The Scottish government has announced an open call for projects aiming to support current and future nature markets, which it hopes will drive equitable financial investment in natural capital, among broader calls for UK-wide policy cohesion to help promote the emerging biodiversity market.
A new round of funding to get nature-based projects “investment ready” was launched by the partly-devolved Scottish government at the Nature Finance Scotland Forum on Monday, hosted by Ecosystem Knowledge Network.
“We’re already investing £250 mln in peatland restoration and £65 mln in the nature restoration fund,” said Gillian Martin, the Scottish government’s energy and environment minister, adding that the “funding is not sufficient by itself, we need both public and private capital to tackle the dual crises [of nature loss and climate change]”.
The minister announced that prospective projects can now apply for the Facility for Investment Ready Nature in Scotland (FIRNS), hosted by Scotland’s nature agency, NatureScot.
The new 2024-2025 funding round allows organisations to bid for grants of up to £160,000 to develop business cases and financial models to attract investments to improve and restore the natural environment, the minister said.
A previous round of funding under FIRNS dispersed £3.6 mln to more than 27 projects, with half the funds provided by the Scottish government and the remainder matched by the National Lottery Heritage Fund. The selected projects are designed to monetise a range of ecosystem services.
Some “11% of species in Scotland are threatened with extinction … over 40% of species are showing strong declines in abundance,” Claudia Rowse, deputy director of sustainable growth at NatureScot, told the forum. “We know how to restore nature, and it’s quite straightforward but we just need to scale it up,” she added.
The new funding round will not be as extensive in funding as its predecessor seeing as it is predominantly designed to help previous applicants who were unsuccessful, Rowse said.
BRITISH BARRIERS
In the UK, the statutory responsibility for nature is devolved between regional governments, although the voluntary markets, primarily provided by way of the Woodland Carbon Code and Peatland Carbon Code, are implemented nationally.
Market participants at the event highlighted that a key barrier to scaling nature markets within Scotland is a lack of policy coherence across the devolved administrations.
“On the policy level, we’d encourage the creation of a biodiversity market in Scotland, similar to [England], this would help drive more investment in nature in Scotland and enable a broader range of habitats to receive funding,” said Andrew Turnbull, senior investment manager at Federated Hermes.
Biodiversity markets across the UK are currently inconsistent across devolved nations. Mandatory biodiversity net gain (BNG) regulation is slated to go live in January in England, but no equivalent yet exists in Scotland, Wales, or Northern Ireland.
The BNG regulation is built on a biodiversity metric created by Natural England, England’s nature agency, and the Scottish government is exploring how to adapt the tool to the Scottish context.
The devolved administration also recently announced funding for the development of a voluntary biodiversity credit initiative in Scotland, led by tech company CreditNature.
However, market participants also highlighted the need for policy coherence within devolved governments.
“I’d also hope for policy alignment between agricultural subsidies and nature restoration. For example, farmers have a fear of doing peatland restoration due to fear of losing their agricultural subsidies for stocking densities,” Turnbull said.
COMMUNITY CONCERNS
The forum showed that nature markets are likely to experience continued tension with the need to scale versus the need to ensure community benefits, as investment in nature ramps up across the country.
The Scottish government’s Interim Principles for Responsible Investment in Natural Capital strongly recommend actively engaging communities through investments in nature.
Upcoming community guidance from the Scottish Land Rights Commission was highlighted in an afternoon panel session at the event, which aims to outline how communities should be involved in nature market projects.
“We’re looking to launch a fund of our own where we acquire opportunities for natural capital projects,” said Fraser Green, senior asset management ESG at Abrdn in the discussion. “We need the [community] guidance … we’re hoping to move at quite a lot of pace with a significant amount of capital,” he added.
“As institutional investors, long-term value is important. We need to ensure stability across all these markets and if we do it wrong, all we’re doing is increasing volatility.”
Green sees involving communities in the pre-acquisition stage as a volatility-reducing action. However, he highlighted that a jurisdiction-wide approach would be welcome.
The Scottish government recently announced plans to publish proposals for its own natural capital markets framework within 12 months, building on the region’s interim Principles for Responsible Investment in Natural Capital.
The British Standards Institute is also developing a “high-integrity framework” for alignment between the many emerging mandatory and voluntary nature standards across the UK.
By Tom Woolnough – tom@carbon-pulse.com
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