2023 Call for Evidence on Natural Capital Financial Regulation in the UK

September 2023 | Call for Evidence on Natural Capital Financial Regulation in the UK | Questions 5 & 6 pdf  

Written evidence on Question 5 of the Terms of Reference

How can the proposed UK Green Taxonomy support high-quality investments which deliver genuine benefits to nature? What financial disclosures should the taxonomy require?

Recommendation 1: Generally, require a minimum percentage of investment into sustainable nature-related economic activities to avert the risk of non-investment.

  1. An average of USD 3.5 trillion of annual capital investment is required until 2050 to build a global net-zero economy,[1] and a total of USD 8.1 trillion investment in nature is required between now and 2050 in order to successfully tackle the interlinked climate, biodiversity, and land degradation crises.[2] As they currently stand, the Sustainable Disclosure Rule and the Green Taxonomy simply create an incentive to be transparent through proper labeling of investment products. Alone, transparency will not ensure that capital will flow towards preservation of natural capital.
  2. In order to encourage high-quality investments that deliver genuine benefits to nature, we recommend that the Committee amend existing regulations to require a minimum percentage of investment into sustainable economic activities for any financial product that does not qualify for the “Sustainable Focus”, “Sustainable Improvers”, or “Sustainable Impact” labels. This would ensure flow of investments into preserving and reviving natural capital and ultimately, ensure enough financing for the most important obstacle facing our global financial markets.

Recommendation 2: Require disclosure of Board competence on nature-related financial risks and opportunities.

  1. The UK government’s commitment to the development and implementation of the Taskforce on Nature-related Financial Disclosure framework (TNFD) is commendable. However, as it currently stands, the TNFD does not require disclosure of Board competence on nature-related risks and opportunities. The lack of competent directors is a serious problem we see everyday. Majority of Boards are barely able to keep up with the risks inherent in cybersecurity and privacy, and are struggling to become competent on climate change risks. However, nature-related financial risks and opportunities are missing from most board training and executive education courses.
  2. The Committee should consider requiring disclosure of board competence on nature-related financial risks and opportunities. By doing so, directors will be encouraged and sometimes required by investors to become competent on these issues. There may also be a surge in demand for research and content around such issues which may ultimately result in a more potent awareness of the issues facing our collective economy. Without such a mandatory requirement, capital may flow to companies dedicated to innovating in the natural capital space but may be poorly guided or, worse, at risk for not having a Board that can competently advise management.

Recommendation 3: Require disclosure of nature-related risks and opportunities for private investors with assets of more than £1 billion.

  1. In 2022 alone, £27.5bn was invested in UK companies by private capital firms. As a sizable portion of the capital market, larger firms may unintentionally or intentionally undo the natural capital conservation efforts of public capital markets. To encourage harmonization, large private capital firms should be required to disclose the nature-related risks and opportunities of their portfolios.


Recommendation 4: Require disclosure of the financial cost and benefits of sustainability and natural capital conservation efforts.

  1. While recognizing an intermediate level for transition activities and moving away from the EU’s binary approach could help better flow of investment, companies should be guided to align and better communicate their business models for profitability. In this regard, it is recommended that the UK government, under its disclosure regulations, consider requiring organizations to disclose how its sustainability and natural capital conservation efforts enhance or factor into their business strategy and pathway to profitability by requiring financial measurements of such investments, including projected costs and benefits. Such financial disclosures should be validated by an independent auditor. In this way, business models that genuinely stand to benefit natural capital do in fact attract the investment they deserve; and in doing so, such disclosure may enhance the confidence of green investors.

[1]Financing the Transition. Energy Transitions Commission. Link.

[2]State of Finance for Nature 202. UNEP, WEF, ELD, Vivid Economics. Link.


Written evidence on Question 6 of the Terms of Reference

How can the operation of natural capital markets ensure genuine net gains for nature? How do such markets address the risk of ‘greenwashing’ of investments and the offsetting of natural recovery in the UK against environmental degradation elsewhere? 

Recommendation 1: It is recommended to adopt a clear and comprehensive definition of greenwashing.

