The new Biodiversity Net Gain Regulations: risks and rewards

This article was co-authored by Imogen Severs, Trainee Solicitor.

The Environment Act 2021 provides the UK’s framework for environmental protection. It focuses on recovering four priority areas: air quality, biodiversity, water, and waste.

The Biodiversity Net Gain (BNG) Regulations, forming part of the Environment Act, came into force in February of this year. The Regulations aim to ensure wildlife habitats are left in a net ‘better’ state than before any development or construction works take place.

From 12 February 2024, it became mandatory for all major developments requiring planning permission to demonstrate a BNG of 10%, meaning the biodiversity value of the land must increase by 10% following development. Developers of smaller sites will be subject to the same rules from 2 April 2024.

Biodiversity value is measured in standardised biodiversity units, their value varying depending on factors such as habitat size, quality, location, and type. An official statutory metric must be used to determine how many units a habitat contains before development, and how many are needed to replace the units of habitat to achieve 10% BNG.

Developers can achieve BNG either fully or in part through on-site habitat, off-site habitat, or through the purchase of statutory biodiversity credits. Critically, the net gain must be maintained for 30 years after completion. Landowners and developers must enter into mandatory legal agreements with the local planning authority (LPA) or responsible body if they are producing significant on-site gains or buying/selling off-site gains. Once the land is legally secured, it can be registered as a biodiversity gain site.

Habitat Banks

Developers are encouraged to deliver BNG on site wherever possible. Where this is not achievable, developers can buy off-site biodiversity units delivered within the same local authority. This process is known as biodiversity offsetting.

Selling on the BNG market provides an exciting new opportunity and source of revenue for landowners. Where a landowner chooses to invest in delivering BNG on-site to sell on the market, this is referred to as a habitat bank. In 2022, biodiversity units sold for £25,000-£50,000, with the market expected to be worth £135m - £274m annually.

The BNG market is still in its nascent phase and it is important that landowners of habitat banks comply with the new regulations by following the correct government procedures.

New risks and considerations

The Regulations provide an exciting opportunity for those in the construction industry to both invest in BNG and make developments more attractive for the community. However, with new opportunity brings numerous risks such as increased costs to projects, the need for specific expertise and resources, and potential constraints on land availability.

In order to mitigate risks, developers must factor in all BNG requirements into the scope of a project at the outset. This may involve appointing an ecologist to measure biodiversity value and advise on suitable habitat creation or enhancement if delivering on-site BNG. Ecologists or landscape architects may be required to design green initiatives, supervise contractors on-site, as well as consider how to obtain the most appropriate materials, and at what cost.

When applying for planning permission, developers will need to provide information demonstrating their intentions to meet the BNG objective. Investing into Habitat Management and Monitoring Plans should assist in eliminating delays in projects and ensure disruption to wildlife is minimised.

Developers should consider legal advice where agreements are required to deliver on-site BNG. The terms of the legal agreement should set out who is responsible for creating, enhancing, monitoring and reporting on BNG.

It remains the landowner’s responsibility to maintain the BNG for 30 years, even if they sell the biodiversity units. The cost of each unit should therefore take into account the costs of ecologists, insurance and legal administration.

BNG related claims

Compliance with the Regulations will need to be considered by underwriters and claims handlers, not only in relation to the scope of the risk being underwritten but also when considering the possible ramifications for failure to comply with policy terms (in terms of both cost and time) when it comes to rectification works. It remains to be seen whether underwriters could, in time, offer premium or excess adjustments to incentivise insureds to maximise their BNG.

From a claims perspective, insurers might expect to see a rise in disputes over the responsibility for the designs of biodiverse developments, which could involve contractors, ecologists and/or landscape architects. Consideration will also need to be given as to whether the biodiversity landscape is insured as part of any contract works. This may depend on how biodiverse landscapes are integrated into the fabric of the works, and whether developers select on-site or off-site BNG methods.

Comment

Overall, there is currently a gap in the market for insurance products specially designed to cover claims relating to the new BNG Regulations. There is also an opportunity for innovative insurers to address the new issues faced by developers and companies investing in habitat banks. A significant point to consider is how insurance cover will extend for the 30 year maintenance period of any biodiversity sites.

We have partnered with environmental consultancy BrightTide to deliver a Regenerative Farming Accelerator. Bringing together land and ocean farming practices as well as other businesses in the farming sector, the ground-breaking global programme aims to support businesses generally by addressing biodiversity loss and climate risks such as BNG related claims.

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