This week, it was reported by the Guardian that NatureScot’s flagship pilot aiming to facilitate private investment into nature restoration has collapsed, again. 

The Nature Investment Partnership (NIP), as it’s now known, was originally set up in 2023 with the aim of mobilising £2bn private investment into woodland creation. When this proved too challenging, and initial partners pulled out, the target changed to £100m. But even on this smaller scale, the pilot has struggled to deliver the investment that was anticipated. The latest news suggests that the pilot has reached the end of its life in its current form – with the investment firm Aberdeen being the latest to withdraw from the scheme.   

Restoring our woodlands and peatlands is vital if Scotland is to tackle its twin climate and nature crises. The Scottish Government’s new Climate Change Plan relies heavily on emissions reduction and removals from land use over the next 15 years, and the Natural Environment Bill’s statutory biodiversity targets are also dependent on significant increases in restoration, yet delivery to date has lagged. With its current fiscal headache and a lot of speculative hype from some corners of the ‘natural capital’ market, the Scottish Government has increasingly sought to leverage private finance to fund restoration efforts. However, the latest news, and our guest blog from Tom Gegg, confirm private investors’ continued reluctance – suggesting the nascent natural capital sector is not all it’s hyped up to be.

Unfortunately, this is not surprising to us. Since the NIP launched, we have repeatedly warned that relying on private finance to restore nature is unlikely to succeed. 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. These restoration projects, although vitally important, are therefore unlikely to deliver the double-digit returns investors typically expect. 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. Nature restoration, it seems, is a poor fit for private investment.

To make up for this, our research shows that attracting private finance at scale would require significant public subsidies to de-risk returns for investors. In practice, this could prove more costly and risky than direct public investment, ultimately shifting risk onto the public while allowing investors to capture profits. Even if achievable, an overreliance on private finance may ultimately hinder restoration by increasing costs and risks for land managers. 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.

Instead, we have been exploring a different solution: one rooted in public investment for public benefit. Our model is based on publicly funded income-contingent loans for nature restoration that are only paid back when, or if, it becomes affordable. As an interest-free loan rather than a grant, loans would initially be funded from the Financial Transactions budget, and as such would likely reduce pressure on the Scottish Government’s squeezed capital and resource budgets. This is not an insignificant detail in the context of Scotland’s challenging fiscal outlook.

 

After years of hype with no results, the time has come to recognise that private finance will not fix Scotland’s nature crisis. Yet Scotland’s latest Climate Change Plan doubles down on this approach, kicking peatland restoration into the long grass in the hope that private finance will step in to foot the bill. Perhaps this approach, which we criticised at the time, would not have flown had Parliament been made aware of the pilot’s failures.

If the Scottish Government is actually serious about meeting its statutory net zero and biodiversity targets, it must adopt a more coordinated and holistic strategy that treats nature as a public good. This will require a new model of public investment alongside long over-due action to address systemic barriers. We look forward to engaging with the Scottish Government and NatureScot on our proposals.