Financing the future of UK sustainable agriculture: from policy to investment

In this blog, they highlight four key policy initiatives in the UK, the broader European and global context, and the role of private capital.

A Critical Juncture for UK Agrifood Policy

The global food system is under strain. Climate change is reshaping growing seasons, biodiversity is in decline, and food security concerns are mounting. In the UK, a densely populated, food-import-dependent island, these dynamics are converging in particularly acute ways.

Three years ago, Esmée Fairbairn Foundation asked themselves a pivotal question: could market-rate investments genuinely drive meaningful change in the UK's food system? Their vision wasn't simply to generate returns, but to create a tangible social and environmental impact across the country.

They commissioned us to explore impact investment opportunities in sustainable food and agriculture. The report, published in December 2024, maps where investment meets impact, highlighting three crucial areas: sustainable production, resilient supply chains, and nutrition-led innovation. We outlined 20 practical interventions spanning equity, debt, and real assets, each demonstrating how strategic capital can drive systemic change.

Now, with the UK's agrifood sector at a tipping point, we're looking to bridge the gap between policy intentions and investment realities, mobilising capital where it can drive the greatest impact.

Why the UK matters now

The UK faces a unique convergence of challenges impacting its agricultural sector, including climate shocks, biodiversity loss, and volatile food prices, all of which are affecting farming globally.

• Emissions and soil loss: Agriculture produces roughly 10 per cent of UK greenhouse-gas emissions, while an estimated 2.9 million tonnes of topsoil are lost each year.
• Food imports and security: 46 per cent of what Britons eat is imported, leaving supply chains exposed to geopolitics and currency swings.
• Public-health costs: Diet-related illness costs the NHS about £98 billion a year.
• Nature in decline: More than 60 per cent of priority species have fallen since 1970.
• Food insecurity: 14% of households, an estimated 7.3 million adults, were affected by food insecurity in January 2025

The pressures facing the UK agrifood sector present both risks and opportunities for investment. As public funding changes and private investment increases, the sector offers a compelling example of how policy, finance, and impact can converge to create a more sustainable agricultural future. These challenges are not merely systemic risks but represent viable investment opportunities. By directing capital toward regenerative farming, agroforestry, and nature markets, the goal is to convert these crises into drivers of sustainable economic recovery.

Policy landscape

The UK's agricultural policy landscape is undergoing its most significant transformation in decades as it moves away from the long-standing EU subsidy system. Such a dramatic shift in a foundational sector presents a critical juncture. Evidence suggests that while consistent, unconditional public funding can inadvertently discourage innovation within agriculture, significant disruption, like the current reforms, can create a crucial period for transformative change. During such times, when established norms are challenged, stakeholders are often more open to new ideas and actively seek solutions, making it an ideal moment to implement changes that may have previously faced resistance.

The extensive agricultural reforms in New Zealand in the mid-1980s provide a strong illustration of this dynamic. The government at the time believed that substantial subsidies had resulted in a less innovative and market-oriented farming sector. The subsequent near-total elimination of these subsidies acted as a major shock, forcing farmers to rapidly innovate, improve efficiency, and diversify to survive. This demonstrates how a 'shake-up' can break established inertia. As the UK navigates its own post-Brexit policy transition, the New Zealand experience underscores that the strategic timing and design of any new funding mechanisms will be critical to guide the sector toward more dynamic and sustainable practices, rather than reinforcing past dependencies.

1. Environmental Land Management Schemes: promises and pitfalls

At the heart of this transition are the Environmental Land Management (ELM) schemes, designed to reward farmers not just for what they produce but for what they protect, from carbon sequestration to biodiversity.

The Sustainable Farming Incentive (SFI) was heralded as the cornerstone of the UK's post-Brexit agri-environment policy. By early 2025, more than 37,000 agreements were in place, covering 800,000 hectares of arable land and 280,000 hectares of low-input grassland.

However, in March 2025, the government suddenly paused new SFI applications, citing budget constraints. Farmers were left in limbo, and so were investors eyeing the sector for potential opportunities. This pause underlines the volatility of grant funding.

