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.

An introduction to the Thriving Natural Capital Challenge Centre

Enabling ecosystem markets

We work with policy makers in the public and private sectors and with natural economy sector businesses to create the right balance and enable ecosystem markets to overcome potential issues.

Agricultural practices must be sustainable, so opportunities for future income streams from carbon and ecosystem markets are not lost to the sector.

Public funding should not pay for work that can be delivered by markets. For example, there is evidence that Peatland Action has crowded out Peatland Code projects in some parts of Scotland, leading to an inefficient use of public money.

By contrast, attractive terms of environmental markets should also not crowd out public funding and lead to limited uptake and influence. For instance, there is evidence that dairy farmers in England who were offered a milk premium for environmental work chose this consistently over the agri-environment scheme that was also available.

Public schemes must prioritise funding that addresses market failures like favouring certain services, sectors and locations.

The funding gap between current public spending commitments and future requirements to meet policy aims must be resolved, in order to address challenges like climate change and biodiversity loss.

Market solutions for environmental issues

Our aim is to support governments and advise on the use of public investment and policies that encourage responsible private investment in natural capital.

To tackle climate change and biodiversity loss markets need to be regulated, trustworthy, and transparent about their environmental and societal impact. Balanced properly, they will enable the natural economy sector to thrive, with new green jobs and regenerative business opportunities operating in secure and robust rural communities.

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.

Related videos

Investing in data for nature-based projects - a case study from Lauriston Farm

This case study video from SRUC's Thriving Natural Capital Centre explains why it is useful to invest in data collection to establish baselines, and prove changes through time. The Lauriston Farm team and their investor Federated Hermes Ltd., discuss how they are collecting data to prove the social, economic and environmental impacts of their regenerative agriculture and community engagement practices. Presented by Dr Hannah Rudman.

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Decision grade data at Glencripesdale

This case study video from the Thriving Natural Capital Centre explains why decision grade data is important for measuring, verifying and reporting improvements in nature based projects, focussing on the rainforest restoration at RSPB Scotland's Glencripesdale rainforest reserve. Decision-grade data is trustable and high quality enough to attract investment into nature restoration projects.

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A natural capital case study

In this video case study Dr Hannah Rudman visits the Bunloit Estate to find out about the practical work they’ve done to establish the baseline facts of their natural capital assets. She also finds out about the team’s plans for securing investment for improvement and restoration projects.

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Traps, maps and apps with Dr Hannah Rudman

Hannah explains the concept of natural capital and why it needs to thrive, and then shows how digital traps, maps and apps can be practical methods for measuring natural capital.

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Willie Watt on investments for nature

In this interview lead by Dr Hannah Rudman Scottish National Investment Bank Chair Willie Watt discusses the public investment bank's approach to nature- and climate-based investments.

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Rewilding Scotland

Dr Jeremy Leggett and Julian Matthews discuss with Dr Hannah Rudman new business and investment models to enable financing of rewilding projects in Scotland and beyond.

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Thriving Natural Capital podcast episodes

Rebuilding natural capital through nature-based solutions

SRUC's Dr Hannah Rudman looks at how low carbon, nature-rich future can revitalise our economy, and how we can take advantage of the exceptional natural capital we have in Scotland and the rest of the UK.

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Bioregioning Tayside

SRUC's Dr Hannah Rudman hosts this podcast episode on bioregioning the Tayside area in Scotland. She explains the concept of a bioregion and how it helps us see the places we live and work with new eyes.

Listen now

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