  1. A common understanding of “greenwashing” is key to ensure the integrity of natural capital investments and genuine net gains for nature. The expanded greenwashing definition should include the following features.
  • Addressing the multifaceted nature of greenwashing and “greenhushing” by covering any sustainability-related communications, practices, statements, engagements, and (financial) products and services.
  • When they do not clearly or fairly reflect the underlying sustainability profile (i.e. ethical, environmentally friendly, supporting nature recovery, sustainable…) of an entity, investment, (financial) product, or service.
  • This threshold should be considered very likely to be reached when ESG-friendly claims are misleading, are not backed up by recognized third-party certification or evidence, or when unfavorable information is not made transparent.
  • The definition should include intentional or unintentional misrepresentation, misstatements, omissions, non-disclosure and false or misleading practices to consumers, investors, or other market participants and must not require that they are actually harmed.


Recommendation 2: UK greenwashing rules and standards should be extended as much as possible to extraterritorial projects as well as financial and other products and services from foreign businesses present in the UK or marketed to UK market participants.

  1. In order to address risks of offsetting natural recovery in the UK with environmental degradation elsewhere, UK greenwashing rules and standards should be extended as much as possible to extraterritorial projects involving UK-based companies and their subsidiaries, subcontractors and suppliers, as well as financial and other products and services from foreign businesses present in the UK or aimed at UK consumers, investors or other market participants.


Recommendation 3: Offsetting which relies on compensating biodiversity losses through activities elsewhere should not be permitted or should be considered as a measure of last resort, with no possibility to claim neutralization of loss.

  1. In essence, offsetting should only be considered as the final step in the mitigation hierarchy, following the primary steps of avoidance, minimization and restoration. However, it is critical that no communication around these offsets should be allowed implying any direct benefits to nature. For instance, a company should not be able to claim that it is “deforestation-free” only based on its investment in a tree-planting project outside its value chain. Instead, environmental contributions should be encouraged, such as providing financial support for activities that genuinely enhance natural resources also beyond a company’s own value chain. As a result, a company can claim to “contribute” to climate change mitigation activities, without claiming ownership of projects’ outcomes. By refraining from claiming to neutralize their own destructive activities, companies gain greater flexibility to allocate investments to a wide range of high-impact initiatives.


Recommendation 4: Robust monitoring and regular evaluation mechanisms should be implemented throughout the sustainability project lifecycle.

  1. Reasons for offset failures include insufficient offset ratios, failure to consider landscape context and ecological equivalence, compliance standards unrelated to ecological outcomes, temporal lag, and lack of monitoring.[1] Quality assurance for offsetting projects and contribution projects is of paramount importance to ensure their effectiveness and credibility. Every offsetting and contribution project must be regularly evaluated by both internal and external, independent reviewers. In addition, each offsetting project should follow the following requirements:


  • Additionality – Offset credits can only provide an appropriate guarantee of additionality if they are supplemental to high-hanging-fruit projects of deep decarbonization and biodiversity conservation, and must avoid risking distraction or confusion with such goals. Biodiversity gains from offsets must be entirely separate from existing conservation efforts, ensuring that these gains result directly from the offset actions.
  • Net gain – Biodiversity offsetting should aim to balance losses and achieve a net gain by restoring higher quantities and quality of corresponding biodiversity off-site, constantly aiming for a high offset ratio
  • Permanence – The gains achieved through offsetting should endure for at least as long as the impacts of the initial project, ideally being permanent, often secured for a minimum of 30 years through agreements.


Recommendation 5: Introduce a private right of action for investors, other natural or legal persons, and organizations who have a legitimate interest in protection, conservation and restoration of natural capital.

  1. In light of the high exposure to greenwashing and the risks, dependencies, and impacts associated with enabling private investments in natural and farmed land, freshwater and marine habitats, serious consideration may be given to introducing a private right of action for investors and other natural or legal persons and organizations considered to have a legitimate interest in promoting the protection, conservation and restoration of natural capital.


[1]The ecological outcomes of biodiversity offsets under “no net loss” policies: A global review. Sophus O. S. E. zu Ermgassen, Julia Baker, Richard A. Griffiths, Niels Strange, Matthew J. Struebig, Joseph W. Bull. Link.


Angeli Patel

Executive Director, Berkeley Center for Law and Business

Silvia Fregoni

Research Fellow, Berkeley Center for Law & Business

Julia Archutowska

LL.M. Candidate '24

Felix Aguettant

Félix Aguettant

UC Berkeley LL.M. '23

Anushree Jois

UC Berkeley LL.M '24

Cesar Ravinet

Lawyer, UC Berkeley LL.M '23