2. Countryside stewardship: longer term stability

In contrast, Countryside Stewardship (CS) is a more established and often more targeted scheme. It funds more ambitious, longer-term environmental improvements and capital works. Agreements, often 5 to 10 years, or longer for woodland, support specific outcomes like significant habitat creation (e.g., wetlands, species-rich grasslands), woodland planting and management, organic conversion, and projects to improve water quality or protect historic features. CS is structured into different tiers:

• Mid Tier: Offers a range of multi-year options and capital grants.
• Higher Tier: A more competitive, site-specific scheme for areas requiring bespoke management, often in ecologically sensitive locations. It includes options for major projects like agroforestry and landscape-scale restoration.
• Capital Grants: Standalone grants for specific works like fencing or hedgerow planting.
• Wildlife Offers: Simpler, packaged options focused on providing key habitats.

For investors focusing on UK sustainable agriculture and natural capital, Countryside Stewardship (CS) offers a crucial layer of financial underpinning. Its longer-term agreements provide a reliable, government-backed revenue stream. This public funding can significantly de-risk private investment by covering establishment costs and providing baseline income during the often-unprofitable transition phases. Crucially, CS acts as an enabler, funding the foundational work that allows land to generate future returns from private markets, making it a key component in a blended finance strategy for the sector.

3. Biodiversity Net Gain

Adding another dimension to the financial landscape for land managers is the mandatory implementation of Biodiversity Net Gain (BNG) in England since early 2024. This policy compels most new developments to deliver at least a 10% measurable increase in biodiversity. For investors and farmers, this translates into a significant new market opportunity: where developers cannot achieve this gain on-site, they must purchase 'biodiversity units' from landowners who create or enhance habitats elsewhere. These agreements secure habitat management for at least 30 years, providing a long-term, legally-backed, developer-funded income stream that can complement or, on less productive land, even replace traditional agricultural revenues, making large-scale habitat restoration an increasingly bankable proposition.

4. Land Use Framework: strategic vision for sustainable agriculture

The government consultation on the Land Use Framework (LUF) closed in April 2025, with the final framework due this summer. Draft proposals emphasise protecting prime farmland, steering large-scale renewables to less productive land, and integrating BNG targets.

Once published, the LUF should provide clearer spatial signals: where restoration is a priority, where food production trumps other uses, and where dual-use approaches like agroforestry are encouraged, all of which reduce planning risk for investors.

This framework represents a new paradigm for sustainable agriculture in the UK, designed to balance competing land uses while addressing climate, biodiversity, and food security goals. With over 70 per cent of the UK's land in agricultural use, the framework will likely prioritise interventions that can deliver both food production and environmental benefits.

For investors, the LUF will act as a crucial policy signal, identifying specific regions or projects that are ripe for investment in projects such as agroforestry, carbon farming, and habitat restoration.

Spending Review: billions promised, confidence still to win back

The June 2025 Spending Review brings welcome clarity after months of uncertainty. It commits more than £2.7 billion a year for farming, food security and nature recovery between 2026-27 and 2028-29. About £2.3 billion will flow through the Farming and Countryside Programme, with up to £400 million channelled into additional nature schemes. Support for Environmental Land Management will rise from £800 million in 2023-24 to £2 billion by 2028-29. While DEFRA’s core budget is largely protected, its administrative spend will fall. The headline figures align with this article’s priorities: nature-friendly farming, biodiversity recovery and policies that can crowd in private capital. The real test is execution; only clear timelines, simple schemes and consistent communication will rebuild confidence among farmers and investors.

The UK policy shifts in a broader context

In the broader European and global context, the agricultural policy direction currently being pursued in the UK, particularly in England, represents a notably radical departure. While many nations and trading blocs, including the EU with its reformed Common Agricultural Policy and dedicated "eco-schemes," are increasingly integrating environmental objectives into farm support, England's commitment to entirely replacing area-based direct payments with schemes like ELMs, focused on "public money for public goods", is a more fundamental and comprehensive overhaul. The introduction of mandatory Biodiversity Net Gain and the ambition for a national Land Use Framework further signal a pioneering, though complex, approach to intertwining agricultural productivity with environmental regeneration and strategic land management, placing the UK at the vanguard of countries attempting such systemic change.

