In 2021, Gresham House, a specialist alternative asset manager, committed £65 million to Environment Bank Limited (EBL) to pioneer biodiversity credits as a new asset class. This strategic investment aimed to address biodiversity loss while delivering financial returns. The financial model developed for this investment was crucial in aligning ecological outcomes with investor expectations.

The UK Government’s Environment Act 2021 introduced mandatory Biodiversity Net Gain (BNG) requirements, compelling developers to achieve a 10% net gain in biodiversity for planning permissions. This legislation created a substantial market for biodiversity credits, estimated to be worth hundreds of millions of pounds annually.

Gresham House’s £65 million investment into EBL was part of its British Sustainable Infrastructure Fund (BSIF) strategy, focusing on sustainable infrastructure projects. EBL’s model involves establishing Habitat Banks that transform non-arable farmland into biodiverse habitats, generating BNG units for sale to developers.

The financial model for this investment was designed to integrate ecological impact with financial performance, ensuring scalability and sustainability. Key components included:

• Revenue Streams

  • BNG Unit Sales: Primary revenue from selling BNG units to developers complying with the Environment Act 2021.
  • Voluntary Market: Potential revenue from corporates seeking to enhance their nature-positive credentials.

• Cost Structure

  • Land Acquisition and Development: Costs associated with acquiring land and transforming it into Habitat Banks.
  • Operational Expenses: Ongoing costs for habitat maintenance, monitoring, and compliance.

• Capital Allocation

  • Initial Development: Funds allocated for establishing initial Habitat Banks.
  • Scaling Operations: Investment in expanding the network of Habitat Banks to meet growing demand.

• Risk Mitigation

  • Regulatory Compliance: Ensuring all operations align with the Environment Act 2021.
  • Market Demand: Assessing and projecting demand for BNG units to ensure financial viability.

 The financial model facilitated the successful deployment of the £65 million investment, leading to:

Establishment of Habitat Banks: Creation of multiple Habitat Banks across England, contributing to biodiversity restoration.

Market Leadership: Positioning EBL as a leading provider of BNG solutions, meeting the needs of developers and corporates.

Investor Returns: Delivering financial returns aligned with Gresham House’s sustainable investment objectives.

 The development of a comprehensive financial model was instrumental in transforming biodiversity credits into a viable asset class. By aligning ecological goals with financial performance, Gresham House’s investment in EBL set a precedent for future investments in natural capital.