Natural capital - interim principles for responsible investment: ministerial statement

Introduction

Presiding Officer, the recent COP26 conference in Glasgow highlighted Scotland’s international reputation for its natural capital and its supporting policies.

These include the First Minister’s endorsement  of the Leaders Pledge for Nature to reverse biodiversity loss by 2030, and our significant public investment in woodland creation and peatland restoration as nature-based solutions to climate change.

Our natural capital has become an increasingly attractive proposition for private investment.

This investment is largely focused on delivering carbon management but it also supports a wide range of benefits including economic development (particularly in rural areas), biodiversity improvements, resilience of food supply and natural flood management.

Presiding Officer, this investment is welcome and necessary, but it must be responsible.

We share concerns about the need to ensure equitable sharing of the benefits of this investment with local communities and wider society – including when the investment involves the purchase of land or carbon rights for the purpose of carbon offsetting.

This is why during COP26 we emphasised our ambition to deliver a values-led and high-integrity market for natural capital.

Responsible investment that delivers a wide range of our environmental, social and economic policy priorities;

That is high integrity so that it verifiably restores and enhances nature;

And that is genuinely values-led so that it supports a Just Transition and involves and benefits communities.

Private investment embedded in NSET

Presiding Officer, this commitment is now also embedded in our National Strategy for Economic Transformation.

Private investment in natural capital is critical to enabling the pace and the scale of action required to fulfil Scotland’s world leading ambitions on addressing climate change and halting ecological decline.

We have already committed significant public funding in the natural economy – over £500m over the course of this Parliament,

But the fact remains that no government alone cannot meet this funding gap.

The Green Finance Institute has estimated the investment gap for nature restoration in Scotland at around £20 billion over the next decade.

We are determined to ensure that this necessary private investment is socially responsible and provides wider public benefit, including for our local communities.

As stated in our Global Capital Investment Plan, we want to work with investors who share our values so that we encourage the right kind of investment in our natural capital. 

And we want to work with communities to ensure they are empowered and poised to benefit from our journey to net zero.

Opportunity

Our approach offers significant opportunity across our economy in terms of increased investment in good jobs and Fair Work in land management and in the supporting fintech, agritech, and supply chain sectors.

Indeed, NatureScot estimate that there are currently around 200,000 nature based jobs in Scotland and that this sector has been responsible for a third of the jobs growth in Scotland over the last five years.

Increasing the right kind of private investment will be important for continued jobs growth, particularly in rural communities, and will also provide new income streams for farmers and land managers.

And we know that young people are increasingly interested in nature based careers which help to fight the twin nature and climate emergencies.

In order to restore our natural capital, ensure a just transition, deliver good jobs and secure a vibrant future for our rural communities, we must design a market for investment with these very objectives at its heart.

Presiding Officer, today we are setting out our ambition and strategic direction to support and promote the type of activity that we wish to see;

Striking a balance between the need for responsible private sector investment that supports our policy priorities, like climate change mitigation, Fair Work and a Just Transition, and on the other hand the need to support community rights and ambitions.

There are examples from other industries, such as wind energy, of how the benefits of land-based private investment can successfully be shared with local communities.

Our ground-breaking Land Rights and Responsibilities Statement (LRRS), published in 2017, sets out principles underpinning the Scottish Government's vision for a stronger relationship between the people of Scotland and our land, where ownership and use of land delivers greater public benefits through a democratically accountable and transparent system of land rights and, importantly, responsibilities.

We are currently conducting the statutory five yearly review of the LRRS to assess whether it requires to be updated to remain fit for purpose now, and for contemporary challenges.

Community empowerment

Presiding Officer, the Scottish Government is committed to community empowerment.

For example, the new Scottish Land Fund is now open and has awarded a total of £6.5m to over 80 projects so far this year.

The budget for this year is £10m, and will be doubled to £20m by the end of this parliament.

The new Land Reform Bill will aim to ensure that the public interest is considered on transfers of particularly large scale land holdings.

And we will aim to introduce a pre-emption in favour of community buy-out where the public interest test applies, and where it is appropriate to do so.

Our proposals will complement existing community right to buy mechanisms. We have existing guidance which supports community engagement in land-based decision-making.

These include our Guidance on Engaging Communities in Decisions Relating to Land, and the Scottish Land Commission’s Good Practice Programme which comprises a series of Land Rights and Responsibilities Protocols.

In addition, the Scottish Government is working in close collaboration with partner agencies, including  the work that the Scottish Land Commission is taking forward as a matter of urgency to better understand the implications of investment in natural capital on the land market.

Conclusion and next steps

In advance of more formal policy developments we are publishing today a set of Interim Principles for responsible private investment in Scotland’s natural capital. 

These Interim Principles set out our ambition for this market in Scotland.

They spell out our commitment to ensuring that the interests of thriving and empowered local communities and the wider public are at the very heart of our approach both now and in the future.

As a priority action under the National Strategy for Economic Transformation, we will develop new market infrastructure, rules and governance for responsible private investment in natural capital.

This approach will build on existing investment mechanisms like the Woodland Carbon Code and the Peatland Code.

Market development will take time to come to fruition and will depend critically on partnership work across the public, private and third sectors.

And on that note, Presiding Officer, I should like to extend my gratitude to the economic and environmental agencies whose insight and expertise has been instrumental in the development of the principles.

I mentioned that no government cannot achieve the scale of our ambition alone – we need to build a broad coalition of the willing.

This collaborative approach will be continued through discussion with communities, land managers, investors and other stakeholders on these Interim Principles to discuss how these will apply in practice, to help us to develop best practice, and  to develop options for market infrastructure.

To this purpose, we will engage on the Interim Principles through existing initiatives such as the Scottish Forum for Natural Capital, the Scottish Nature Finance Pioneers, and networks such as those used by the Scottish Land Commission to support the LRRS. 

Collaboration will be critical to achieving our aims. No government  has all the answers, or has all of this worked out yet.

But we are here, we are ready to lean into this challenge alongside those who share our commitment to a high-integrity values-led market; and indeed, to learning by doing. 

Presiding Officer, this will not be easy – but the things worth doing seldom are.

I hope this is a challenge which we can all get behind, and I very much look forward to working with Parliament to put our ambitious vision into reality.