The Environment Strategy for Scotland: Driving the Transition to a Nature Positive Economy - A Synthesis of Policy Levers for Governments

2. Executive Summary

An intended outcome of the Scottish Environment Strategy is: ‘Our thriving, sustainable economy conserves and grows our natural assets’. Achieving this outcome will mean transforming the Scottish economy so that it thrives within the planet’s sustainable limits, and is nature positive, net zero and circular. This report contributes to the evidence base needed to inform the development of a ‘pathway’ for achieving that outcome, and in particular on the transition to a nature positive economy.

Nature positive economies are an emerging concept, with no current consensus on how they are defined. However, there is an acceptance that they are economies built around principles of wellbeing for nature and societies rather than monetary and material values, with actions that are regenerative and collaborative, in which economic growth is only valued where it contributes to social progress and environmental protection. Some of their components are recognisable as part of a system that tackles climate change and biodiversity loss and delivers outcomes consistent with wider societal goals.

An important aspect of achieving such a transformation is to progress towards renovating infrastructures and implementing innovations that integrate social, institutional, and physical processes and relationships that support the connections within and between systems. One framework for articulating the transformations required is Economic Operating Infrastructures (EOI) for a wellbeing economy.

An EOI reframes economics around the following principles:

• stewardship of the whole (valuing and honouring whole systems, including planetary ones)
• co-creating collective value (optimizing wellbeing and the dignity of all beings)
• governance through cosmopolitan-localism (cosmo-localist governance, with a principle of subsidiarity in which decisions are made at the lowest level appropriate while acknowledging the global context)
• generativity, reciprocity, and circularity (recognising that the Earth’s resources can only be used within their capacity for renewal)
• relationality and connectedness (the notion that humans are social beings existing in an interconnected web of interdependencies)
• equitable markets and trade (markets that honour full costing and pricing, fair trade, and community self-sufficiency).

The categories of EOI that follow the principles for a wellbeing economy consist of economic innovations associated with overarching efforts to shift the narrative away from conventional economics towards one of wellbeing, alongside innovations in approaches to economic governance, financing mechanisms, exchange mechanisms, business structures, and products and services. This report considers the policy levers of most relevance to delivering on the elements of the EOI (Table Executive Summary 1 [ES 1]).

Table ES 1. Categories of policy levers used in the analysis of nature positive economies

Economic Operating Infrastructure

• Narrative dissemination and education
  • Regulatory measures - Multilateral agreements
  • Economic measures - Taxes
• Economic governance: national/private/multi-stakeholders initiatives
  • Regulatory measures - Mandatory due diligence
  • Economic measures - Subsidies
• Financing mechanisms: financing transformation (greening finance and financing green)
  • Regulatory measures - Sustainable public procurement
  • Economic measures - Biodiversity offsetting
• Exchange mechanisms: embedding nature value in policy/ metrics for national accounts/ metrics for business/ new currencies (blockchain)
• Product and services: payment for ecosystem service schemes/ ecological footprint reduction and ecolabelling

To understand the relevance of policy levers to achieve nature positive economies, a review was undertaken of grey and academic literature, and a set of case studies were identified, which illustrate actions or initiatives of policy levers in an international context. The recommendations proposed have been articulated according to the policy levers in a classification presented in Table ES 2.

Based upon a rapid review of evidence, a synthesis of actions and recommendations to achieve transitions to nature positive economies identified the following:

