NatureScot CAP0045
Written evidence submitted by NatureScot
Response to the Call for Evidence to the role of natural capital in the green economy:
- What potential contribution can private capital investment make to measures to secure nature recovery?
(1.1) Private investment in natural capital will help to fund nature recovery and nature cannot recover without it. The Green Finance Institute estimates there is a £97 billion funding gap over the next decade to meet the UK’s nature-relate targets. Public sector funding alone cannot deliver all of the nature restoration required to reverse biodiversity loss and deliver net zero. It is essential that private investment is attracted to nature restoration and blended effectively with public funding.
(1.2) By paying for outcomes, private capital investment will help secure nature recovery by securing a range of ecosystem services. Ecosystem services are the benefits from nature people receive, listed below with the investment needed to secure these benefits [a]:
- How can investment best be aligned with environmental benefits, so as to achieve or surpass the Government’s targets for nature recovery?
(2.1) A natural capital approach is the best way to establish a baseline of the natural assets you have, their condition, and where the opportunities to restore nature and increase environmental benefits might be [b, c]. A natural capital approach is when the full suite of benefits people receive from nature are considered for decision-making. Responsible private investment should be guided by a natural capital approach to ensure that it delivers the best outcomes for people and nature.
(2.2) Many of the investment opportunities for nature are in Scotland. Scotland has 46% of the UK’s total woodland [d] and 60% of the UK’s total peatland habitats [e], both habitats are important for carbon sequestration and reaching the UK’s climate targets. The Scottish Government is developing a Market Framework for investment in natural capital which will reflect the unique opportunities and challenges for investment in Scotland.
(2.3) Investment should be guided by local and regional land use frameworks to ensure that the right intervention is financed in the right locations. Across the market, it is important that investments are designed at the landscape scale, ensuring that benefits are maximised and that projects are well aligned with neighbouring land use change.
- What measures are necessary to (a) establish and (b) maintain the high-integrity markets in ecosystem services which are expected to attract private investment? What confidence do investors currently have in the UK’s arrangements for these markets?
(3.1) It is essential that the UK maintains a high integrity market, underpinned by robust standards and metrics. We welcome the work being led by DEFRA and the British Standards Institute in this area. Alongside that, we encourage the UK Government and devolved administration to ‘weed out’ any mechanisms that emerge in the UK market that do not meet these standards to maintain the overall integrity of the market.
(3.2) The existing standards are well regarded for the integrity of validation and quantification of benefits. However, a current weakness in the market is around buyer integrity. To avoid accusations of greenwashing it is essential that standards are developed to ensure that the buyers of ecosystem services / credits have avoided or reduced impacts on nature / climate before purchasing credits to offset the residual and unavoidable impacts.
(3.3) Our experience of engaging with investors suggests that they have good confidence in the UK market, but they seek further regulation and standards to ensure integrity.
- How can the operation of natural capital markets ensure genuine net gains for nature? How do such markets address the risk of ‘greenwashing’ of investments and the offsetting of natural recovery in the UK against environmental degradation elsewhere?
(6.1) See (3.2) for comments on buyer integrity above.
(6.2) It is essential that robust monitoring, reporting and verification is maintained to ensure integrity. It is also important that the robustness of these processes is communicated effectively to consumers and stakeholders to build confidence in the market.
- What role can the UK’s financial markets play in developing the flow of international capital into the development of the UK’s natural capital?
(7.1) UK institutions and market players can ‘fly the flag’ for the UK natural capital market, highlighting the high integrity of the market and attracting international investors. In Scotland, we are already seeing global investors take an interest in the market place and we support further work to raise the profile of the market here in the UK.
- What role does the UK have in establishing international standards for natural capital investments, alongside other jurisdictions and financial centres?
(8.1) The UK is well regarded in this market. We have an opportunity to show leadership in global markets to demonstrate that high integrity market, underpinned by robust metrics and standards, can deliver the right outcomes for people and nature. This can help address criticism of less robust approaches elsewhere and develop good practice which can be replicated.
(8.2) In Scotland, we are particularly keen to see communities benefit from investment in natural capital. The Scottish Land Commission is working on guidance to support this and we would encourage other UK jurisdictions to learn from this approach.
References:
[a] https://www.greenfinanceinstitute.co.uk/news-and-insights/finance-gap-for-uk-nature-report/
[d] https://www.gov.scot/publications/scottish-natural-capital-accounts-2023/pages/4/
[e] https://www.iucn-uk-peatlandprogramme.org/sites/default/files/2019-05/Peatland_Leaflet_ONLINE_V2.pdf
Additional resources and case studies:
https://www.gov.scot/publications/mobilising-private-investment-natural-capital/documents/
September 2023