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Our views 13 February 2024

Responsible Investment Research: Biodiversity Net Gain

8 min read

In recent years, the commercial real estate sector has been facing an expanding landscape of environmental regulatory requirements, with a growing focus on biodiversity.

Given a greater awareness of the risks of built spaces to nature, and a growing consumer demand for greener buildings with leading environmental credentials, the key implications of this shift may be an increasing linkage of property values and income streams to these environmental credentials, thus potentially creating a performance gap between landlords with leading practices and those who are lagging.

Main causes of biodiversity loss

One of the most important causes of habitat destruction is housing growth[1]. While the UK has yet to fully meet its ambitious commitment to building 300,000 homes per year by the mid-2020s[2], such priorities may have a profound impact on both biodiversity loss and increased carbon emissions, particularly in light of studies showing that one in six species are now at risk of going extinct in Britain[3].


Across the UK species studied have declined on average by 19% since 1970.


Nearly one in six species are threatened with extinction from Great Britain.


of 10,008 species assessed have already become extinct since 1500.

Source: State of Nature. 2023. “State of Nature Report 2023.”

New environmental regulation – Biodiversity Net Gain

The UK Government has introduced pioneering Biodiversity Net Gain (BNG) legislation in England in February 2024 to combat significant nature loss. BNG is an approach to development and land management that aims to leave the natural environment in a measurably better state than it was beforehand. The law will mandate a minimum of 10% BNG for most future developments, secured for at least 30-years. The net gain can be achievable on-site, or off-site on nearby owned land, through the purchasing of off-site biodiversity units traded on the market or, as a last resort, through the Government’s statutory credits scheme.

Measuring biodiversity units of a site will depend on factors such as the types of habitats on site and their distinctive features (‘distinctiveness’), their ecological condition, the size of the site and its location.

BNG hopes to:

  • Address the direct effects of infrastructure on biodiversity and carbon emissions, and
  • Align with the UK's ambitious housing goals amidst its current status as one of the most nature-depleted countries.

This regulatory change could directly impact the companies we invest in, so it is essential to ensure they are prepared for the environmental and financial risks associated with BNG and to inform the market of BNG best practice. 

Three key questions

Three key questions capture the starting point for our research:

  1. How can responsible investors assess how prepared companies are for England's BNG implementation?
  2. How can we encourage a more ambitious approach among companies?
  3. What are the limitations of England’s BNG regulation in the broader context of ecological compensation and environmental goals? 

Selecting and engaging portfolio companies 

Our engagement aimed to understand diverse company approaches and disclosures for our largest affected holdings. We therefore identified eight companies for initial engagement, primarily operating in London and urban brownfield sites, with two focusing on greenfield areas. We covered governance, on-site and off-site BNG strategies, monitoring, risk mitigation, and the interplay between nature, climate, and people. In-house research and discussions with company representatives informed our next steps in establishing best practice. 

Initial review of the proposed legislation

  • On-site gains may not be as well-regulated as off-site BNG markets and are therefore at risk of governance gaps[4];
  • Small-scale initiatives may result in habitat fragmentation (a lot of patches of nature instead of larger connected areas, which are better for biodiversity)[5];
  • Habitats more difficult to restore (e.g. wetlands) are (rightly) disincentivised for development locations, but this may lead to the same kinds of ‘easy’ habitats being restored (e.g. neutral grassland), leading to excessive homogenisation[6].
  • Industry-wide issues around potential ecological skillset scarcity in landscape management

Main findings and establishing best practice

Effective BNG governance

Best practice includes integrating responsibility and accountability for biodiversity across a company’s organisational structure. This includes defining clear roles for BNG delivery and oversight, aligning company culture with strategic biodiversity goals, ensuring robust internal integration of biodiversity expertise, or employing specialised consultants for effective BNG management. 

  • All eight companies we spoke to employed external biodiversity consultants for BNG strategy and broadly had similar governance structures, with heads of sustainability reporting to their board on a range of ESG issues, including biodiversity.

On-site BNG and monitoring

Best practice includes having an adaptive management plan, securing ring-fenced funding for habitat management, and employing landscape management teams with ecological training. We would expect these to be essential to a sustainable on-site BNG approach. Also, given the challenges in potential habitat homogenisation and fragmentation, thoughtful restoration by creating both connected and diverse habitats in urban and rural areas is paramount. Examples of on-site interventions include living roofs, bird and bat boxes, green walls and biodiverse landscaping.

Most developers prefer the direct, on-site BNG, finding the 10% gain target generally achievable, especially on brownfield urban sites. And most companies have adopted more ambitious commitments around biodiversity in some way.

  • Grosvenor led the way with regards to on-site governance gap risks, generally adopting best practice. Its publicly available BNG monitoring and management guidelines also stood out against peers.
  • Barratt, while acknowledging the industry-wide issues around landscape management, is involved in the creation of a future working group aiming to improve the ecological standards of landscape management companies.

Off-site BNG offsetting and monitoring

The purchasing of off-site units is more robustly governed but can offer less local and direct impact. While this practice transfers liability, reducing the on-site risks, they can also be more expensive. We believe that the Business and Biodiversity Offsets Programme Principles (BBOPP) encourage best practice for responsible, verifiable biodiversity contributions.

  • Peel L&P were the only company we spoke to currently planning to establish a biodiversity bank to sell credits to the broader market. They were clear in acknowledging the BBOPP.

Interactions between people, nature, and climate

Large developers understand the interplay between people, nature, and climate, but implementation varies. They also face the need to minimise supply chain impacts.

Best practice includes integrating BNG with environmental strategies, transparently reporting supply chain and landscape management actions, and considering climate resilience and community needs.

  • Some developers such as Grosvenor are looking at tools to assess biodiversity impacts in their supply chain. 


England's BNG regulation marks a significant step towards achieving the UK's nature recovery goals. Through this project, our bespoke assessment approach has enabled us to compare the practices of a range of developers and housebuilders.

Our research highlights the complexity of biodiversity and ecological compensation, offering best practice insights and identifying implementation gaps at the company level and potential risks to investors.

This engagement reveals a generally good awareness of social and climate issues but has highlighted the need for robust, long-term BNG strategies that are science-based, transparent, and sensitive to both people and climate.

Key areas for improvement include adaptive management plans, ring-fenced funding, and landscape management teams with ecological training.  

[1] MAHB. 2019. “Housing growth threatens biodiversity – are we ignoring fundamental causes?”
[2] UK Government. 2018. “Government Announces New Housing Measures.” Accessed November 1, 2023.
[3] State of Nature. 2023. “State of Nature Report 2023.”
[4] Rampling, Emily E., Sophus O. S. E. zu Ermgassen, Isobel Hawkins, and Joseph W. Bull. 2023. “Achieving biodiversity net gain by addressing governance gaps underpinning ecological compensation policies.” Conservation Biology, 00, 00–00.
[5] Ibid.
[6] Ibid.


This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.