Ruth Bookbinder, Julia Martin-Ortega, Joshua Cohen – University of Leeds
Aims and approach
This report marks an initial step in our efforts to understand how risks in nature commodification are captured in green finance policy in the UK. It presents an analysis based on 19 policy and advisory documents identified from a public presentation of a representative of the Green Finance Team of the Department of Environment, Food and Rural Affairs (Defra), and a search of additional government documents and documents from government-backed organisations – including documents from government departments, and those from government-backed organisations such as the Transition Plan Taskforce1, the Green Finance Institute2 and the Green Technical Advisory Group3 (see Table 1), covering the period October 2021 – July 2024. The documents provide a foundation for understanding how green finance is framed in UK government policy and what is – and critically – is not included.
Table 1: Documents analysed
| Title | Publishing body | Date |
| The Finance Gap for UK Nature | Green Finance Institute (GFI) | October 2021 |
| Mobilising Green Investment: 2023 Green Finance Strategy | UK government – multiagency | March 2023 |
| Environmental Improvement Plan 2023 | Department for Environment, Food and Rural Affairs (DEFRA) | January 2023 |
| England Trees Action Plan 2021-2024 | DEFRA | May 2021 |
| England Peat Action Plan | DEFRA | May 2021 |
| Nature Markets: A framework for scaling up private investment in nature recovery and sustainable farming | DEFRA | March 2023 |
| Our role in Natural Capital Markets | UK Infrastructure Bank | November 2022 |
| Greening Finance: A Roadmap to Sustainable Investing | HM Treasury | October 2021 |
| Transition Plan Taskforce Disclosure Framework | Transition Plan Taskforce | October 2023 |
| Promoting the international interoperability of a UK Green Taxonomy | GTAG – GFI | February 2023 |
| Advice on the development of a UK Green Taxonomy | GTAG – GFI | October 2022 |
| Streamlining and increasing the usability of the DNSH within the UK Green Taxonomy | GTAG – GFI | August 2023 |
| Applying the UK Green Taxonomy to wider policies: the value case and options | GTAG – GFI | August 2023 |
| Getting the KPIs Right: Implementing an effective reporting regime for the UK Green Taxonomy | GTAG – GFI | August 2023 |
| Developing a UK taxonomy adapted to the UK’s needs in the short and medium term: Scope, coverage and reporting considerations | GTAG – GFI | August 2023 |
| Operational considerations for taxonomy reporting: assessing and dealing with data gaps and the use of proxies | GTAG – GFI | September 2023 |
| Treatment of green financial products under an evolving UK Green Taxonomy | GTAG – GFI | September 2023 |
| Creating an institutional home for the UK Green Taxonomy: exploring options | GTAG – GFI | September 2023 |
| A high-integrity standards framework for UK nature markets | BSI | July 2023 |
To develop our coding framework and explore whether and to what extent green finance policy addresses risk we drew on literature reviews of green finance and the commodification of nature. For instance, Kirkup (2022) has identified the following themes in scholarship of risks linked to nature commodification: (1) ethical and cultural considerations; (2) impact on environmental outcomes; and (3) negative influence on power relations. We incorporated these themes into our coding framework including a node for financial risk, which we hypothesised would be the primary risk addressed due to the focus on attracting private investment. We also included a ‘rationale’ node to capture background information and drivers for these policies (see below). One author undertook the initial coding while the other authors reviewed progress.
We were generous in our coding of risk, providing space for discussion and interpretation, and some risks were coded under two nodes to avoid being too prescriptive in our identification of risks. ‘Greenwashing’ was challenging to code, as policy documents tended not to clearly define the term, and it could refer to ‘ethical and cultural impact’ or ‘negative impact on power relations’ due to issues of opaque decision-making, ‘impact on environmental outcomes’ from misrepresenting benefits or failing to capture harm, or financial risk if it was discussed in the context undermining investor confidence. We therefore based our coding of ‘greenwashing’ on the context of how it was discussed (see Findings).
Findings
Financial risks and commodifying nature
Our analysis indicated that policy documents tended to overlook or underplay the potential risks of commodifying nature. Moreover, where the documents did raise risks there mostly in the financial category (see Table 2). For instance, we only coded for one mention of financial risks in the Environmental Improvement Plan – the most substantive cross sector policy document we reviewed – which referred to the government’s aim to reduce ‘risk and uncertainty around the financial returns…for investors and providers’. Not including the Environmental Improvement Plan, nine other documents referenced the risk of maintaining consumer confidence and the clarity or consistency of the operating environment. Documents also highlighted the risk that current standards would not fully capture fund activities. In one illustrative example:
Context: An asset manager determining taxonomy alignment.
