The government has set a bold target to build 1.5 million new homes in the UK over the course of this parliament and correctly identified a dysfunctional planning system as one of the primary obstacles to building houses. Reforming this system is high on Labour’s agenda, which means updating the National Planning Policy Framework (NPPF).

The NPPF sets out planning guidelines for England and how these should be applied. It is a framework for local governments and councils to meet housing and other development needs sufficiently and sustainably. The original framework was published in 2012 and has been continually updated and modified, most recently in September 2024.

An essential part of the NPPF is helping deliver housing sustainably – protecting and enhancing the natural environment. A key policy referenced throughout is Biodiversity Net Gain (BNG).

What is Biodiversity Net Gain?

BNG stipulates that all new developments in England should positively contribute to the natural environment and leave habitats for wildlife in a ‘measurably safer’ state than they were before. Almost all new developments must achieve a net gain in biodiversity or habitat of at least 10% over 30 years compared to the pre-development baseline, first introduced in the Town and Country Planning Act 1990 and referenced in the Environment Act in 2021. In 2024, BNG became a mandatory requirement for all major and minor developments requiring planning permission in England.

The initial baseline measurement of biodiversity is taken by giving a numerical value to the habitats and wildlife present on a site pre-development using a metric calculator developed by the government. It considers the size, location and conditions of a site, assessing against the species supported by these habitats. All sites, from green belt to brownfield, are given a score.

But why is this legislation so important? Nature in the UK is in a state of emergency. Since 1970, UK species have declined by an average of around 19%, with nearly 1 in 6 species at risk of extinction. Every industry has a responsibility to understand its role in this and put measures in place to make positive change. Ours is no different. According to the World Economic Forum, the built environment is responsible for 30% of global biodiversity loss. As a result, requirements around biodiversity and the environment for the real estate industry in England are rightly evolving to address this.

How can developers meet BNG requirements?

With BNG requirements now mandatory, developers need to prepare plans for new schemes accordingly and understand how the rules will impact these from inception.

The biodiversity gain is assessed by either on or off-site contributions – on-site meaning within the bounds of the development and off-site outside of this in a separate location. Enhancing and restoring nature on-site is the preferred action. However, developers can also meet the minimum 10% requirement by creating or enhancing biodiversity in other locations, be these other sites they own or by purchasing biodiversity land units from Habitat Bank. As a last resort, if none of these routes are possible, developers can also purchase statutory biodiversity credits from the government. These credits mean a financial contribution is made which counts towards the minimum 10% BNG.

The recently completed One Nine Elms development, for which Precede Capital originated and arranged a £772m financing package in 2022, is a fantastic example of a scheme where nature was a key consideration from the outset. The developers wanted to create a space which both enhanced and connected with nature in central London, and One Nine Elms is now home to over 60 different animal species and 85,000 plants and flowers. It is a brilliant example of how habitats can be created in even the most urban of locations.

The challenges

However, meeting the requirement does present challenges for developers and lenders.

The need to now do extensive due diligence on all potential sites is both expensive and time-intensive. That said, these costs pale in comparison with the potential fines that rightly stem from non-compliance.

Another challenge is timelines. Given each new site now needs to be assessed against the government’s biodiversity metric, developers must account for this in their project timelines. As developers become more familiar with processes, delivery dates should become more straightforward to set, but in the short term, the new rules are undoubtedly presenting a challenge when it comes to making projections.

Lenders also need to be very diligent here. Risk assessment models need to be updated appropriately, and lenders should be prepared to evaluate new developments against a more rigorous set of environmental standards.

The role of non-bank lenders

NBLs like us have more flexible mandates and can provide highly bespoke financing solutions which can often be tailored to incentivise responsible building.

For example, we have a dedicated Green Development Loans product, and for projects to be eligible, they must be screened against a proprietary Green Criteria Framework we have developed which assesses several environmental categories, one of which is biodiversity. Once a Green Development Loan is screened, KPIs aligned with the borrower’s targets for the building or scheme will be set, and if these are met, borrowers are rewarded with rate ratchets, exit fee discounts or other financial incentives appropriate to the project.

It is still early days for mandatory BNG, so there are bound to be teething issues for developers and investors still getting to grips with the new rules. It will be a heavy lift, but fortunately, non-bank lenders are in a prime position to support the industry, and we are constantly evolving our offerings in line with the latest requirements. It’s ultimately extremely important we as an industry get it right, given the huge impact the built environment has on nature and the environment. Ultimately, BNG is an opportunity for our industry to prove that we can be part of long-lasting positive change.