Cross-sector, expert-led natural flood management group commissioned by Defra sets out practical recommendations and a standardised approach to enable the flow of private sector capital into natural flood management projects. 

A multi-sector, expert-led Natural Flood Management Strategic Working Group, convened by the Green Finance Institute and commissioned by the Department for Environment, Food and Rural Affairs, has today published its final recommendations for the financing of natural flood management (NFM) projects in the UK. This report addresses the barriers to private sector financing of NFM – which if removed, could unlock capital for crucial projects to boost the UK’s resilience to flood risk.

The Financing Natural Flood Management Report identifies barriers to private finance being deployed into NFM under the themes of Confidence, Co-Benefits; and Coordination. It sets out seven recommendations to remove these barriers, that if adopted, could unlock private sector finance for NFM projects across the country.

Background

Flooding is the number one natural hazard in the UK. The damage that it causes, and management of flood risk, already costs the country £2.2 billion each year. As global temperatures rise due to climate change, so too will the risk of flooding, increasing the potential damages caused by flooding and the costs associated it, putting immense strain on the public purse.

A more holistic approach to flood risk management, and how it is funded, will be required as the risks increase, and traditional infrastructure like flood walls cannot be relied upon as the only solution. NFM is one such complementary approach, where natural processes are restored or protected to reduce flood risk. NFM projects also generate wider environmental and social benefits including carbon sequestration, biodiversity uplift, water quality improvements, and access to green space. In England, the Wyre Natural Flood Management project has been successful in attracting private sector capital to help in the delivery of NFM. For more projects to follow its example, will require greater demand from private sector ecosystem service buyers willing to pay for reduced flood risk to their assets or supply chains, and/or for the co-benefits NFM provides.

NFM has been highlighted as key to reducing flood risk by the UK Government, in addition to helping meet environmental goals. NFM will require additional funding if it is to be delivered at the scale needed to address the increased risk of flooding due to climate change, including from the private sector. However, interest in paying for the proportional benefits that NFM generates for the private sector is currently low.

The Working Group identified a number of barriers that need to be unlocked to increase demand, under the themes of Confidence, Co-Benefits and Coordination. To unlock these barriers, the Working Group put forward seven key enabling solutions:

Key Enabling Solutions

• Strategic prioritisation of NFM: A free and open-access mapping application to highlight NFM opportunities across England for reducing flood risk, and for delivering wider social and environmental co-benefits.
• NFM asset database: A database to record all NFM asset information, including location and maintenance schedules, for all projects and schemes within a geography.
• Natural capital assessment tool framework: Development of a natural capital assessment tool framework to guide the valuation of NFM co-benefits in scheme applications.
• Funding for buyer facilitation and partnership development: Funding for the effective facilitation of buyer engagement and demand aggregation for the development of NFM projects.
• NFM design standards and guidance: Development of UK Government-backed NFM standards to ensure high integrity pf projects.
• Clarity on ecosystem service stacking: Prioritised development of an NFM ecosystem service market standard or code, including clarity on the stacking of individual ecosystem services alongside NFM.
• Update to FCERM grant-in aid funding processes: Co-funded FCERM schemes generate verified units and/or credits and apportioned between public, private and third sector stakeholders.