Ecosystem Restoration Code (ERC): A Competent Model for private investment in nature restoration in Scotland

1. Introduction

1.1 Background to the Ecosystem Restoration Code (ERC) project

In 2022, the Scottish Government (SG) published the National Strategy for Economic Transformation^[1] (NSET). It includes a commitment to develop a values-led high-integrity market for responsible investment in natural capital. As an important step in developing this market further, we published our first Natural Capital Market Framework^[2] in 2024.

The Market Framework defines SG’s Principles for Responsible Investment in Natural Capital^[3], building on the Interim Principles that were published in 2022. It also sets out seven key interventions for the Scottish public sector to take by 2026 to increase responsible investment into natural capital.

One of these is to support the development of an Ecosystem Restoration Code (ERC) for Scotland, to capitalise on and support the growth of voluntary nature and biodiversity markets.

When completed, the ERC will demonstrate adherence to high-integrity nature market principles like additionality, quantification of environmental gains / outcomes and transparency of claims and reporting. It will help provide the consistency and integrity necessary for all nature market actors – from the land managers supplying the projects to the end-users of the outcomes / credits being generated.

In early 2025, a partnership project between SG and NatureScot was set up to begin the development of an ERC for Scotland. The main output from this project is the production of this ERC Competent Model for private investment in nature restoration in Scotland (“Competent Model” henceforth). The Competent Model is not the final product – it is a template that will provide the basis for further testing and development of the ERC during 2026, towards the production of a fully functioning market mechanism for nature restoration and biodiversity projects in Scotland.

The remainder of this Chapter outlines the aims and objectives of the SG-NatureScot ERC partnership project, describes how it has been undertaken, explains what we mean by a Competent Model and sets out our plans for its further development and testing, including how stakeholders can get involved (section 1.8 includes details of how stakeholders can provide feedback).

1.2 Aim of the ERC project

Our overall aim for the ERC project is to support the development of a flexible investment mechanism that can help to finance a broad range of nature restoration and biodiversity projects in Scotland, in line with the objectives and outcomes of the Scottish Biodiversity Strategy (SBS).

This scope includes:

• Alignment with the principles of the ecosystem approach as set out in the SBS, and
• Flexibility to support investment in projects:
  • with different objectives;
  • that work at different spatial scales; and
  • that support the protection, restoration and enhancement of a variety of Scottish habitats, species and ecosystems beyond woodland and peatland, as these habitats are already supported, respectively, by the Woodland Carbon Code (WCC) and Peatland Code (PC).

1.3 Design of the ERC project

The ERC project has been taken forward in three phases:

1. Discovery Phase: a focussed programme of desk-based research to establish a baseline understanding of what is likely to be required for new nature / biodiversity markets in Scotland. This concluded with the publication of the ERC Engagement Paper^[4] in May 2025;

2. Engagement Phase: design and delivery of a comprehensive programme of stakeholder engagement on the ERC using the Engagement Paper. This included eight online events which, in total, engaged around 200 individual stakeholders across almost 100 separate organisations. Findings from the engagement phase were published in October 2025 in the ERC Engagement Phase Results and Analysis Paper^[5]; and

3. ERC Competent Model Development Phase: from October 2025, feedback and evidence from the Discovery and Engagement Phases informed the development of the ERC Competent Model described in this paper.

1.4 What we mean by an ERC Competent Model

1.4.1 Scope of the ERC Competent Model

The ERC Competent Model is a template intended to facilitate the development of a functioning high-integrity market mechanism for investment in nature restoration and biodiversity by setting out the principles and requirements for such a mechanism. Therefore, the Competent Model is a building block only along the way to developing a fully functioning Ecosystem Restoration Code (ERC).

The Competent Model sets out:

• The individual requirements and criteria that ERC projects would need to meet; and
• The means by which these would be validated to evidence compliance.

A fully functioning market mechanism will need several additional elements, including:

• Operation and governance: we need to establish mechanisms for the management, operation and governance of the ERC;
• Guidance: on how the various requirements of the Competent Model should be interpreted and implemented;
• Verification: the Competent Model only includes proposals for validation (i.e. the initial evaluation of a prospective ERC project against the standards of the ERC). Proposals for verification (i.e. the ongoing evaluation of a project against the ERC standards) have not been included at this stage; and
• Quantification metrics: the ERC has been developed to support a “metric flexible” approach (see section 1.6), but to date only one metric has been identified as having a high likelihood for approved use in the ERC. In due course, criteria and a process for approving the use of alternative metrics within the ERC will be needed.

The Competent Model refers to several parallel ERC documents and aspects of market infrastructure that are still to be developed. These are:

• ERC Project Standards: this separate technical project quality standard will provide guidance for land managers and project developers on what a high-quality ERC nature restoration / biodiversity project looks like (e.g. setting clear and achievable project goals, establishing reference conditions and restoration timescales, ensuring adequate resources, project governance, putting in place procedures for adaptive management). It will also explain how projects can embed an ecosystem approach^[6]. These technical project design standards will sit beneath the ERC itself which sets out the overarching principles and requirements for high-integrity nature market projects (see section 1.7)^[7];
• ERC Field Protocol: this protocol will set out the detailed prescriptions required for sampling, data collection in the field and inputting of data to conduct calculations when using an ERC approved metric. The protocol will likely include, where required, different prescriptions for each ERC approved metric (see section 1.6)^[8]; and
• Registry: at present there is no registry provision in place for the ERC. An approved registry will be required for tracking ERC projects and all aspects of their credit issuance, to manage critical integrity issues like appropriate claims and the avoidance of double counting^[9].

