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London’s natural capital

by Jon Sheaff
Two London boroughs have undertaken an important exercise in natural capital accounting.

These are strange times in the world of parks and green infrastructure. On the one hand, we have witnessed nearly 20 years of unprecedented revival, driven by Lord Rogers’ ‘Towards an Urban Renaissance’ report, the subsequent ‘Green Spaces Better Places’ report and an investment of more than £850 million in the nation’s parks by the Heritage Lottery Fund. The capacity of green infrastructure to deliver a range of positive economic, social and environmental benefits has been well researched and statistically established. The 2014 and 2016 editions of the ‘State of the UK’s Parks’ record that use of parks and access to green infrastructure is rising. This is at a time when the UK’s population is increasing and our parks and green spaces continue to deliver a range of outcomes to meet this level of demand. 

But in an austerity economy, funding to sustain the capacity of natural capital to deliver these benefits is under enormous pressure. A current local authority client advised a public meeting earlier this year that if he’d had a budget of £1 to manage green space in 2010, this would have declined to 35p by 2020. The message was clear – despite the council planning for a 48% increase in population over the next 30 years and wrestling with the worst childhood obesity statistics in England, investment in the development and management of natural capital assets would continue to decline. 

Traditionally, public authorities value their assets in accordance with accountancy rules set out by the Chartered Institute of Public Finance and Accountancy (CIPFA). Until recently, CIPFA has classified parks as community assets with a nominal ‘historical cost’ value (usually of £1). For any given natural capital asset, the cost of sustaining the benefits it delivers has thus always been on the negative side. But we already understand that natural capital assets address the cost to the economy of treating inactivity and the public health consequences of this inactivity. We also understand the vital role that green infrastructure assets play in limiting the impact of extreme weather events (through storing precipitation), in limiting climate change impacts (through the capacity of soils and plants to absorb CO2) and in sustaining complex biodiversity systems and habitats. Yet the value of these benefits to society is not currently accounted for in public authority balance sheets. 

Fortunately, as Dieter Helm explained in his essay in the Spring edition of Landscape1, natural capital ‘lends itself to accounting and measurement’ and part of the work undertaken by the Natural Capital Committee has been to develop an accounting framework to capture the economic value of the benefits accruing from natural capital and to model the cost of sustaining these benefits over time (i.e. through the maintenance of these natural capital assets). A number of different initiatives have been developed across the UK to pilot the Corporate Natural Capital Account (CNCA) methodology for a range of asset types, ranging from individual sites to entire asset portfolios. A Corporate Natural Capital Account is being developed for London and work is under way to develop a CNCA methodology for the UK as a whole. 

Working in partnership with our environmental economist partners Eftec and Peter Neal Consulting, we have piloted the development of CNCAs for an entire local authority area (the London Borough of Barnet) in a project supported by the Greater London Authority. A similar account has just been prepared for the London Borough of Barking and Dagenham. These are the first Corporate Natural Capital Accounts to be commissioned on a borough-wide basis as annexes to strategies for parks and open space. These accounts make a compelling case for continuing to adequately fund the costs of management of green infrastructure but also identify where the greatest returns may be achieved from further investment and enhanced connectivity. 

As the GLA’s Peter Massini explains, ‘The GLA is keen to explore how natural capital accounting can provide a robust methodology to help reveal the full value of London’s network of parks and green spaces. Although widely recognised as being vital to the environmental, social and economic health of London and Londoners, we have not, until recently, fully appreciated this network as a green infrastructure. Understood in this context and equipped with a natural capital account, we can make informed decisions about management and investment in green infrastructure. These decisions can be informed by essential economic insights and equally significant environmental and social considerations.’ 

Our work to develop CNCAs at the London Borough scale follows the framework for corporate natural capital accounting (CNCA) developed for the Natural Capital Committee. The purpose of the CNCA framework is to help organisations make better decisions about the natural capital assets (or green infrastructure) that they manage. It does this by compiling data and information on the natural capital assets, their benefits and costs of maintaining them into a single accounting structure. 

The development of a CNCA is a five-step process and the starting point is the creation of ‘Natural Capital Asset Registers’ for the borough’s greenspace assets, classified by habitat type. The registers include an assessment of the quality of each of these habitat types based on the 2011 UK National Ecosystem Assessment. The quality of each habitat type is assessed against a standard developed for an open spaces strategy quality and value assessment undertaken in parallel. 