This ambitious redirection has, however, been met with a deeply mixed reception, creating a landscape of both opportunity and considerable uncertainty. The principled shift towards rewarding environmental services is widely lauded by environmental advocates and seen by some as a necessary evolution for a sustainable future. Yet, the practical rollout of these new schemes has been fraught with challenges. Concerns around the clarity of policy, the adequacy and stability of funding, starkly highlighted by the pause in new SFI applications in March 2025, and the potential impacts on farm viability and food production have led to significant apprehension and criticism from farming communities and industry observers. This complex interplay of forward-thinking ambition and on-the-ground implementation difficulties defines the UK's current agricultural transition, marking it as a bold but demanding path forward.

Financial landscape: capital flowing towards sustainable models

With core public funding now broadly stable but DEFRA’s administrative budget tightening, private capital is critical in supporting the transition to sustainable farming practices in the UK becomes ever more critical. Innovative financial mechanisms are emerging to bridge the funding gap and incentivise environmentally and economically sound agricultural practices. These innovations aim to attract investment from a diverse range of sources, aligning financial returns with positive environmental and social outcomes in the agricultural sector.

Several promising financial innovations are taking shape across the UK's sustainable agriculture landscape - some illustrative examples are at the end of this blog.

Closing Thoughts

For foundations, asset managers, and industry alike, the message is clear: the UK is moving towards paying for environmental outcomes. Investors able to navigate policy shifts, use robust data, and share risk with farmers stand to finance the transition and earn durable returns.

The forthcoming National Food Strategy and Land Use Framework represent a critical moment. Will they provide the clarity investors desperately need? Will they lay the groundwork for innovative blended finance models that can de-risk early-stage projects and scale regenerative approaches?

Without sufficient capital to back these strategies, even the most ambitious policy frameworks risk falling short. For Esmée, the opportunity lies in bridging this gap: de-risking high-impact projects, scaling proven models, and aligning investment capital with the country's evolving land use strategy. They can play a key role by convening public, private, and philanthropic capital, turning insight into action and building the infrastructure for sustainable investment in UK agriculture.

It's undoubtedly complex, but with the right alignment of capital and strategy, the UK's agrifood sector could become a powerful proving ground for what truly sustainable finance can achieve.

Examples of financial innovation in food and agriculture

• Oxbury Bank's Transition Loan Facility, launched in February 2025, offers amounts of up to £500 per hectare farmed with a minimum facility size of £25,001 to a maximum of £500,000.   These loans are sized to the cashflow dip farmers face during transition, with measurement baked into the structure.
• Lloyds Clean Growth Financing has provides lending to UK farms for energy-efficient equipment, renewables, building improvements, water and waste management, and broader environmental schemes. This scale demonstrates that corporate banks are becoming comfortable with nature-linked collateral when policy frameworks are clear.
• Royal London Asset Management and South Yorkshire Pension Authority have formed a £260 million joint venture, purchasing 21,000 acres of arable land for regenerative conversion. This signals that large pension funds are now willing to back long-term soil-health investments, not just forestry.
• Octopus Investments has launched a Natural Capital Strategy focusing on afforestation, peatland restoration, and carbon credit generation, aligning with the upcoming likely direction of the UK Land Use Framework's priorities.
• The Tesco, Co-op, and Lloyds-backed £1 million insetting fund incentivises farmers to reduce their carbon emissions by offering a payment of £60 per tonne of CO₂e abated, with half of the payment provided upfront. This pragmatic approach encourages Scope-3 buyers to share the costs of emissions reduction in their supply chain, while also reducing the burden of verification by not requiring the creation of tradable carbon credits. The scheme also rewards farmers who are already ahead in their emissions reduction efforts