When BrewDog announced it was selling its Kinrara estate in the Highlands last week to Oxygen Conservation, a natural capital asset manager, some hailed it as a win for private investment in nature. The Guardian described Oxygen as part of a new wave of investors plugging the gap between project costs and public funding.

But Kinrara’s story tells a different tale. BrewDog bought the 9,300-acre estate in 2022 to showcase its green ambitions through rewilding and carbon offsetting — a project soon beset by local concerns and practical challenges. Despite changing hands, Kinrara – which has already been the recipient of £2.7m in public grants for nature restoration – is likely to remain dependent on public grants and subsidies. Oxygen Conservation has reportedly taken on the existing grants to deliver peatland restoration and woodland creation. 

Oxygen Conservation’s purchase of Kinrara brings their portfolio to 12 estates, of which five are in Scotland. But although they have taken on commercial loans for the purchase of the land, the firm typically applies for public grants to fund their nature restoration, as their recent tender documents for one of their other estates show.

Far from replacing the need for public grants, their business model is reliant on public funds, while control of land and carbon credits shifts further into private hands. And although this kind of private investment isn’t necessarily the kind that the Scottish Government is attempting to attract, this story inadvertently illustrates a wider issue at the heart of Scotland’s approach to restoring nature: the misplaced belief that private investors can deliver what should be a public good.

The Scottish Government has made restoring nature a central part of its net zero strategy – and rightly so. Peat alone stores more carbon than all the UK’s forests combined. Peatlands and woodlands are vital to climate stability, biodiversity, and rural livelihoods. Yet around 80% of Scotland’s peatlands are degraded, and restoration efforts are far behind target. 

In 2018, the Scottish Government set a target to restore 250,000 hectares of degraded peatlands by 2030 using 1990 as a baseline, with an interim target of 50,000 hectares by 2020. In 2020, this was followed with a pledge to invest £250 million over ten years towards this target, aiming to support the restoration of at least 20,000 hectares of Scottish peatlands a year. But between 2018 and 2023, annual restoration averaged just 5,776 hectares. And although a record high of 14,860 hectares was restored in 2024-25, this record will need to be doubled every year to meet the total target area by 2030.

Many have taken the enormity of these targets and Scotland’s strained public finances as a sign that private finance is the solution. Some have estimated that the “nature finance gap” is as big as £20 billion, with £9 billion needed for peatlands and woodlands alone. Rather than scaling up public investment, policymakers are increasingly turning to private finance as the solution. 

At first glance, attracting private investment into nature restoration might seem like a no brainer. We need to invest in nature, and the fiscal outlook is challenging. Private finance provides loans to many other businesses, so why not nature restoration?

But as our new report, Restoring Nature to Deliver a Just Transition to Net Zero, shows, this narrative doesn’t hold up.

While more investment is clearly needed, our analysis finds that the actual shortfall in funding to meet Scotland’s peatland and woodland restoration targets is between £41 million and £176 million per year. That’s around 0.1%–0.3% of the Scottish Government’s annual budget.

This is still a challenge, but much more manageable through public finance. The inflated finance gap figures have skewed the debate, pushing Scotland toward market-based solutions that are costly, risky, and inequitable.

Unlike Oxygen Conservation’s restoration model, which will still largely rely on public grants, what the Scottish Government is actually interested in is private finance stepping in to fund restoration, therefore replacing or reducing grants. This would take the form of commercial loans or equity stakes in restoration projects, which would then sell carbon credits through an accredited scheme and repay investors from credit sales.

However, herein lies the problem: Nature restoration is a poor fit for private investment. Peatlands in particular produce enormous long term public benefits but limited immediate private returns. One of the reasons for this is that restoring peatlands reduces emissions as opposed to sequestering carbon, which means there isn’t a huge demand for peatland carbon credits by companies aiming to become ‘net zero’ by offsetting their emissions elsewhere. 

To make peatland projects profitable, therefore, governments might need to offer guarantees, subsidies, and long-term de-risking mechanisms. This isn’t theoretical: the Scottish Government is currently exploring a new model of Carbon Contracts, whereby peatland carbon credits would be bought by the state at pre-agreed prices, to increase investor confidence.

As public goods with large social and environmental externalities but relatively low financial returns, woodlands and peatlands do not easily align with the needs and expectations of private financiers. The significant efforts needed to reconcile these mismatches are likely to require a suite of complex and expensive new subsidies to de-risk investment, adding considerable new risks and costs into the system as a whole, ultimately shifting risk onto the public while allowing investors to capture profits.

In addition, adding private finance into the mix increases costs for projects. Our modelling shows that a private finance–led approach to peatland restoration could increase project costs by up to 48%, burdening landowners with debt and diverting scarce public money into investor returns. Far from accelerating restoration, this could slow progress by deterring investment and deepening inequality.

Our report shows that the economics of peatland restoration are currently misaligned with commercial private investment. Instead, we explore a different solution: one rooted in public investment for public benefit. Given that our estimates find that the cost of meeting our peatland targets is significantly less than previously estimated, our proposed model would increase the current public grant system. However, we would replace up-front grants with zero-interest, income-contingent loans, repaid only if projects later generate revenue from carbon credits – similar to student loan systems. If the peatland carbon market doesn’t take off, or projects do not intend to sell carbon credits, the loan would revert to a grant.

We also recommend that the Scottish Government introduce annual operating payments – ongoing public grants to support the maintenance of restored ecosystems for the first 15 years of each project. These payments would provide a stable, predictable income stream for projects to help mitigate the financial volatility associated with uncertain carbon markets, and address potential working capital issues in the early years of projects. As such, this mechanism aims to de-risk projects directly, rather than de-risking the ability of financial intermediaries to make a commercial return.

Taken together, we find that the maximum cost to the state of this model would only require an additional £40m a year if no loans were paid back, which is only around 0.1% of the Scottish Government’s annual budget. But if carbon prices rose and grants were paid back in full, it could end up costing 46% less than the current grant-funding model due to our clawback mechanism. Just over half of all grants would need to be paid back for this model to cost no more to the Scottish Government than the current system.

This approach could therefore unlock restoration at scale, while keeping landowners out of commercial-interest debt and ensuring fair returns for the public. Our modelling suggests that even with income contingent loan repayments and community benefit payments, which could be a condition of the loan, projects would be better off than they would be under private finance-led models, while aligning more with community wealth building principles.

Our report shows that not only has private finance has been rushed into as a solution based on faulty assumptions about funding gaps – it also comes with a hefty price tag. Due to the economics of peatland and carbon, it is highly unlikely to work as a solution, and could actively deter restoration. Scotland is legally committed to delivering net zero, and as peat is currently responsible for 15% of annual emissions, anything that slows down restoration should ring alarm bells for the policymakers. Crucially however, the Scottish Government is also committed to delivering a just transition. This means that how nature restoration happens is equally important, and who wins or loses is key. 

If the Government could de-risk projects directly, leave restoration projects better off, benefit communities, and recoup some costs for the state, the key question is: why wouldn’t they?