Ecosystem Restoration Code (ERC): engagement phase results and analysis

Executive Summary

Our 2024 Natural Capital Market Framework commits the Scottish Government (SG) to supporting the development of an Ecosystem Restoration Code (ERC) for Scotland as a new high-integrity market mechanism for attracting responsible private investment into nature restoration and biodiversity projects.

Between May and July 2025, we undertook a programme of stakeholder engagement on the ERC to: (a) test our understanding of the potential role for high-integrity nature / biodiversity markets in Scotland; and (b) gather further insights and recommendations from stakeholders to inform the development of a high-integrity ERC that can work well for all market actors.

This paper summarises and analyses the results of this engagement and sets out priorities for the next stage of the ERC project informed by the analysis. A summary of this analysis and the priorities is set out below.

Comments on the objectives and framing of the ERC

Stakeholders are highly supportive of SG’s commitment to develop a new market mechanism for restoration of nature / biodiversity in Scotland. This is seen as a priority for accelerating the achievement of SG biodiversity objectives and for providing more opportunities for land managers to participate in natural capital markets.

However, greater clarity was sought on the purpose of the ERC – in terms of its strategic intent, the types of project and outcomes it will support and the specific SG policies it will help deliver.

Stakeholders generally support the adoption of an ecosystem approach to the ERC and regard this as a positive innovation, well aligned with international / national biodiversity policy. However, some stakeholders did not see this is a reasonable justification for the proposed minimum eligible project size of 200 hectares (ha).

Comments on requirements for a high-integrity ERC

Stakeholders identified a range of issues that will need to be considered to ensure a high-integrity ERC. In general, these were closely aligned to the high level Principles for Responsible Investment in Natural Capital set out in our Market Framework, and the more detailed BSI Nature Investment Standards (NIS) Programme. However, some wider issues were identified as well including: (a) compliance and enforcement; and (b) the potential need to integrate adaptive management and systems approaches in the ERC, especially in terms of how these interact with the principle of durability.

Stakeholders also gave detailed feedback on four specific integrity related proposals for the ERC in terms of the potential risks / opportunities they raised for market integrity and supply-side access as well suggestions for how the proposal could be improved. The four proposals covered:

• Metrics and measurement;
• Durability of outcomes;
• Additionality; and
• Stacking and bundling.

On metrics, some stakeholders were concerned about a lack of transparency with the proposed metric framework for the ERC (CreditNature’s NARIA framework), meaning that it couldn’t be evaluated in terms of its scientific rigour or understood in relation to its implications for eligible land management under the Code.

Comments on requirements for supply-side aspects of the ERC

Stakeholders identified various potential requirements that could help to promote land manager engagement with the ERC. Strong themes included: (a) the need for clarity on all key aspects of ERC design / function to help inform business planning (e.g. stacking and blended finance); (b) the need for a “level playing field” of fairness and transparency; and (c) confidence that the system is easy to use, especially in terms of metrics. Some stakeholders also commented on the importance of ERC being consistent with future agricultural support policy and there was some interest in the concept of a conservation credit, alongside credits for restoration.

Stakeholders were asked about land / farming systems that were likely to be more / less relevant to the ERC. There was uncertainty of the extent to which the ERC metric framework (NARIA) could be applied to aquatic ecosystems and in more intensive farming systems, where the scope to undertake nature restoration activity is likely to be more constrained by food production objectives.

Stakeholders participated in a detailed discussion about eight proposed ERC eligibility criteria. Many stakeholders identified risks with the proposed “minimum 200ha” criterion for projects as this would exclude smaller landowners / managers. It was also noted that the biodiversity benefit from many smaller projects has the potential to make a significant cumulative contribution to SG biodiversity goals. Conversely, some stakeholders felt that this scale may support more ambitious objectives for nature restoration.

There was also extensive discussion on the proposed “minimum ERC project duration of 10 years” with some stakeholders suggesting that this wasn’t sufficient to ensure durable outcomes. However, other stakeholders regarded it as a strength by potentially making the ERC more accessible to land managers who may not wish to commit to longer timeframes.

Comments on requirements for demand-side aspects of the ERC

Stakeholders were asked to consider strengths and weaknesses of three potential demand-side use cases for the ERC as well as identifying design features for the ERC that would allow it to capitalise on the use case. The three use cases were:

• Use Case 1 – Evidence-based contributions / corporate disclosures;
• Use Case 2 – Regulatory demand (local compensation / offsetting); and
• Use Case 3 – Supply chain insetting / risk mitigation.

A range of strengths and weaknesses were identified for each use case with no one use case emerging necessarily as a stronger proposition. Weak / uncertain demand was identified as a challenge across all the use cases, even for the compliance-based Use Case 2 (local compensation / offsetting). A key strength of Use Case 2 was its potential appeal to large / multinational corporates with aspirations to credibly invest in their own nature positive goals or make contributions to national / international biodiversity commitments. This voluntary approach was also regarded by some as the “international direction of travel” as emphasised by the recently launched EU Roadmap towards nature credits.

In terms of design features, a strong theme across all use cases was the principle of adopting the mitigation hierachy, even for those use cases driven primarily by voluntary motivations. There was also a strong interest in ensuring the ERC is designed to support smaller projects / landholdings and in including mechanisms to allow the quantification of co-benefits to maximise the value for buyers. This was particularly the case for Use Case 3 (supply chain insetting / risk mitigation) as buyers would need to understand the precise level of benefit / outcome being delivered to meet their supply chain risk management needs.

Comments on ERC policy alignment issues

Stakeholders identified a range of policy alignment issues that development of the ERC should consider. Principal amongst these was the need to align the ERC with relevant public support for land use, including the future agricultural support system, Forestry Grant Scheme (FGS) and Nature Restoration Fund (NRF). All of these have the potential to be blended with private finance via the ERC, contributing to value for money public expenditure and the achievement of more or better environmental outcomes.

The other main policy alignment issue identified was the need to consider more fully the role of the ERC contributing to water policy related objectives. The interaction of land management with integrated catchment management was seen as fundamental and stakeholders sought reassurance of how the ERC would approach this interaction, including via metrics for aquatic ecosystems and related outcomes. The water environment was highlighted as being of central importance in the Scottish Biodiversity Strategy (SBS) as well as facing significant climate risks.

Stakeholders also identified various potential risks and unintended consequences of the ERC, including: (a) the need to consider more carefully the interaction between the ERC and several related SG policy areas – community wealth building, land reform and new entrants to farming; and (b) a key risk relating to the slow pace and scale of ERC development when action on biodiversity is required now.

Priorities for the next stage of the ERC project

The analysis presented in this paper has been used to inform a set of priorities for the next stage of the ERC project. These effectively provide a “route-map” for the SG-NatureScot ERC team to follow in developing the ERC further towards the end of the current project in January 2026. These priorities are summarised in Table ES-1 below.