• Pursuing a pattern of sustainability requires a transformative change in thinking before acting. Coordinated actions to achieve nature positive economies need support and an agreed common vision for sustainable development which captures the imagination of a broad community of stakeholders. Such a vision has become important in sustainability science for developing transition pathways.
• Reformulating education programmes to include ecological economics across schools and universities. Successful narratives can shift power and bring about transformative change because of their potential to change mindsets.
• Building effective institutions operating from local to global levels. Develop strategies in which public, private and civil society institutions work together to make flexible and polycentric arrangements. These should reflect local knowledge within decision-making. Benefit would accrue from use of the concept of glocalization, where problems are sorted locally, according to the specific needs of the place and communities, but are of global domain.
• Incorporating value of nature in policy and proposing new economic metrics to capture benefits to nature and people. Valuing nature must guide decision-making following principles of scientific and economic integrity throughout the valuation process.
• Pursuing landscape management approaches to protect and restore natural assets. Coordination and balance is required between protecting terrestrial and marine protected areas and supporting other human needs, with effective stakeholder engagement and participation in planning and decision-making.
• Pledging nature positive actions supported by enforcement of policies and regulations. Political direction and signals of intent towards achieving nature positive targets require suitable measures and regulations, and enforcement. Greater impacts will be achieved for requirements which are mandatory, such as due diligence for investors and trade in global commodities.
• Reforming economic policy mechanisms. Some fiscal policies currently make destroying nature cheaper than its protection. Subsidies for harmful practices should be reformed. More use should be made of economic tools such as environmental taxes, charges, tradable permits, Payment for Ecosystem Services (PES) programmes, and ecological fiscal transfers to strengthen the adoption of ‘polluter pays’ principles, and to remove or reduce economic costs falling on sustainable practices.
• Directing businesses to measure and disclose impacts, dependencies and risks on nature by enforcing international standards and metrics. Steps are needed to ensure that businesses assess and manage their impacts and dependencies on nature and associated risks, and that this is built into corporate governance. The adoption or tailoring of international standards could help de-risk the shift in financial flows away from nature-negative towards nature positive outcomes.
• Implementing mechanisms to finance green activities. International and national governments and agencies should lead efforts to ensure the security and robustness of innovative finance mechanisms as a means of raising capital from private markets and facilitate the flow of investments into companies and projects that can have a positive impact on biodiversity.

Table ES 3 provides a summary of the policy levers mentioned above together with recommendations to achieve a nature positive economy.

Table ES 3. Recommended actions for policy levers.

EOI lever - Creating a new narrative for a nature positive economy

• work on transformative change in narrating the principles for nature positive economies.
• agree on a common vision for sustainable development and transition pathways.
• empower citizens to achieve changes envisaged by the new narratives.
• listen to and reward people who operationalise nature positive transitions.
• reinforce access to green space to reduce some types of deprivation.
• redesign urban architecture to enable human-nature connectedness.
• promote active citizen engagement, such as citizen assemblies to address nature, climate, and the economy.

EOI lever - Debating new economics principles at all educational levels

• disseminate stories and narratives about the roles of nature positive economies.
• consider a transformation of the discipline of economics.
• ground economics in sustainable, equitable and inclusive values.
• promote nature positive values in research, information campaigns, education and university curricula.
• use open-access platforms to understand the economics of innovation, inequality, and environmental sustainability.

EOI lever - Proposing renovated economic governance supporting positive nature actions at multiple institutional scales

• work with public, private and voluntary institutions to generate flexible top-down and bottom-up arrangements.
• instigate institutional reforms to enable transitions to nature positive economies.
• address multi-stakeholder platforms to counter biodiversity loss in ecosystems that span across countries.
• operationalise sustainable supply chain models by implementing Responsible Business Conduct (RBC) standards in supply chains.
• incentivize future sustainable produce through ecolabelling.

EOI lever - Addressing economic governance for nature positive actions through value chain creation

• make a compelling economic case for global efforts to expand coverage of protected areas.
• direct financial resources to integrate the protection of land and sea, and involve indigenous people and communities to support international goals of COP15.
• adopt strategies that tackle multiple societal challenges.
• use integrated planning and management approaches that facilitate dialogue between communities, institutions and production sectors.
• combine nature conservation and nature regeneration through sustainable habitat management.
• involve actors throughout value chains at early stages of planning to understand the actions on the ground needed (e.g. nature-based solutions).
• establish formal compliance of forest and land use carbon offsetting.
• promote financing of nature-based solutions by carbon pricing programmes such as cap-and-trade system and carbon taxes.
• develop an approved suite of nature-based solution approaches, which can be included in carbon offset programmes.

