Environment strategy for Scotland: business regulatory impact assessment

Section 3: Costs, impacts and benefits

Quantified costs to businesses

As referenced in the Environment Strategy, businesses have a pivotal role in supporting the economic transformations needed to tackle climate change, nature loss and pollution. As part of our wider approach to economic development, we are committed to nurturing purposeful businesses. There will also be benefits to businesses through ensuring that individuals are equipped with the green skills needed to secure these jobs and help transition to net zero and supporting increased business and investment opportunities.

Industries directly reliant on natural capital, excluding non-renewable resource sectors such as oil and gas, have been estimated to support around £40 billion^[1] of economic output – representing around 14% of Scotland’s economy.

In addition, the cost of not tackling the crises could also cause a cumulative effect of different environmental shocks (e.g. water shortages and pollution, impacts from extreme weather, soil health decline, and biodiversity loss) and the interaction with climate change. The Green Finance Institute (a UKG backed organisation) estimated that damage to the natural environment, both domestically and internationally, could lead to a 6-12% reduction to GDP in the years ahead - larger than the hit to GDP from the global financial crisis or Covid19. The Global Risks Report 2025^[2] found that extreme weather events are anticipated to become even more of a concern than they already are, with this risk being top ranked in the 10-year risk list for the second year running. Biodiversity loss and ecosystem collapse is second over the 10-year horizon.

We envisage that the existing policies and future policy priorities set out in the Environment Strategy will bring many positive impacts to businesses, especially green industries and businesses, including:

• Creating new market opportunities^[3].
• Reducing costs through energy and resource efficiency and cutting waste.^[4]
• Boosting competitiveness and innovation by responding to increasing demands from customers, investors and export markets for ethical and sustainable business practices^[5].
• Strengthening resilience to disruptions in international supply chains and fluctuations in energy and commodity prices^[6].
• Reducing exposure to climate^[7] and nature-related risks^[8].

However, we are aware that some of the policies and priorities described in the Strategy, which while being beneficial to businesses, could also introduce some potential implications and costs. For example, despite the opportunities that the Strategy can bring in creating new market opportunities and increasing export markets, there is a risk that the Strategy could also impact international competitiveness.

In addition, there is also a risk that the Strategy could potentially introduce some implications and additional costs to businesses through the consideration of cumulative impacts on business. We will, therefore work in partnership with businesses to understand the opportunities offered by these economic transformations, as well as potential barriers, including costs, to ensure potential implications and costs are mitigated against.

There is already significant action underway to help businesses to capture the benefits from embracing sustainable business practices, including grants, tools and advice. We will also look to build on these approaches by exploring further opportunities to support businesses to benefit from the policies and priorities mentioned in the Environment Strategy during the implementation of the proposals.

In addition, a number of responses to the consultation warned of potential unintended consequences from the Environment Strategy which could impact on businesses and increase costs. These included limited capacity to absorb regulatory changes, which could lead to increase costs, high upfront costs for compliance and transition, especially in the short term, and a lack of tailored support mechanisms. The overlap of environmental policies was also highlighted as this could cause confusion for businesses. To mitigate these impacts, there were calls for the Scottish Government to support businesses by providing funding, technical assistance and improved regulatory coherence to reduce duplication.

Other impacts

Scottish firms’ international competitiveness

The Environment Strategy helps Scottish businesses internationally. For example, it can help increase market access and export opportunities around the world by having stronger environmental credentials which will enable them to meet tougher import regulations and requirements more easily. Some consultation responses highlighted the importance of the Strategy in enhancing the export competitiveness of Scottish businesses and local supply chains.

As referenced above, there is a risk that the policies and priorities in the Strategy could potentially impact on the international competitiveness of businesses. Therefore, the Scottish Government will have an important role to play in creating an enabling environment by helping to ensure that sustainable choices are affordable and practical for businesses, and providing the certainty needed to build business and investor confidence. We will do this by working in partnership with businesses to understand the opportunities offered by these economic transformations, as well as potential barriers, including costs. This approach is at the heart of our New Deal for Business commitment.

