Nature-based solutions are a major component of carbon-positive operational and investment strategies and the Government has made it clear how it expects rural assets to contribute towards net zero and broader environmental goals. In future the UK countryside, which already provides the foundation for a whole host of services, will have to change as new services are accommodated and existing ones have to adapt to keep up.

We’ve looked at four key sectors operating within the rural landscape that present opportunities for the established and new investor whose strategies take a long term view.

Rural Property

Let property has long been a provider of annuity income for farms and rural estates. However, evolving changes to energy efficiency regulations in the private rented sector have led to concerns that the value of this asset class may slowly be eroded as landlords are unable to justify increasingly expensive investment to provide energy efficient refurbishment.

One opportunity for some rural landlords is the supplying of net zero energy from biomass boilers supplying energy via local district heating networks to water-sourced heat pumps in lakes and hydro-power turbines in streams.

Renewable energy

Where power generation from renewable assets exceeds local requirements, it’s possible to supply energy to the grid. Connecting to the grid can be costly but the cost of batteries is falling, meaning co-investment in energy storage solutions could be an option to maximise returns. Electrification of heating and transport is a major goal, meaning energy storage will be essential to smooth out the peaks and troughs of renewable supply. Batteries are not the only option for storing energy though (water behind dams is an obvious nature-based alternative).

As renewables continue to mature, investment models will shift from opportunism, focused on areas of low competition or subsidy, to a more traditional model focused upon value creation. Accessing land for renewables will remain a core hurdle, but as agricultural and planning policy evolves to accommodate net zero objectives, more opportunities should be available at a viable scale.

FORESTRY AND OFFSETS

Competition for both existing forestry and for land suitable for tree planting (afforestation) has never been greater, driving up capital values and potentially squeezing long-term investment returns.

On the one hand, external investment in meeting the Government’s ambitious tree planting targets is very welcome. On the other, the rapid fuelling of demand and the associated rise in land values mean investors do need to be clear as to the returns these assets will eventually deliver for them.

Why is the market for forestry so hot? In income terms, the traditional means of creating revenue through the harvesting and trade of timber and forest products remains buoyant. However, there is an intensifying trend of new market entrants seeking sustainability credentials, both in existing forests and afforestation sites. Planting trees, as a source of secure carbon offsets, theoretically make forestry both a financial and environmental investment.

Alternative carbon storage options such as direct air capture or bioenergy with carbon capture storage (BECCS) present opportunities for investment into short-rotation coppice and other woody biomass as part of a non-permanent land use strategy and avoid the chasing of relatively scarce forestry assets.

FARMING: FOOD, FIBRE AND FUEL

Few sectors touch on so many of the UN’s Sustainable Development Goals as farming, but despite the presence of green credentials and counter-cyclical and counter-inflationary characteristics, lower than ideal investment yields make agriculture less appealing than other property classes. Is all that about to change?

Selling carbon stored in agricultural soils is the panacea many farmers are hoping for to replace lost CAP income, but like any asset of the farm, owners will need to ensure they have enough for their own needs before selling the asset to third parties.

Farming must undertake a significant transformation to make sense of net zero. The transition may present options for ESG-hungry investors to help deliver the infrastructure and technology needed on farms to reduce emissions. However, a balance has to be struck so that nature-based solutions don’t undermine our national food security and rural communities.

As supply chains increasingly switch to more sustainable sources for everything from medicines to plastics, there are multiple opportunities in the bio-economy for innovative growers. A coalition of like-minded growers would be the most powerful force for change whilst also ensuring that farming communities are provided a ‘just transition’ in land-based activities.

Savills recognises real estate is responsible for 40 per cent of carbon emissions and, to coincide with COP26, it is launching its latest research examining how the sector is adapting to meet climate change challenges. Savills is committed to achieving net zero carbon in its operation by 2030. Through Savills Earth it brings together the expertise of more than 100 specialists to support and advise clients on their sustainability, energy and carbon strategies. Visit Savills Earth to find out more.

Further information

Savills Rural