Thriving natural capital

Our goal is to research and build ecosystem markets to meet net-zero targets and reverse the biodiversity decline. We support thriving rural communities through regenerative agriculture and conservation.

Scotland's natural capital is essential to addressing UN Sustainable Development Goals. Our work focuses on advancing the science of ecosystem services and informing on the restoration of natural capital and its sustainable use.

What is natural capital?

Natural capital can be defined as 'renewable and non-renewable stocks of natural assets, including geology, soil, air, water and all living things, that combine to yield a flow of benefits to people' (Scottish Forum). It is a concept that enables us to think of our natural environment as an asset that provides ecosystem services beneficial to our society and economy.

Some of these, like food, are 'private goods' because individuals can own and profit from them. 'Public goods', like climate change mitigation, are available to anyone, and society benefits, rather than individuals.

Many businesses rely on natural capital and ecosystem services and they'll invest in nature, to protect their private goods. It is harder to justify investing in public goods, which are difficult to value and which provide benefits only in the long term. Investing in public goods will also, of course, benefit a business' competitors.

As a result, many business decisions generate short-term private benefits at the expense of longer-term public benefits. This leads to costs to the environment, such as pollution, flooding or climate change, that then have to be met by governments.

For example, agricultural production leads to private goods (the harvest) for the producer, whilst generating environmental costs (such as its carbon footprint). Funding from either public or private sources may be offered to farmers, to encourage more sustainable practices that primarily benefit the public over the long term, rather than providing short-term private benefits.

Carbon markets include international compliance markets (such as Article 6, Paris Agreement) and national and international voluntary markets (such as the Peatland Code, Gold Standard, Verra).

A common solution is carbon 'offsetting', where companies buy carbon credits to compensate for any emissions they are unable to avoid. These credits are then offset by actions like emissions avoidance (such as restoring a damaged peat bog) or carbon sequestration and storage (for example by tree planting via the Woodland Carbon Code). Another option is 'insetting', where companies buy carbon credits to compensate for their own emissions, as well as those of their wider supply chain.

Ecosystem markets pay for public goods that may also provide direct private benefits to investors. For example, local schemes that improve water quality or reduce flood risk may result in reduced water treatment costs. Another solution is national payments for ecosystem service schemes, such as Biodiversity Net Gain and habitat banking.

Green finance mechanisms, such as green bonds, provide a return on investments by funding projects that deliver public goods. Investors may also buy credits from carbon or ecosystem markets to sell in the future at a profit on secondary markets or finance projects in carbon and ecosystem markets for a return on investment, rather than to buy credits.