The road to net zero - The financial impact

It is a fact that, in England, direct payments are reducing and, in their place, will be a land management funding model with environmental conditions. This will result in land-based businesses receiving less funding overall unless businesses look to new income streams and embrace the road to net-zero.

Government policy on climate, agriculture, environment, food and trade is increasingly environmentally driven. Large corporates are already engaging in this path - mandatory sustainability reporting in financial statements is currently required for large organisations. Smaller entities can make the most of exemptions from carbon reporting, at present. However, the knock on impact will flow through to smaller entities with changes in stakeholder choice - questions which may be asked by those with whom producers sell to, the supply chains, and this will ultimately influence choice of supply and product price.

Businesses which engage and plan early will be ready to benefit from conditional funding and the opportunities of consumer choice and premium price, differentiating themselves from others and the rest of the world who can produce food cheaper than we can.

At Albert Goodman we made the bold decision to commit to becoming genuinely net zero by 2030. We have already started to measure our carbon footprint and are planning how we reduce this as part of our strategy. We are also supporting our clients with their own sustainability journeys, those required to report their carbon footprint, as well as those voluntarily wishing to carry out environmental and social governance reviews.

For those starting on this journey gathering the data and measuring the carbon footprint is the first step. With this data businesses can consider the changes required and how this impacts financially and allows them to be forearmed with suppliers and stakeholders ready to take on opportunities.

We are seeing a growing number of clients presented with opportunities to enter contracts for biodiversity net gain and nutrient neutrality, enabling development on land in ownership, or on land owned by others who offer financial rewards, as well as carbon sequestration land use change opportunities.

Landowners monetising natural capital assets through government schemes or private investment need to consider the tax impact. CLA are working hard lobbying government for changes to tax legislation to provide clarity and to ensure tax is not a barrier to government achieving their policy aims.

Working with the current tax legislation, and with no one government scheme or private contract the same, the tax treatment relies heavily on the precise wording and nature of the contract. Careful consideration needs to be given to how the payment(s) received will be taxed as well as the long term impact on the taxation of the land for capital gains tax (CGT) and inheritance tax (IHT) purposes.

Please see article on the tax impact in our Spring 2021 newsletter

Whilst there are likely to be huge opportunities for landowners there will be costs if businesses do not engage early - the worlds drive to net zero would become a threat to the business. To be sustainable into the future businesses need to ensure this subject is on the agenda and part of the strategy.