From targets to traction: aligning business incentives with the Environment Act

2025 was a bruising year for UK environmental policy.  Despite substantial policy ambition, it fell well short on both consensus and delivery for practicable, scalable solutions.  

A familiar narrative is taking hold: that climate and nature ambition has become collateral damage in a system clogged by competing demands, process-heavy regulation and policy fatigue.  Drawing on his recent experience in Number 10, Paul Ovenden captured this mood well, arguing that the government’s ambition is being sapped by a “stakeholder state” of vested interests and campaigning causes.  It’s a beguiling analysis, which has already been seized upon by commentators as a reason to slow down or deprioritise action on climate and nature recovery.  This would be a mistake. 

In these turbulent times, the government’s priorities are of course on public services, the cost of living, infrastructure, new housing and defence.  But this doesn’t have to mean that environmental ambition gets traded off against these outcomes.  It does, however, require a very different approach to policy development. 

This was broadly the conclusion of two independent reviews of environmental regulation last year.  Now the National Audit Office has opined on how their reform ambition is being implemented by Defra’s two main delivery bodies.  The NAO’s report is an excellent lens on the government’s challenge.  The relentless focus on the processes, cultures and resources of the Environment Agency and Natural England distracts from the salient question: is the underlying system of environmental regulation and incentives fit for the 21st century?  On this, the NAO is unequivocal:  

“The government intends for the regulatory system to both protect the environment and enable economic growth, but it is not working as effectively as it could.  The current system is complex and outdated.” 

Over the last decade, I’ve seen this system from multiple angles: as a founding Executive Director of Natural England, through my work with Wessex Water advocating for better regulation and, more recently, as Managing Director of EnTrade, designing and running real-world demonstration markets for nutrients, biodiversity and environmental outcomes. These experiences have shaped a simple conclusion: it is possible to develop policies that drive economic development growth and, at the same time, halt the decline of nature and restore our natural environment, but only by re-setting the approach and purpose of the environmental regulatory system itself.  

This is not a simple task.  While public funding and regulation must play a foundational role, the scale and complexity of the challenge means that the involvement of the private sector in this endeavour is essential.  As I heard at the City roundtable where Steve Reed launched the government’s Call for Evidence on expanding the role of the private sector in nature recovery, business and investors are up for this: but only if the incentives are right.  

This requires a long-term policy framework that provides predictable returns on private investment.  As recent policy decisions illustrate, the current short-term approach to environmental policy making gives the wrong signal to business and investors: 

• Lack of clarity over the future of the Environmental Land Management Scheme (ELMS) and how it will interact with private finance to incentivise commercially viable action by farmers and landowners. 

• Downgrades in the privatised water sector’s credit ratings as a result of regulatory uncertainty. 

• Planning reforms eroding investor confidence in new nature markets. 

This is not just the usual call for long-term policy stability.  The point is this: we can revitalise farming, clean up rivers, reform planning and restore nature at the same time.  But it will take a radical overhaul of how incentives are designed: away from prescriptive, input-led regulation towards outcomes that society actually wants and that businesses, investors and markets can respond to; and more efficient allocation of risk and reward to enable cost-effective use of scarce public and private funding. 

Summoning regulators to Number 10 or commissioning independent reviews may offer short-term cover, but only strategic reform of underlying regulation and incentives will deliver sustained change.  Solving complex systemic problems like river health and nature recovery requires innovation-friendly regulation that promotes cooperation and pan-economy action more attuned to the needs of places and communities.  As Polly Mackenzie says, “A government that… acts as convenor, catalyst and relational architect can unlock far more capacity than it could ever build internally, not by pulling levers, but by reshaping how society itself responds to shared problems.” 

To mirror the examples above, positive steps forward in 2026 would be: 

• The Farming Roadmap laying out how ELMS will become part of a system of incentives that rewards farmers for delivery of environmental public goods in combination with private benefits delivered through market mechanisms. 

• The Water White Paper committing to incentivising water companies to invest in upstream, catchment-scale interventions that can deliver better outcomes for water quality, biodiversity and climate resilience at lower long-term cost. 

• A clear policy on the role of nature markets in delivering on the targets for environmental improvement and attract private investment into nature recovery. 

The turbulence of 2025 exposed a simple truth: meeting the UK’s Environment Act targets now depends on clarity of purpose and delivery – ambition is not enough.  As the clean power mission is demonstrating, better incentives can inspire and reward businesses to invest in environmental improvement.  Let’s hope that 2026 brings a fresh approach to involving the private sector in building a regulatory system that works.