Scaling Nature Markets: The Critical Importance Of The BNG Rule

Scaling Nature Markets: The Critical Importance Of The BNG Rule

As biodiversity loss accelerates, governments around the world are turning to private finance as a critical tool to help restore nature, reduce environmental impact and close the $942 billion global shortfall in nature funding. In February 2024, the UK introduced a Biodiversity Net Gain (BNG) requirement, which has been hailed as one of the most wide-ranging mandatory markets for biodiversity credits. The policy will be critical to the government’s objective of raising £500 million annually in private finance for nature restoration by 2027. As the BNG regulation passes its first year in effect, how effective has it been at establishing a nature market?

The BNG rule requires developers to demonstrate at least a 10% net gain in biodiversity for all new residential, industrial or commercial construction projects to secure planning approval. Biodiversity gain can be achieved through on-site or off-site improvements, or through purchasing biodiversity credits from the government.

Although it’s too early to measure the long-term effectiveness of a rule that involves 30-year time horizons, initial indicators are encouraging. As of November 2024, 19 sites totalling over 500 hectares had been registered on the government’s biodiversity gain site register. There is no public information on off-site biodiversity unit transactions, but the Environment Bank – a provider of biodiversity units – reported sales to 100 customers in 2024, and inquiries valued at £210 million in January 2025.

The UK’s BNG policy could provide a useful blueprint for other nations, but to be successful it must overcome key usability challenges:

• Regulatory complexity.
  Quantifying biodiversity gain and demonstrating a 10% increase is challenging and resource-intensive.
  
  
• Capacity constraints.
  Local Planning Authorities (LPAs), which oversee BNG compliance, often lack capacity to process and audit applications. The Chartered Institute of Ecology and Environmental Management has also identified a skills shortage in the Ecology sector.
  
  
• Market access.
  The lack of a centralized trading platform to connect biodiversity unit buyers and sellers is creating a bottleneck, stalling market scalability.
  
  
• Investment risk.
  While BNG presents an income opportunity for land managers, it also requires significant upfront investment with returns spread over many years, potentially deterring participation.
  
  

Many of these challenges are likely to ease as the regulation matures. The government also has a key role to play in issuing guidance and providing information about trading platforms for biodiversity units. Going forward, technology will play an increasingly important role in helping to establish nature baselines, quantify net gain and monitor habitat change. There is an emerging market for nature data and analytics providers that offer high resolution geospatial data for conducting time-series analysis and AI capabilities for data interrogation, making biodiversity analysis accessible to non-experts — which is vital in a market where skills are in short supply.

Currently, most financing for nature comes from the public purse. Policies such as the BNG rule will be critical to mobilize private capital and scale nature markets, ultimately ensuring progress towards global biodiversity targets.

If you are interested in understanding more about ESG and sustainability regulations in the UK or the nature and biodiversity software landscape, please read:

Verdantix Market Insight: Nature Data And Analytics Emerge To Support Disclosures

Verdantix Strategic Focus: Navigating Nature-Related Risks

Verdantix Strategic Focus: Understanding ESG And Sustainability Regulations in The UK