Situation: The investor had invertors that go into solar panels to improve efficiency as an investment in their portfolio. While this may be considered a clearly green activity, it is not currently recognised in the taxonomy given it does not align to NACE codes at present.
Impact: The investor did not feel their taxonomy alignment fully reflected how sustainable their investments were. They also expressed how the lack of inclusion of such activities impedes the direction of capital towards the best green initiatives.
In other words, there was the concern that the taxonomy would capture the range of a fund’s activity, not that negative consequences may emerge from dependence on private financing. The documents that discuss the rationale for green finance frame private financing as essential to make up for shortfalls in public funding. They also underline the economic benefits from commodifying nature, describing the peat lands as ‘very high value for money’. For instance, in the Peat Action Plan:
While peatland restoration can be expensive, the economic benefits exceed the costs. The Office for National Statistics recently estimated that the cost of restoring all UK peatlands to near natural condition would be between £8.4 to £21.3 billion, but restoring all of the UK’s peat would deliver carbon benefits alone of £109 billion and would outweigh the costs of doing so by an estimated 5 to 10 times.14 This classifies peatland restoration as “Very High” value for money.
This commodification of nature is mirrored in the discussion paper on natural capital, which notes:
Our natural capital is a form of infrastructure, comparable to engineered solutions to problems such as flood risk and greenhouse gas removals. Often underpinning economic growth, it can protect other infrastructure assets, and deliver wider co-benefits, such as jobs.
We did code some instances where the rationale for these policies included reducing carbon emissions, improving biodiversity or increasing green spaces. However, even these benefits were often paired with economic benefits; expanding woodland could create ‘thousands of new jobs’, while bees and pollinators ‘contribute the equivalent of more than £500 million a year to UK agriculture and food production’. While nature can contribute to economic growth, this framing of natural capital contributes to a narrow conceptualisation of risk and fails to capture the wider benefits of nature and the environment.
Table 2: Coding results
| Document | Rationale | Financial | Ethical and Cultural Impacts | Impact on environmental outcomes | Negative Influence on Power Relations |
| England Peat Action Plan | 7 | 1 | 0 | 0 | 0 |
| England Trees Action Plan 2021-2024 | 3 | 0 | 0 | 0 | 0 |
| 2023 Environmental Improvement Plan | 28 | 1 | 0 | 0 | 0 |
| Promoting the international interoperability of a UK Green Taxonomy | 0 | 0 | 0 | 0 | 0 |
| Greening Finance: A Roadmap to Sustainable Investing | 0 | 2 | 3 | 1 | 0 |
| Advice on the development of a UK Green Taxonomy | 0 | 1 | 0 | 2 | 0 |
| Streamlining and increasing the usability of the DNSH within the UK Green Taxonomy | 0 | 4 | 4 | 2 | 0 |
| Final Report on Extended taxonomy | 0 | 1 | 0 | 0 | 0 |
| Creating an institutional home for the UK Green Taxonomy: exploring options | 1 | 0 | 0 | 0 | 1 |
| Operational considerations for taxonomy reporting: assessing and dealing with data gaps and the use of proxies | 1 | 1 | 0 | 0 | 0 |
| Applying the UK Green Taxonomy to wider policies: the value case and options | 0 | 0 | 0 | 0 | 0 |
| Treatment of green financial products under an evolving UK Green Taxonomy | 0 | 3 | 0 | 0 | 0 |
| Getting the KPIs Right: Implementing an effective reporting regime for the UK Green Taxonomy | 0 | 3 | 0 | 0 | 0 |
| 2023 Green Finance Strategy | 5 | 4 | 0 | 2 | 1 |
| Our role in Natural Capital Markets | 1 | 2 | 1 | 0 | 0 |
| Nature Markets: A framework for scaling up private investment in nature recovery and sustainable farming | 5 | 1 | 3 | 2 | 0 |
| The Finance Gap for UK Nature | 8 | 3 | 2 | 4 | 0 |
| TPT Disclosure Framework 2023 | 2 | 0 | 1 | 3 | 0 |
| A high-integrity standards framework for UK nature markets | 5 | 8 | 1 | 1 | 0 |
Greenwashing and moving beyond financial risks?
The limited understanding of risk is evident in the use of ‘greenwashing’ to capture a wide range of issues. For instance, in the document where we identified the most risks, Streamlining and increasing the useability of the DNSH4 within the UK Green Taxonomy, ‘impact on environmental impact’ was largely concerned with greenwashing through difficulties in measurement, which will ‘reduce confidence in the reported information’. Similarly, in Green Finance: a roadmap to sustainable investing:
There lack of common definitions makes it difficult for companies and investors to clearly understand the environmental impact of their decisions and can lead to consumer harms like greenwashing.
