MARINE AND COASTAL NATURAL CAPITAL TOOLKIT

Introduction

The first stage of a project is to understand, at a high level, the target site for the project and the types of interventions that will need to be undertaken to deliver the habitat restoration or creation that will generate outcomes. At this stage, you will begin a high-level assessment of the site’s history, ecological and legal status to determine its suitability for a natural capital project.

Introduction

Marine and coastal habitats can play host to a range of activities benefiting a diverse number of users, from fishers, developers, corporates and utility companies, to researchers, holidaymakers, local communities and local government. These habitats are also affected by the activities of stakeholders well beyond site boundaries, such as farmers in upstream catchments and businesses that impact water quality.

Identifying and working with stakeholders and communities to understand their diverse perspectives is critical for ensuring that any proposed interventions at a chosen site are developed in an inclusive and transparent way, benefit from local knowledge, have the necessary buy-in, and minimise potential negative impacts or trade-offs. Meaningful community engagement should be embedded throughout the project lifecycle, rather than approached as a one-off or compliance exercise, and sit alongside engagement with other stakeholders. This process is also critical for identifying potential buyers and building investible, resilient projects. Further resources on best practice for stakeholder and community engagement include the Handbook on Social License to Operate for Seaweed Cultivation and the Community Inclusion Standard.

Introduction

It is essential to identify potential buyers early in the project lifecycle in order to develop the commercial proposition underpinning your business case and to refine the ecosystem services, products or outcomes that the project will deliver in line with buyer interests and requirements.

Drawing on earlier project scoping, developers are likely to have identified one or more groups of beneficiaries who may be willing to pay for the ecosystem services to be created, restored or maintained. Buyers can vary significantly in their motivations, expectations and requirements, and at this stage deeper engagement with potential buyers is needed to shape a credible deal that channels finance towards the nature-positive outcomes the project aims to deliver. This milestone builds on the preceding stakeholder and community engagement work, helping ensure that buyer interest is aligned with locally supported, viable and investible project outcomes.

Introduction

Where your project aims to sell natural capital outcomes or ecosystem services, baselining and quantification is essential to project development. Baselining captures the provision of the ecosystem services under the ‘business as usual’ scenario, that is – the likely future volume of ecosystem services without the project’s impact. At this stage, you will also develop a plan for ongoing monitoring and maintenance of the project site, including the verification of natural capital outcomes.

Introduction

Following baselining, as well as stakeholder and buyer testing to identify potential revenue sources, the next critical step is to develop a Business Case and Financial Model for testing and setting out your approach to funding restoration and generating project revenues. The Financial Model is essential for confirming the financial viability of your proposed project and refining your approach.

The financial model and business case are developed iteratively, and you likely will have started sketching out both from the beginning of project inception, for example when identifying and reaching out to buyers and identifying the outcomes you plan to sell. Revenues, costs and financing assumptions will change throughout project development, for instance as you receive feedback from buyers or investors, confirm your Monitoring Reporting and Verification (MRV) approach, conform any buffer requirements, and agree contracting arrangements.

The business case and financial model are key for testing your project’s commercial and financial viability and communicating to key stakeholders about how you will generate revenues, repay investments, and ensure habitat uplift is maintained. The financial model will also enable you to better understand the type, level, and structure of financing that your project should take on, and what sort of returns you can afford to pay/offer.

Introduction

In this step, the operational structure is developed which will inform how your project is run. You will need to develop processes for decision-making and risk mitigation, and begin to formalise which party is responsible for what, identifying potential risks and making mitigation plans. Your governance structure should align with and underpin your business case, as a necessary component of how the project will deliver its environmental outcomes and other strategic targets.

Introduction

Not all marine and coastal natural capital projects will need private investment, however upfront costs are often high and will likely need some type of external funding. Projects can fund up-front costs through grants or directly from buyers of ecosystem services and outcomes. For those projects that are certain of their future revenue streams and confident of their ability to generate cash flows to provide the required rate of return, this section provides a framework for developing an investment plan.

Introduction

Finalising investment into your project will require establishing legal contracts where applicable to clarify project developer obligations, and secure leasing requirements, buyer and funder commitments, investment terms, and ownership of any rights to outcomes, claims, or credits generated. This requires expert legal advice and iterative negotiation with the key parties throughout project development. This is the final stage in the Toolkit, but by no means the final stage in the delivery of the project – as your project and business evolves, contracts may need revising and updating, and new contracts agreed.

Note: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice on how to manage engagement with lawyers and the process of contract development.