Benefits to business

The Strategy sets out policies and priorities that represent significant opportunities to businesses adopting net zero, nature positive, circular economy business practices. This builds on the existing opportunities emerging across low carbon sectors, including in waste and recycling and in renewable energy. The Strategy also sets out proposals for further engagement to business to better understand the opportunities and barriers for different business sectors, and to engage with business on detailed policy development.

Small business impacts

Investment

Financial institutions are increasingly favouring low carbon and climate resilient companies, which as a result of the Strategy is likely to give Scottish businesses an advantage. Projections show that over the next 10-15 years, the Highlands and Islands region stands to benefit from a generational investment of over £100bn^[9], driven by the generation, transmission and distribution of renewable energy. Consultation responses highlighted the importance of the potential long-term cost savings for businesses as investment in climate adaptation and nature recovery could be more cost-effective and reduce future risks and damages.

However, as referenced above, it could also potentially make Scotland less attractive to investment through any potential implications on businesses through changes to policy, or through uncertainty about regulatory changes. We will work in partnership with businesses to understand the opportunities offered by these economic transformations, as well as potential barriers to investment in the implementation of policies and priorities. We will also ensure that the role of the Strategy is clear, and in the policy priorities seek to promote policy coherence and stability. In the responses on the consultation, some respondents warned of the high upfront costs for compliance and transition, which could impact on investment in some sectors.

Several respondents to the consultation also suggested mechanisms to help businesses manage transition risks, including funded transition plans and proactive risk mapping, multi-year predictable funding support for small rural and island enterprises, clearer policy guidance to reduce uncertainty, and targeted grants, technical assistance, and tax incentives for SMEs adopting low-carbon or circular practices.

Workforce and Fair Work

There will be a positive impact on workforces through the Strategy through our just transition to a net zero, nature positive, circular economy which will create new high-value jobs in green industries, such as renewable energy, and our support for green skills will help to equip people with the skills needed to access these jobs. These green skills will help equip people to secure high-value jobs in green industries, as part of our just transition.

The just transition in our economy will also support quality jobs and fair work by creating significant new opportunities for high-value jobs in green industries. Our approach to a just transition is also committed to providing job security for those in industries that will play the biggest part in the transition. Responses to the consultation on the draft Strategy also highlighted the potential for job creation through the priorities and proposals in the Environment Strategy.

Industries directly reliant on natural capital, excluding non-renewable resource sectors such as oil and gas, support at minimum around 260,000 jobs in Scotland, directly and indirectly. Agriculture, fish and timber provision, whisky and beer production, tourism, and electricity provision are just some examples of the sectors reliant on natural capital. However, there were concerns raised in the consultation for jobs in high-carbon sectors such as fishing, agriculture and transport, and calls for retraining and green skill development for employees these sectors, as well as support for employees during the transition.

We will continue to explore the impact of the Strategy on businesses during the implementation of the priorities and proposals in the Strategy. This will help us to establish whether any of these could result in higher costs for businesses, which could lead to the number of staff they employ being reduced.

Climate change/ Circular Economy

The Strategy sets out a holistic framework for delivering Scotland’s role in tackling nature loss, climate change and pollution. As in the draft Strategy, we will achieve the vision by supporting positive changes in our economy and society that will transform our country for the better. Our outcome of ending Scotland’s contribution to climate change describes our ambition for ensuring Scotland plays its full role in the global effort to tackle the climate emergency. By delivering this outcome, we will deliver our unwavering commitment to achieve a just transition to net zero emissions by 2045. The delivery of this outcome also means reducing Scotland’s carbon footprint, including emissions that are embedded in the goods and services we import.

Tackling climate change will help create enormous new opportunities for Scotland’s economy and communities. It will support new green industries, businesses and jobs and help to tackle poverty and inequalities, by pursuing a just transition. There will also be many health and wellbeing benefits, from cleaner air, warm homes and safer streets to supporting active lifestyles and healthy, sustainable diets.

