The Aldersgate Group has begun a one year green finance project, looking at how to overcome the barriers to investment in natural flood management and green infrastructure.
Significant investment is needed in green infrastructure and natural flood management systems over the next decade. Nick Molho, the Aldersgate’s executive director, believes the money that goes into NFM is insufficient at the moment. He cites Environment Agency long term investment scenarios which suggest spending on flood risk management needs to increase from £750-800m a year now to £850-900m within a decade.
There are a few pilot projects exploring the practical implementation of NFM such as the Alkborough Flats project on the Humber estuary, and the Pickering Slowing the Flow project, these are not driven by central government policy. "Clearly these are pilot projects, standalone," says Molho. "The challenge for government in their 25 year plan for the environment is going to be how to turn NFM into a mainstream source of investment."
To do that, two challenges must be overcome:
- the creation of a revenue stream for companies that want to invest in such projects
- how to structure the investment, for instance through bonds
If the project helps reduce the risk of flooding to infrastructure then, says Molho, it should be possible to estimate the damage avoided from flooding, who that risk reduction benefits, and then establish a revenue stream around that.
For example, the challenge could be to establish who benefits from restoration of peatland: it could be a business downstream whose operations used to be flooded, a mixture of businesses and homeowners. In this case, the local council might join forces with local businesses to pay for the risk reduction.
"We are developing a market for ecosystems services," says Molho. "What’s the major natural risks in an area, who’s best placed to invest in the project to limit those risks, who stands to benefit from that reduction and then how do we set up a funding structure along those lines."
For Molho, the key will be the next government’s publication of a long term plan for the environment. "This needs to come up with some overarching principles that can apply across the country," he says. "Then you need some local authorities to work on a more targeted investment tool that works for their locality."
In the meantime, the Aldersgate Group is working with members such as the National Grid on NFM pilot projects, turning learnings from them into policy proposals for government.
Molho is optimistic that more private investment can be attracted to NFM projects, but it depends on the strength of the revenue stream. "Private investors will go there if there’s a decent return on investment It’s just a question of understanding what the returns are, knowing they’re stable and having access to clear information so investors can understand the project."