include a water company, the EA, local authorities, the insurance industry, locally based businesses and homeowners (The Flood Hub, n.d.[61]).
There are examples of fully privately funded NbS projects, indicating that a business can be made. For example, water companies (e.g. Scottish Water, Anglian Water, Severn Trent) financed the creation of wetlands to address water pollution (Trémolet et al., 2019[62]). While there are several examples of privately funded NbS for addressing water pollution, privately funded NbS for flood and drought risks remain scarce.
Some water companies in England and Wales are financing NbS out of tariff revenues. Ofwat, the national water industry regulator, agreed to include an outcome-based payment in its tariff-setting formula linked to its environmental performance and specifically authorised these companies to use their revenues for such purposes. Severn Trent, for instance, invested its own resources gathered from water tariffs and mobilised matching funding from other sources, including European grant programmes (e.g. LIFE), public subsidies from the EA and farmers (Trémolet et al., 2019[62]).
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Annex 3.A. List of stakeholders interviewed
The OECD undertook interviews with representatives from the following institutions in September 2020.
Table 3.A.1. Name of institutions
The representatives interviewed were: Daniel Barwick, Giles Bloomfield, Mark Broadmeadow, Lydia Burgess-Gamble, Luke Comins, Jason Emrich, Heather Forbes, Bethany Green, Jon Hollis, Ashley Holt, James Knightbridge, Russ Money, Matthew Philpot, Dan Turner, Orlando Venn and Emma Wren.
Notes
← 1. For the purpose of this study, the term NbS encompasses a range of ecosystem-based management approaches such as ecosystem-based adaptation, ecosystem-based disaster risk reduction and green infrastructure. Water-related climate risks are scoped as flooding, which includes coastal, riverine and urban floods, as well as associated hazards caused by too much water, such as landslides; as well as drought.
← 2. A catchment-based approach is defined as being a collaborative approach at the river catchment scale that brings together a range of local partners to deliver environmental improvements (WWT, 2018[63]).
← 3. Countryside Stewardship is an agri-environment payment that provides financial incentives for farmers, woodland owners, foresters and land managers to look after and improve the environment. Although the scheme is not directly related to flooding, it promotes measures that are similar to those considered for NFM (see: https://www.gov.uk/government/collections/countryside-stewardship).
← 4. When Natural Resources Wales took over responsibility for forestry in Wales in 2013, it brought together the work of the Countryside Council for Wales, Forestry Commission Wales and the Environment Agency in Wales, as well as some Welsh government functions.
← 5. Sustainable urban drainage systems are defined as being systems that provide an alternative or complement to traditional drainage systems by efficiently managing the drainage of surface water in urban areas. Examples include permeable surfaces and green roofs (Poleto and Tassi, 2012[64]).
← 6. A catchment-based approach is defined as being a collaborative approach at the river catchment scale that brings together a range of local partners to deliver environmental improvements (WWT, 2018[63]).
← 7. Defra allocates central funding to flood and coastal erosion risk management projects through partnership funding which aims to share the costs between national and local sources of funding. This approach allows any worthwhile project (where benefits are greater than costs) to qualify for government money, known as grant-in-aid (Environment Agency, 2020[51]).
← 8. Although the United Kingdom has left the European Union, EU funding that has already been awarded continues to be provided.
← 9. This scheme is proposed under the Agricultural Act.
← 10. https://www.woodlandcarboncode.org.uk and https://www.gov.uk/guidance/woodland-carbon-guarantee.
← 11. Devon Wildlife Trust’s restoration of the Caen wetlands; the Rivers Trust’s work on natural flood management in the Wyre catchment in Lancashire; the National Farmers Union’s work to reduce nitrate pollution in Poole Harbour; Moors for the Future Partnership’s restoration and conservation of peatlands in the Pennines.