Ecosystem Restoration Code: engagement paper

1. Introduction

In the 2024 Natural Capital Market Framework, the Scottish Government (SG) committed to supporting the development of an Ecosystem Restoration Code (ERC) for Scotland as a new high-integrity market mechanism that could attract responsible private investment into nature restoration and biodiversity projects. This commitment is being delivered in 2025 via an SG-NatureScot partnership project, following the Scottish Approach to Service Design (SAtSD)^[2].

This Engagement Paper summarises the results of the Discovery Phase of this project. It sets out the key issues and questions that will be explored during co-development of the ERC with nature / biodiversity market stakeholders during the Engagement Phase (May to July 2025).

This chapter sets out: (a) the policy context for biodiversity and private investment in natural capital – mainly in terms of SG policy but also relevant UK Government (UKG) and international policy; (b) the rationale for the new ERC; (c) an outline of the proposed approach to the ERC and its scientific basis; and (d) the structure of the rest of this Engagement Paper.

1.1 Policy context for biodiversity and natural capital

Natural capital is the renewable and non-renewable stocks of natural assets, including geology, soil, air, water and all living things, that combine to yield flows of benefits to people^[3]. SG’s National Strategy for Economic Transformation (NSET)^[4], published March 2022, refers explicitly to the importance of rebuilding Scotland’s natural capital for the achievement of SG’s wellbeing economy goals.

NSET recognises the role of our natural environment, alongside its intrinsic value, as an asset that provides flows of ecosystem services (e.g. clean water, carbon storage, recreational opportunities) which benefit our society and economy, making human life both possible and worth living. Framing the natural environment in this way emphasises the need to invest in and manage this asset, within safe environmental limits, so that we can continue to enjoy these benefits.

The NSET also includes a commitment to establishing a values-led, high-integrity market for responsible private investment in natural capital. This will build on Scotland’s robust framework of environmental policy and be supported by a national pipeline of nature-based projects.

A public sector partnership programme is in place to deliver this NSET commitment – the Private Investment in Natural Capital (PINC) Programme team comprises environmental and economic / investment SG policy Directorates, NatureScot and the Scottish Land Commission (SLC).

In November 2024 SG published its first Natural Capital Market Framework^[5]. This important policy document defines SG’s principles for responsible investment in natural capital, building on the Interim Principles that were published in 2022, and sets out seven key interventions that the Scottish public sector will take, by 2026, to increase responsible investment into natural capital. These include the commitment to support the development of an Ecosystem Restoration Code (ERC).

Scotland’s new Biodiversity Strategy^[6] (the SBS) recognises that we are at a tipping point for nature. Nature is in decline globally with around 1 million species already facing extinction. This crisis is caused by human activity, including pollution, climate change, the destruction of natural habitats, and unsustainable farming and fishing.

The SBS sets out our ambition to halt the loss of nature by 2030 and to make significant progress to restoring nature by 2045. The strategy is supported by a series of 6 year rolling delivery plans, the first of which for 2024-2030 includes a programme of large-scale ecosystem restoration on land, freshwater and sea^[7].

To support delivery of the SBS and its delivery plans, SG has recently (February 2025) published a Biodiversity Investment Plan^[8] (BIP). The BIP identifies the practical actions we need to take to help target both public and private investment on the delivery of biodiversity priorities. This includes an action on “market mechanisms” which spotlights the specific role of the new ERC contributing to this goal.

1.2 Rationale for the ERC

Currently, natural capital markets in Scotland mainly comprise the SG-supported Woodland Carbon and Peatland Codes (the WCC^[9] and PC^[10]). These voluntary codes generate high-integrity, independently verified carbon units. UK-based companies can use these verified carbon units to report against their UK-based emissions or for use in appropriate claims about carbon neutrality or net zero emissions.

WCC and PC projects can deliver wider benefits beyond carbon, including enhancement of biodiversity. However, their focus on land suitable for woodland creation and peatland restoration means that there are many other habitats and land system contexts in Scotland that currently do not have a high-integrity market mechanism for attracting private investment.

The development of a broader range of codes and standards to fill this gap in market coverage will be important for supporting delivery of the SBS across all of Scotland’s terrestrial, aquatic and marine ecosystems.

The gap in code / standard provision includes biodiversity where currently there are no SG supported mechanisms for issuing high-integrity nature / biodiversity credits in Scotland.

The aim of this project, therefore, is to develop an Ecosystem Restoration Code (ERC) for Scotland which can be used to increase high-integrity private investment in nature restoration in Scotland.

1.3 Overview of the ERC

1.3.1 Background to the ERC

During 2023 and 2024, SG co-sponsored a CivTech^[11] pre-commercial agreement phase project with nature fintech company CreditNature^[12]. With investment of around £0.5M from NatureScot and CivTech, this project aimed to develop a workable option for a new voluntary nature / biodiversity credit in Scotland.

As part of the CivTech project, the sponsor team and CreditNature developed a draft Ecosystem Restoration Code (ERC). This draft provides the starting point for this project to develop an ERC for Scotland.

1.3.2 Scope of the ERC project

There are three main assumptions behind the current scope of the ERC project.

The first is that the new ERC will primarily be a voluntary, SG supported Code for issuing high-integrity nature / biodiversity credits. These credits would represent a measured, independently verified improvement in ecosystem condition arising from programmes of restorative land management activity (e.g. control of invasive non-native species, riparian planting, grazing management). Section 1.3.4 below provides further information on how we are proposing to define nature credits.