The Competent Model has been designed to work in conjunction with both the WCC and PC. It aims to provide a market mechanism for habitats and land uses not covered by the WCC and PC (woodland and peatland respectively), as well as providing opportunities to integrate WCC and PC carbon credits with ERC projects (and vice versa), via appropriate high-integrity stacking and bundling options (see section 3.8).

1.4.2 Structure of the ERC Competent Model

The structure of this Competent Model is set out in Table 1 below.

1.5 Examples of potentially eligible ERC projects

Examples of projects that we expect could be eligible for the ERC include:

• Large scale / multi-faceted projects across many hundreds of hectares aiming to restore multiple ecological processes (e.g. complex food webs that are a function of healthy ecosystems, beneficial natural disturbance and species dispersal) via various interventions (e.g. mixed grazing with large herbivores, barrier removal, creation and enhancement of multiple habitats);
• Ecosystem restoration projects of differing scales that aim to restore degraded ecosystems after human caused disturbance (e.g. wetland and riverine ecosystems damaged by historic drainage improvements, woodland ecosystems under pressure from invasive non-native species);
• Species protection and enhancement projects of various scales that seek to protect, enhance or restore specific species populations, including where this would enhance their functional role within an ecosystem;
• Habitat creation and enhancement projects of various scales that establish new, or enhance existing, areas of high-quality habitat, in appropriate locations aligned with ecosystem approach principles; and
• Protected area management projects of various scales that support the enhancement of protected areas with existing high nature / biodiversity value.

1.6 A metric flexible approach to the ERC

Ecosystems and the biodiversity they support are inherently challenging to measure. Recent evidence shows that, unlike carbon sequestration, nature is not amenable to measurement by a single metric: attempts to do so are highly uncertain and may lead to harms and other unintended consequences^[10]. Measurement of biodiversity impact is, however, clearly essential for properly functioning nature markets (and other aspects of SG policy).

Accordingly, we are pursuing a flexible approach that would allow for a broader range of quantification metrics and methods to be incorporated in the ERC in the future. Projects would then be able to select from an approved list of ERC metrics that best meet their needs in terms of: (i) the type of project, objectives and land management activity they are seeking to engage in and deliver; and (ii) the type of ERC credits they would be looking to issue to best meet the needs / use case(s) of their preferred buyers of credits.

To facilitate this SG will need to develop a process for testing and accrediting ERC metrics. The design of this process will need to be carefully considered to ensure that metrics approved for use in the ERC are a good fit for Scottish biodiversity policy objectives and priorities (i.e. they incentivise the right type of ecological land management). The requirements within the Competent Model have been developed to accommodate a metric flexible approach where relevant.

SG and NatureScot have worked extensively with nature fintech company CreditNature over the past 2-3 years via a CivTech^[11] Pre-Commercial Agreement (PCA). This included work to refine their proprietary Ecosystem Condition Index (ECI) and Nature Asset Recovery Investment Analytics (NARIA) framework^[12] for use in the context of Scottish biodiversity markets. Accordingly, the ECI has been identified as having a high likelihood for approved use in the ERC (notwithstanding the need to develop a metric approval process).

1.7 Alignment with the BSI Nature Investment Standards Programme

The ERC project (see section 1.1) and the development of this Competent Model are intended to meet the emerging requirements of the BSI Nature Investment Standards (NIS) Programme^[13]. The NIS is being delivered by BSI, led by DEFRA and in collaboration with the Devolved Administrations (DAs), including SG. The goal is to establish a framework of standards for UK nature markets, providing consistent guidance for high-integrity investment in nature.

The following two standards from NIS are particularly relevant to the ERC:

• BSI Flex 701 Nature Markets - Overarching Principles and Framework; and
• BSI Flex 702 Nature Markets - Supply of Biodiversity Benefits.

1.8 Next steps for the ERC Competent Model and how to get involved

1.8.1 Using and commenting on this ERC Competent Model

We are publishing this Competent Model to prompt discussion with stakeholders and market actors and to provide a basis for further testing and development during 2026.

Stakeholders and market actors are invited to:

• Review and engage with the Competent Model;
• Consider its implications for your current or potential future projects; and
• Send any comments or feedback you may have to pinc@gov.scot

1.8.2 Further development of the ERC Competent Model

During 2026, SG and NatureScot will continue to develop and test the Competent Model in order to:

• Identify any of the Competent Model’s requirements that do not work and why (e.g. on technical grounds, because they are overly complex);
• Identify any inconsistencies across the Competent Model’s requirements;
• Identify opportunities for consolidating validation evidence across the Competent Model’s requirements and how this could be achieved (e.g. through appropriate use of templates within the PDD);
• Develop an understanding of how feasible / practical the ERC is likely to be in terms of finding the balance between market accessibility / attractiveness and the need for high-integrity (including any differentiation of this between market actors – e.g. land managers, developers, VVBs); and
• Learn from practice and revise / improve the Competent Model accordingly.

More broadly, the goal of our activity during the remainder of this calendar year will be to address the gaps outlined in sections 1.4.1 and 1.6, to provide a clearer and more comprehensive basis for a fully functioning market mechanism.