Regulatory lever – Committing to new nature positive policies and regulatory measures

• promote international multilateralism.
• pledge to reverse biodiversity loss by 2030, adhering to the Leaders’ Pledge for Nature.
• implement the post-2020 Global Biodiversity Framework.
• adopt the Kunming-Montreal Global Biodiversity Framework (GBF).
• champion nature positive trade policies.
• regulate for mandatory due diligence for investors.
• enforce OECD guidelines on responsible business conduct and due diligence guidance.
• ensure public procurement vendors disclose biodiversity impacts along their value chain.

Economic lever – Reforming fiscal tools and economic incentives

• reform subsidies of harmful activities.
• restructure environmental taxes, charges, tradable permits, Payment for Ecosystem Services programme, ecological fiscal transfer.
• adopt ‘polluter pays’ principles.
• prevent economic costs impacting upon sustainable practices.
• incentivise sustainable decision-making by removing financial barriers (e.g. dedicated credit lines) for sustainable practices.
• implement a carbon tax and direct funds towards investments in natural capital (e.g. afforestation/reforestation, peatland restoration).
• ringfence taxes on discharge of pollutants, use of pesticides and extraction of resources towards investments in nature positives actions.
• incentivise fiscal exemptions for conservation easements.
• compensate ecological fiscal transfers from the Global North to the Global South that face reductions in GDP through incentivising nature positive policies.

EOI Lever - Addressing nature valuation nature in policies, accounting, and wellbeing metrics beyond GDP

• decision-making guided by valuing nature, in which the valuation process follows principles of scientific and economic integrity.
• reinforce the assessment of diverse values in the valuation of nature.
• realise the importance of value for local communities taking into account placed-based decisions.
• promote and implement natural capital approaches.
• test accounting rules for resources and ecosystems, as per those elaborated by the United Nations System of Environmental Economic Accounting.
• encourage businesses to use the Natural Capital Protocol to measure dependencies and their impacts on nature, and consequences throughout the supply chain.
• require businesses and investors to disclose their strategies’ reports of risks to biodiversity.
• promote natural capital accounting to advance policies for embedding negative externalities in the price of natural resources.
• use natural capital approaches/accounts for planning, implementing and monitoring the effects of public policies.
• formulate new metrics as alternatives to GDP to measure wellbeing and inclusive wealth.
• promote the use of metrics that target biodiversity, such as the IUCN Species Threat Abatement and Recovery Metric (STAR).

EOI Lever - Enforcing policies and regulations for greening finance

• ensure that public, private and voluntary sectors disclose the impacts of their investment choices.
• coordinate international actions between the environmental sector, national finance ministries, central banks and financial regulators.
• implement the EU Taxonomy and the Sustainable Finance Disclosure Regulation.
• ensure that businesses assess and manage their impacts and dependencies on nature, and associated risks to nature.
• promote the use by businesses and financial institutions of ESG standards such as those of the Global Reporting Initiative (GRI).
• endorse initiatives such as the UN Global Compact (based on 10 principles concerning human rights, labour, the environment, and anti-corruption), the Transition Pathway Initiative (TPI), and CDP (formerly the Carbon Disclosure Project).
• require mandatory compliance with the Taskforce on Nature-related Financial Disclosures (TNFD) framework.
• regulate stock markets to facilitate innovative mechanisms for issuing stocks and bonds that define impacts rather than only objectives of financial outcomes.

EOI lever - Reforming financial mechanisms

• promote the use of a broad range of market and financial mechanisms that would advance nature positive economies.
• encourage PES-like schemes which operate at regional and landscape scales and have appropriate sets of standards and metrics.
• issue nature and climate sovereign bonds.
• use environmental impact bonds in which the beneficiary party works with private investors on a pay for success basis.
• make use of blended finance to de-risk markets.
• facilitate the aggregation of projects which are too small to attract financial investment.
• require standardised data and transparency as part of overcoming barriers to the deployment of private finance to sustainability.

The policy levers listed in Table ES 3 are supported by case studies listed in Table ES 4 below.

Table ES 4. Summary of case studies in support of policy levers.

