Responsible private investment in natural capital: A Scottish land reform perspective

For Scotland, natural capital is not just a resource but a core component of national identity and sustainability. As Scottish Government seeks to attract responsible private investment in natural capital—such as forests, wetlands, and peatlands— Scotland's approach to land reform offers valuable insights, both into the risks of private investment in natural capital, and how we can balance economic interests with environmental, social, and cultural stewardship.

Natural capital value is tied largely to land ownership in our current system. As voluntary markets have developed alongside public funding for natural capital (including peatland restoration, native woodland planting, and commercial forestry), Scotland’s land prices have increased, and landownership has if anything, become more concentrated. Changes to land ownership coupled with increasing land use change - both resulting in economic impacts and disjointed land management approaches that are felt at a local level - is leaving communities feeling disenfranchised and concerned for their future sustainability.

The publication of the Natural Capital Market Framework by Scottish Government later this year seeks to attract “values-led, high-integrity” private investment in natural capital. The Interim Principles for Responsible Investment in Natural Capital, published with the Commission’s support in March 2022, have had a positive impact on the activities of some investors and other stakeholders, as evidenced through our Good Practice Programme, but are not universally adopted.

This most recent advice to Government specifically on policy alignment and operationalising community benefits, complements our earlier advice to Government on natural capital and our in-depth activity on community benefits from land.

Policy alignment

To deliver on the wider policy agenda, including land reform, community empowerment, and a just transition to tackling the climate and nature crises, we need aligned and effective policy.

Public funding reform and securing public value

Public funding for land use should be reformed alongside the use of private finance, to ensure it remains well targeted as part of the overall system. It is important to consider when private and public funding are by themselves most effective, as well as how they can work together, and to provide clarity on the extent of financial risk likely to be borne by the public sector. Where public funding is used in part or whole, there needs to be in-built transparency and accountability about the impact on wider national objectives.

Integration and accountability of land use decision-making

Effective delivery of natural capital projects requires joined-up land use planning and decision-making at a regional scale. We continue to advise that Regional Land Use Partnerships (RLUPs) are an opportunity to coordinate activity across landholdings, bringing greater scale to enable private investment, and to broker land use change through public-private partnerships. They would also streamline and thereby support improved engagement with local communities and other statutory and non-statutory stakeholders.

Tenure and legal clarity

There are continued uncertainties about legal rights and practical arrangements in delivering land use change through different forms of tenure. While there is sufficient clarity for owner-occupiers to deliver land use change, there is less certainty where two or more parties hold rights over land, such as agricultural tenancies and crofts, and specific technical questions need to be addressed. More fundamentally, there are questions about carbon rights, carbon credits, what is and is not ‘property’, and where ownership may lie.

Operationalising community benefits

The Interim Principles for Responsible Investment in Natural Capital set out the need for investment that delivers public, private and community benefits. Earlier engagement by the Commission set out a now widely accepted definition of community benefits and opportunities for benefits. Our advice therefore focuses on the opportunities for operationalising community benefits.

Market standards and certification

Market standards and certifications can set standards for meaningful community benefits, enabling all parties to understand expectations for Scotland, and improving access to private finance for community benefits alongside nature restoration. It is important that basic standards are incorporated into all nature market codes and that these do not restrict access to the codes for smaller projects, but also that those who should deliver more substantive community benefits have an approved way of verifying benefits delivery.

Public finance and conditionality

Whilst the majority of land in rural Scotland is privately owned (83%), the public sector owns and manages almost 12% of rural land and can have a significant impact both by demonstrating what is possible and playing an enabling role. Public funding can include conditions that ensure the Interim Principles for Responsible Investment in Natural Capital are made a reality, including community benefits. Public funding can incentivise and support collaboration, providing mechanisms for the fair and equitable sharing of risks and benefits.

Advice and capacity building

There is a need to build capacity and provide advice on delivering community benefits for all parties. Communities, in particular, need support to play an active and empowered role in decision making about land to ensure the benefits of land and natural capital are spread fairly.

Conclusion

As Scotland continues to navigate its land reform and nature restoration journeys, there is a need for a really integrated approach to both policy and finance. This won’t be delivered in one step, but the natural capital market framework is one opportunity to help ensure these connections are being made effectively.