Developing a natural capital market framework
The RSE welcomes this opportunity to respond to the Scottish Government’s survey on developing a natural capital market framework. We see private investment as desirable, because public finance alone cannot tackle the problem. However, private investment needs to be governed by the Government, or an acting body, to ensure that the intended outcomes are delivered, to safeguard local human communities and residents and ultimately to enable national or international transactions which can be valued with money or another agreed token.
RSE policy advice paper, Developing a natural capital market framework (264KB, PDF)
Executive summary
There is, in our view, a long journey still to travel before a natural capital investment market can be secure and reliable. The RSE was disappointed that there is no connection with the “Discovery” phase of this proposal, so it is unclear what function this framework is intended to fulfil. It outlines complex and potentially burdensome guidance which may discourage, rather than encourage, nature investment. It seeks to offer standards for a market which doesn’t yet exist.
A precursor must be the development of that market through a combination of regulation (e.g. biodiversity net gain and other mechanisms), and an associated credit market, with the additional offer of ready-made voluntary investment opportunities based on income stacking and some degree of public support to de-risk investment. Both these approaches would greatly benefit from the establishment of an independent honest broker, with the ability to determine the equivalence of nature damage in one location with nature restoration in another, and to identify the sweet-spot of delivery of multiple benefits at reasonable cost.
The independent broker’s role could also encompass permanence, seepage, and duration of carbon storage, to rank and compare actions and the timescales of their effect. At a later stage such an honest-broker may well codify, and publish, its own operational procedures.
General comments
The Scottish Government defines natural capital as our geology, soil, air, water, plants, and animals and notes that we depend on our natural capital for goods and services that make our lives possible and worthwhile.[1] The RSE recognises that a combination of public and private investment will be needed to restore and enhance Scotland’s natural environment and that it is important to have plans in place to meet the rising demand for opportunities to invest in nature markets globally. The RSE also notes the speed at which action must be taken to address the twin nature and climate emergency. Restoring and improving our natural environment will require significant investment (£20 billion over the next decade is the figure estimated by the Green Finance Institute).[2] There is no time to waste in acting. However, the RSE does not support the implementation of a market framework that prioritises the privatisation of Scotland’s natural capital above public and community ownership and investment. The proposed market framework lacks the scientific rigour and safeguards to deliver environmental improvement and public good. Instead, this proposal relies on a complex “opt in, opt out” model for protecting communities and the natural environment which will likely be ignored by profit driven decision-makers. The Scottish Government should strengthen existing codes, such as the Land Rights and Responsibilities Statement, to encourage better and fairer decisions about land use. A more regulatory approach, in contrast to a set of voluntary protocols, would help build a market that supports nature and communities.
The RSE stresses that private investment should not replace public underinvestment. Attracting private funding is one of many options for restoring and improving Scotland’s natural environment. Increasing public expenditure always remains an option for governments, whether that be through tax rises or a re-prioritisation of funding for the climate emergency. The RSE is concerned that the proposed market framework, by taking a business-as-usual approach to government spending, will further privatise Scotland’s highly concentrated land ownership distribution and forego the potential environmental and community benefits available from investing in public good.[3] The framework will privatise the profits and socialise the risks of investment in Scotland’s natural capital.
A major issue with existing market-based solutions to restoring the natural environment is the lack of scientific rigour and evidence in valuing natural capital resources and the multiple benefits that can occur from investment. Pricing schemes often lack transparency, and many ecosystem services are public goods, meaning there is no incentive to pay. The engagement paper itself does not point towards much scientific evidence, nor does it attempt to quantify public good. The RSE is concerned that markets and the price mechanism could therefore lead to a significant undervaluation of natural capital.
Therefore, the RSE warns against implementing the proposed framework, which may make it easier for the private sector to profit from Scotland’s natural environment without the necessary safeguards to ensure environmental and social progress is built into investment. This nature market is nascent, and at this stage, the Scottish Government should be prioritising maintaining public control over and benefit from natural capital resources and increasing its own investment programme. Private investment will play a role in enhancing our natural capital assets, and the Scottish Government can support the sector by investing in research and innovation to develop a more evidence-based approach to valuing nature and public benefit. However, rather than developing a market framework at this stage, the RSE proposes a publicly funded “honest broker” that builds public good into transactions by accounting for long-term public interests versus short-term business interests. This broker will promote a systems-level approach, which acknowledges that some actions may be counterproductive to other goals but sidesteps the need for a complex Framework as proposed in this engagement paper
References
[1] Market Framework for Natural Capital – Engagement Paper (www.gov.scot) p.2
Download this advice paper
RSE policy advice paper, Developing a natural capital market framework (264KB, PDF)