Regulatory measures: international agreements and mandatory due diligence

• International/multilateral agreements:
  • Due diligence obligations: French laws on climate and nature finance disclosures - case study 1
• Mandatory public procurements:
  • Green Public: Procurement policy in agriculture - case study 2

Economic measures: tools to realign producers and consumers strategies

• Taxes:
  • Conservation easement - case study 3
• Subsidies:
  • Removing harmful subsidies - case study 4
• Biodiversity offset:
  • The role of compensation mechanism for residual impacts - case study 5

Economic Operating Infrastructures (EOI)

• Financial mechanisms:
  • Green bond - case study 6
  • Environmental impact bonds - case studies 7 & 8
• Economic governance:
  • Pre-competitive agreement, multilateral platform - case studies 12 & 13
• Exchange mechanisms (currencies):
  • Cryptocurrencies and biodiversity tokens - case study 9
• Economic governance:
  • Infrastructure to conserve and restore nature (nature-based solutions) - case study 14
• Exchange mechanisms (metrics):
  • Valuing nature and natural capital accounting - case study 10
  • New metrics, beyond GDP - case study 11
• Narrative research:
  • Boosting a new narrative and cultural shift to nature positive, and restructuring the economics discipline - case studies 15 & 16

Key messages which can be derived from the case studies in Table ES 4 are:

• To achieve the goal of reversing the loss of biodiversity it is essential to set mandatory requirements for businesses, investors and the entire financial sector, in order to improve transparency in disclosing the impacts on biodiversity and risk for nature, business and society (see case study 1).
• Mandatory Green Public Procurement (GPP) would empower the public sector to support nature restoration. Evidence from Sweden shows that organic farming has expanded since 2006 by implementing a national GPP policy (case study 2).
• Economic tools can be used to realign production to more sustainable practices by pricing resources more correctly through environmental taxes or by removing harmful subsidies. Fiscal tools which can help transition to nature positive economies are those designed to incentivise positive behaviours such as tax credits for project developers or landowners. Fiscal exemptions for conservation easements can promote conservation practices (case study 3).
• Subsidies continue for practices which are harmful to biodiversity, notably those linked to production in the forestry, agriculture and fisheries sectors (case study 4).
• Biodiversity offsetting can be used as a compensation mechanism for projects that, after applying the appropriate prevention and mitigation measures, still have residual impacts on biodiversity. However, this mechanism can be inappropriate due to the long-time scale for habitat recovery and a high probability of restoration failure (case study 5).
• Innovative finance can lever economic resources from public and private organizations to provide low cost, low risk and long-term debt capital attracting risk-averse investors (case study 6), which is linked to outcomes (case study 7), but with risks arising from uncertainty associated with cashflow forecasts and use of simplified impact metrics (case study 8).
• Several Economic Operating Infrastructures (EOI) have been proposed and implemented, examples of which are:
• EOI, as exchange mechanisms, proposing innovative crypto-currencies and tokens based on blockchain to align money with value for societal benefit. Tokens can be bought and used as evidence of investments in nature for use in ESG reporting and disclosure (case study 9).
• Natural capital valuation can be an important policy lever for assessing the physical and monetary benefits of ecosystem services. Systematising such valuations in accounts can provide direction to reversing the loss of nature, support the planning and monitoring of policy, inform recommendations for decision making, and be used in response to both climate and biodiversity crises (case study 10). Natural capital valuation can also be used as a basis for metrics at a national level that can accompany the standard GDP to assess pathways to sustainability (case study 11).
• EOI can address new economic governance mechanisms characterised by a set of measures or arrangements of different scope and scale (from local to global) to facilitate the partnering of public, private and civil society stakeholders. International cooperation between private organizations with impacts on social and environmental public sector are emerging which respect to environmental values and their enhancement (case studies 12 and 13).
• EOI can be harnessed to protect, manage, and restore nature, and generate wider benefits for human wellbeing and biodiversity, through use of nature-based solutions. Nature-based solutions can be used to promote restorative measures that help green and blue infrastructure for the delivery of a range of ecosystem services, and should be a component of end-to-end value chain assessments (case study 14).
• The infrastructures and approaches identified are more likely to achieve transformations towards a nature positive economy if they are part of a new narrative about the relationship between humans and nature, including revised content in academic curricula in economics (case studies 15 and 16).