The second is that the ERC will be an outcome-based Code with a metrics framework that cuts across different terrestrial ecosystem and habitats. This means that interventions delivered under the ERC are flexible and can be designed to meet the needs of the land manager and their landholding, as long as they contribute to an improvement in ecosystem condition. Further information on the potential implications of the ERC for land managers is included at Chapter 3.

The third is that, based on initial discussions with market stakeholders, academics and other nature market specialists, a market based purely on voluntary demand for nature / biodiversity credits is unlikely to be viable, at least in the short-term. For this reason, the project is exploring a range of different use cases and buyer motivations (voluntary and compliance) that could potentially be addressed by the new ERC. This is discussed further in Chapter 4 of this paper.

1.3.3 Applying an ecosystem approach

The ERC is explicitly adopting an ecosystem approach. The ecosystem approach is a strategy for the integrated management of land, water and living resources that promotes conservation and sustainable use in an equitable way^[13]. It is recognised internationally in the Convention on Biological Diversity^[14] (CBD) as one of the primary frameworks for delivering action on biodiversity.

A key principle of the ecosystem approach is the importance of conserving ecosystem structure, functioning and resilience^[15]. This depends on a dynamic relationship within species, among species and between species and their non-living (abiotic) environment, as well as the physical and chemical interactions within the environment. The ecosystem approach also recognises that humans, with their cultural diversity, are an integral component of ecosystems. The CBD’s definition of ecosystems is included at Box 1 below.

International scientific consensus recognises that the conservation and, where appropriate, restoration of ecosystem interactions and processes is of greater significance for the long-term maintenance of biological diversity than simply protecting specific habitats and species. This is because biodiversity is an emergent property of healthy, well-functioning ecosystems. However, traditional protected area management that safeguards the very best of our landscapes, plants and animals will be required alongside and as part of strategic ecosystem restoration^[16][17], because these existing areas of high biodiversity value will be crucial sources of wild species which can repopulate recovering ecosystems.

Box 1: Definition of an ecosystem^[18]

An ecosystem is a dynamic complex of plant, animal and micro-organism communities and their non-living environment interacting as a functional unit.

Applying these principles in practice, our current thinking is that eligible projects under the ERC will:

• Where possible, be undertaken at a spatial scale sufficient for the project to work with whole ecosystems as a “functional unit” (see Box 1). Our current proposal is to address this via a minimum eligible project size under the ERC of 200 hectares (ha); and
• Deliver interventions that support the conservation and restoration of ecosystem functions at scale, contributing to an overall improvement in ecosystem condition. Our current thinking is that this would mean projects and interventions that can deliver an uplift in CreditNature’s accredited Ecosystem Condition Index (ECI) by improving one or more (but ideally all) of the four key ecosystem processes addressed in CreditNature’s NARIA metrics framework^[19].

The development of the ERC to enable investment into projects that improve the health and condition of ecosystems fits well with the commitment to rebuilding natural capital set out in the NSET and the approach to nature restoration set out in the SBS. Chapter 5 includes further information on alignment of the ERC with SG policy.

1.3.4 Defining nature / biodiversity credits

Various definitions of nature / biodiversity credits and units are available. These include definitions used in:

• The draft Ecosystem Restoration Code (ERC) from the CreditNature CivTech project (August 2024).
• Pollination’s State of Biodiversity Credit Markets report^[20] (September 2024);
• BSI Flex 702 Supply of Biodiversity Benefits Version 1^[21] (October 2024); and
• The International Advisory Panel on Biodiversity Credits (IAPB) Framework^[22] (October 2024).

There are similarities and differences across the definitions used. Key similarities include: (a) credits as a positive outcome for biodiversity; (b) underpinned by scientifically robust measurement; (c) durability and additionality of the outcome; (d) specification of a credit / outcome lifetime or duration; and (e) reportability and tradability of credits.

The definition from the IAPB is taken as a useful starting point for the purposes of this Engagement Paper. A slightly adapted version of the IAPB definition is included at Box 2, which includes reference to ecosystem condition as well as biodiversity (i.e. credits could relate to units of positive biodiversity or ecosystem condition outcome). It is straightforward, encompasses key high-integrity principles (see Chapter 2) and was based on extensive engagement with global biodiversity market actors. The definition from CreditNature used in the draft ERC could be modified slightly to improve its alignment with the IAPB definition.

Box 2: Working definition of nature / biodiversity credit^[23]

A certificate that represents a measured and evidence-based unit of positive biodiversity [or ecosystem condition] outcome that is durable and additional to what would have otherwise occurred.

1.4 Structure of this Engagement Paper

The remainder of this Engagement Paper is structured as follows:

• Chapter 2 considers what is required for a high-integrity ERC;
• Chapter 3 outlines what the supply-side might require from the ERC – i.e. what do land managers and landowners require to enable them to participate in these markets;
• Chapter 4 addresses the demand-side, considering what investors and buyers of nature / biodiversity credits require from the ERC;
• Chapter 5 looks at how the ERC can be aligned with relevant SG policy (including funding) and existing nature markets and standards; and
• Finally Chapter 6 explains how you can respond to the Engagement Paper and / or participate in specific engagement events. It also outlines the next steps for the ERC project.