At the forefront: Pioneering new approaches in Scotland's emerging natural capital

Located at the head of the Knapdale Peninsula, the 1,300-hectare Tayvallich Estate is situated in an area known for its beauty, and for some of the most important ecological landscapes in Scotland. On the face of it, this serene and seemingly changeless landscape appears an unlikely location for a significant milestone on the road to net zero. Yet, despite its remote coastal location, Tayvallich is at the forefront of a movement towards ecological restoration and social regeneration, underpinned by emerging natural capital markets.

The Scottish Government is committed to protecting and enhancing Scotland’s natural capital, which has been identified as an investment priority in the nation’s Economic Strategy. Habitat restoration, such as increases in tree cover and peatland restoration, can reduce and lock up greenhouse gas emissions, enhance biodiversity, and lead to wider social and economic co-benefits.

Whilst public funding and philanthropy remain critical to achieving the large-scale landscape recovery required to deliver on this commitment, private sector investment needs to scale significantly to help bridge the financing gap for nature-related outcomes.

Into this space, natural capital markets have emerged as a way of generating sources of revenue from improvements to our natural environment. These diverse new income streams include the sale of credits for carbon captured by ecosystems and for improved biodiversity.

The markets underpinned by these revenues are nascent – but with huge potential to grow if barriers to scale are overcome, such as high transaction costs, data gaps, and novel risks.

As highlighted in our recent discussion paper covering UKIB’s role in natural capital markets, the Bank is well placed to invest in emerging areas of the natural capital market, by deploying our capital flexibly to help address barriers and provide a route to large scale private investment.

So, it is significant that we have today announced a commitment to our first natural capital deal and first deal exclusively in Scotland. UKIB intends to commit £12million to support an innovative nature restoration project in the Scottish Highlands.

Our short-term bridging loan facility will enable Highlands Rewilding Limited to acquire the Tayvallich Estate and pursue their aims of tackling climate change, boosting biodiversity, and delivering benefits for local communities.

Tayvallich is home to fragments of temperate rainforest, an internationally important and threatened habitat which today makes up only 2% of Scotland’s woodlands. In these unique, rain-drenched woodlands almost every surface is covered with lichens, mosses, liverworts, and ferns. Their restoration by Highland Rewilding will both increase biodiversity and help to lock up carbon.

The project will also work to restore peatland on the Estate, which is currently degraded and emitting carbon to the atmosphere, and will explore the potential for carbon capture by marine ecosystems – an important emerging segment of the natural capital market.

Highlands Rewilding intend to use Tayvallich as a testing ground for innovative natural capital approaches, working with their wide range of academic partners to generate new data and insights with the potential to help shape high-integrity natural capital markets across the UK.

For example, plans to improve the verification of biodiversity uplift at Tayvallich may have applications both in Scotland, where a voluntary market for biodiversity credits is emerging, and in England, where mandatory biodiversity net gain is set to be introduced later this year.

This is in line with our ambition, as set out in our Strategic Plan, to invest across the infrastructure landscape, including in new infrastructure technologies and demonstrator projects that can create, scale and accelerate markets beyond the scope of an individual project.

Considering the relationship between natural capital projects and the communities that live within or alongside them is also central to our thinking on nature-based investment – including the alignment of our dealmaking with the Scottish Government’s Interim Principles for Responsible Investment in Natural Capital.

The project is expected to deliver against these principles by providing opportunities for affordable housing through self-build co-ops and joint ventures with the community. To support this, Highlands Rewilding are progressing an agreement with the local community, which will have community prosperity and regeneration as its basis.

Private investment into high-integrity natural capital markets – at scale and at pace – is a key component of realising net zero, reversing biodiversity loss, and regenerating rural communities. We look forward to working with partners in Scotland, including the Scottish Government, the Scottish National Investment Bank and NatureScot, and others across the UK, on realising this potential.

We hope our investment in Tayvallich is the first of many steps we will take along this path.

You can read the news story about this deal for more information.