And in Nature Markets: a framework for scaling up private investment in nature recovery and sustainable farming:
Integrity is the bedrock of nature markets. It means that credits awarded and sold for benefits such as biodiversity, carbon capture or water quality must reflect genuine, lasing and additional environmental improvements, which are robustly verified and transparently documented, with no double counting or room for misleading claims or greenwash.
We coded these examples impact on environmental outcomes due to the implicit risk that poor measurement of investment will fail to capture the actual environmental impact of activities. Indeed, the The Finance Gap for UK Nature notes that it is unclear what proportion of increasing woodland will be covered by native and non-native plants. If the latter, it is probable goals to preserve and increase native biodiversity will not be met. In addition, the TPT Disclosure Framework notes how ‘a strategy focused entirely on net zero target setting could incentivise entities to pursue a strategy of ‘paper decarbonisation’ – that is greening the entity’s own balance sheet in a way that may not necessarily contribute to greening the economy’. The document also cited the risk that:
[W]here entities do not consider their place in the wider system, their transition plans could lead to maladaptation and could increase, rather than reduce the vulnerability to climate change. For example, a company may decide to situate an electrolysis plant for the creation of hydrogen in a water-sensitive location, increasing the wider vulnerability of society and stakeholders to drought.
These examples demonstrate an awareness of potential drawbacks of commodifying nature; although the framing remains overwhelmingly commercial and centres the potential challenges for consumers and investors. Two documents refer to greenwashing as a ‘consumer harm’ (citation) that will hamper investor confidence. For instance, the 2023 Green Finance Strategy outlines the importance of ‘streamlined disclosure framework’:
The [disclosure] framework brings together new and existing sustainability reporting requirements for business, the financial sector and investment products. This will enable participants to identify investment opportunities, ensuring that sustainability claims stand up to scrutiny and protect against consumer harms such as ‘greenwashing’
Greening Finance: a roadmap to sustainable notes that ‘greenwashing’ risks ‘limiting the flow of capital into sustainable investments and ultimately slowing the UK’s progress to tackle climate change and other environmental challenges’. Thereby the linking investor confidence as an essential part of successful policy to tackle climate change.
Concern over consumer ‘harm’ also links greenwashing to ethical and cultural impacts, with the GTAG noting ‘increased concerned over greenwashing and reported information’ and the Greening Finance document noting the importance of better information to ‘increase trust and combat greenwashing’. However, some documents pointed to wider social risks of green finance policy. Nature markets: a framework reports, ‘we have listened to concerns from environmental experts, the farming sector, politicians, investors and communities that poorly designed nature markets can result in greenwash and/or harm local communities’. There is consequently a need to ‘ensure that markets operate with integrity and avoid adverse effects’. Meanwhile the Our role in Natural Capital Markets discussion paper includes the most detailed description of ethical and cultural risks associated with nature markets. This discussion relates to demand for woodland for carbon credits raising the risk of conflict between communities and project developers due to higher property prices and shifting land-use plans. There are additional concerns for farmers due to ‘rapid shifts in agricultural policy…from food production to environmental improvement’. However, ‘confidence in natural capital markets…to generate value for [stakeholders] fairly’ listed as a solution to these challenges, underscoring the limits to critically evaluating the outcomes of commodifying nature.
Negative impact on power relations
Finally, we did code a handful of references relating to the ‘negative impact on power relations’, but these were also mostly related to regulating the market. In outlining different approaches to government, the GTAG highlighted potential issues of oversight and scrutiny responsibility for decision-making shifted to a fully independent body. The need to ‘control’ the development of natural capital markets is also presented in the Green Finance Strategy, which underlines the need to ensure that the ‘ESG agenda is not side-tracked by political activism or political agendas’, and maintain the UK’s ‘national interests’. It is important to note that while parliamentary committees have addressed this question of market regulation and government leadership, committee reports hear evidence from a range of stakeholders, and this engagement is not present in the policy and advisory documents we analysed.
Acknowledgements: This work was funded by the EU project WaterLANDS: Water-based solutions for carbon storage, people and wilderness (Horizon 2020 research and innovation programme; Grant Agreement No. 101036484). This piece reflects only the authors’ views and the European Commission cannot be held responsible for any use that may be made of the information contained therein.
Please cite as: Bookbinder, Martin-Ortega and Cohen (2024). Risks of nature commodification in the UK’s Green Finance Strategy: a document analysis. Water-based solutions for carbon storage, people and wilderness (WATERLANDS) Report.