We will grow a circular economy that boosts efficiency, cuts waste and builds Scotland’s resilience to disruptions in global supply chains. We will move from our linear ‘take, make, waste’ economy to a circular economy is key to improving our global environmental impact. The forthcoming Circular Economy Strategy will build on this by identifying priority sectors and systems where action is needed, giving a clear direction of travel for businesses. Other benefits that were highlighted in the consultation included encouraging green innovation, opening up new business models, increasing export and competitiveness, and access to green finance, and reducing environmental risks and operational costs.

The benefits of adopting circular economy approaches to manufacturing include higher quality products and lower production costs. Zero Waste Scotland^[10] estimate that Scottish manufacturers could benefit from potential growth of remanufacturing from its current value of £1.1bn to nearly £1.7bn with the addition of 5700 new jobs. However, some consultation responses warned of potentially high transition costs for smaller businesses, complex regulations and burdens, and a lack of infrastructure in rural and island areas.

Competition Assessment

This section considers the impact of a regulation or policy on competition between producers, wholesalers, retailers and importers in the Scottish Market. A number of businesses and markets across Scotland will benefit from the Environment Strategy, including through new market opportunities and boosting competitiveness and innovation by responding to increasing demands from customers, investors and export markets for ethical and sustainable business practices.

However, there is a possibility the Strategy could negatively impact on the competitiveness of Scottish businesses, as any changes to policies or uncertainty about policy intentions could introduce some implications and additional costs on businesses and investment, especially if there is divergence from the UK Government which could act as deterrent on competition. We will work with businesses to consider the potential impacts on competition in the implementation of policies and priorities.

The individual policies, regulations and schemes within policy areas that follow the publication of the Environment Strategy will be assessed for their impact on businesses, and a Competition Assessment will be carried out where appropriate.

Consumer Duty

The Consumer Duty Impact Assessment can be accessed online. We have decided to consider the impacts on consumers (including businesses) of goods and service provided by businesses in this section, as the Consumer Duty Impact Assessment only considers the impact on goods and service provided by public authorities.

Many of the responses on the Consumer Duty Impact Assessment were supportive of the Environment Strategy but had some cautions. Many respondents welcomed the Environment Strategy’s goals, especially its potential to improve environmental quality and mental and physical health. However, there were some concerns raised about equity and affordability. Some of the positive impacts that were identified included:

• Consumer empowerment – better access to information and tools for sustainable choices and support for reuse, repair and community-led initiatives.
• Long-term cost savings – more energy-efficient homes and circular economy practices could reduce household bills over time.
• Health and wellbeing - improved air quality and access to green spaces.
• Trust and Transparency - stronger environmental standards could improve consumer confidence in food systems and product safety.

However, consultation responses also warned of potential negative impacts and risks from the Environment Strategy, including:

• High upfront costs for low-carbon technologies (e.g. heat pumps, EVs),
• A heavy reliance on digital services that could disadvantage certain groups.
• Overwhelming consumers if there is a lack of guidance on new standards and choices.
• Higher costs for island and remote communities due to the availability of services.
• Prices increases due to stricter regulations for some sectors.
• Short-term disruption from the building of infrastructure projects (e.g. flood defences, renewables) which could affect access to services or natural spaces.

However, there were a number of suggestions to overcome these potential negative impacts by having clear, accessible communication, targeted financial support to ease upfront costs, inclusive engagement with diverse consumer groups, especially vulnerable and rural populations, and monitoring and adaptive management to track unintended consequences and adjust policies.

We will continue to work with closely with colleagues across the Scottish Government, businesses and other stakeholders to develop the proposals in the Environment Strategy to ensure they are effective and the full effects on consumers are considered. This engagement will include working with these groups to monitor the implementation of the Strategy and, if necessary, make any changes if any unintended consequences cannot be mitigated against. In addition, further impact assessments will be conducted necessary to assess the impact on different groups.