The compiled habitat area and quality data sets are used to develop a ‘Physical Flow Account’ that reports on a basket of annual benefits provided by these assets.
  • Recreation (focusing on the number of visits to greenspaces)
  • Physical health benefits (using benefits from exercise undertaken outdoors)
  • Property value uplift (using the Accessible Natural Greenspace Standard to define a catchment within which capital uplift could be demonstrated)
  • Climate regulation (focusing on tonnes of carbon sequestered).

In each case, benefits are assessed with reference to publically available UK datasets in respect of the local authority to produce accounts that reflect the specific characteristics of the study area. 

Data on recreation, physical health, property value uplift and climate regulation are ascribed a financial value to create a ‘Monetary Flow Account’. This valuation reflects HM Treasury and Defra supplementary guidance to the Green Book on valuing environmental impacts and current data on the value of natural capital assets across this range of outcomes. The Monetary Flow Account produces a figure that estimates the total annual value of benefits accruing from natural capital assets measured and the value of these benefits in perpetuity. 

As a penultimate stage, a ‘Maintenance Cost Account’ presents the annual cost of maintaining all of the services provided by parks and open spaces and the on-going liability cost of sustaining these benefits into the future. 

As a final output, a ‘Natural Capital Balance Sheet’ quantifies the benefits of natural capital assets (under assets) and the cost of maintaining these assets (under liabilities). By capturing the value of the benefits to society of natural capital assets in an accounting framework, this alternative balance sheet presents a very different picture of the value of greenspace when compared with ‘historical cost’ methodology. Benefits in perpetuity will typically outstrip liabilities in perpetuity by a factor of ten or more. Our methodology was specific and selective and care was taken to avoid duplication and double counting across data sets. Other CNCA studies using similar methodologies but based on different data sets produce similar outcomes.

The value of the CNCA process lies in its communication of the true value of the benefits generated by natural capital and green infrastructure. Much resource is already applied to the management of natural capital (although this is not enough to sustain these benefits over time). The problem is that the deployment of much of this resource is reactive and inefficient. CNCA data can demonstrate the interdependence of capital systems and support better alignment of resources with outcomes. 

Using CNCA data, an integrated and holistic approach to resource management can be developed. The use of green and blue space to store flood water protects local homes and businesses, delivering a range of economic benefits. These same spaces deliver a range of societal benefits including outcomes for health, education, habitat and biodiversity. A more detailed analysis of Beam Parklands in Barking and Dagenham undertaken by Eftec2 indicates it stores 430,000m3 of water with a flood reduction value of £600,000. In addition, the site also delivers £800,000 in educational and health benefits which are all detailed in an overall CNCA balance sheet suggesting an overall site value of £42 million. In this instance, the use of the CNCA helped build a case for establishing an endowment that meets the liability cost of sustaining these outcome values over time. Beam Parklands exemplifies some of the design challenges that the CNCA process presents to landscape architects – how to design for green infrastructure to deliver maximum benefit; how best to physically connect green infrastructure to enhance outcomes; how best to design the interface between green infrastructure and other infrastructural interventions such as major transport corridors that may significantly extend the geographical influence of benefits. 

This analysis suggests that the greatest prize is likely to come through health benefits. UK Active estimates that the annual cost to Barnet’s economy of the inactive segment of the borough’s population is more than £17 million. This figure allows for the cost of treating disease and sickness absences from work and equates to £178 per year for every inactive person residing in the borough. The annual value of avoided health costs accruing from encouraging these people to become more active would be more than £19 million. 

Translating this into action linking natural capital assets with health initiatives is a challenge which the NHS and public health authorities are starting to embrace. Social prescribing is a clinical practice supporting the referral to a range of non-clinical services, including the use of parks, open spaces, food growing and the natural environment. The NHS’ Five Year Forward View (2014) and the General Practice Forward View (2016) both recognise the potential of social prescribing to provide a focus on wellbeing and prevention, to reduce pressure on GP services and the cost of prescription drugs and to deliver a wider range of social objectives around employment, learning and community cohesion. In Barking and Dagenham we are currently testing the relationship between areas of health deprivation and areas of poor quality green infrastructure provision. Using the borough’s ‘Healthy Towns’ pilot scheme, we aim to translate the value of positive health outcomes described in the CNCA into practical programmes of intervention on the ground that will help to fund the development and maintenance of these benefits over time. 

This is not going to be quick win and institutions managing natural capital assets and potential future partners can have deeply embedded, institutionally-defined perceptions of the world we live in. But the real power of the natural capital accounting approach is its fundamentally collaborative and integrated nature. This is an approach that challenges conventional silo-thinking and shows how cross sector working and drawing in the expertise of environmental economists can help to deliver the objectives that we are all working towards – the most effective use of scarce resources to deliver the broadest range of benefits to society. 

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