Natural capital - importance to the Scottish economy: research

Footnotes

1 Delivering Economic Prosperity (www.gov.scot) p.29

2 Similar Natural capital protocol (Natural Capital Coalition) p.14

3 Gross domestic expenditure indicates the value of total spending within the borders of a country. It excludes imports since imports are produced in the rest of the world but includes exports since exports are produced within the borders of the country.

4 SNA and Supply and Use Tables. The Office for National Statistics defines Supply and Use Tables as showing “the relationships between the components of value added, industry inputs and outputs, and product supply and demand in the economy”. These Tables provide an understanding of the supply of goods and services to economic units. For further details on Supply and Use Tables, please refer to the following link: Supply and Use tables - Office for National Statistics (ons.gov.uk)

5 Since being used in WSP and eftec’s work on The Importance of Natural Capital to the Scottish Economy for Scottish Government in July 2024, the ENCORE tool has been updated. This update improves the useability of ENCORE for the analysis conducted by WSP and eftec, thereby confirming the relevance of the approach taken to use it within Method 3 in the report.

However, the update also affects some of the calculations performed for Method 3, including: use of international Standard Industrial Classification for All Economic Activities (ISIC); aligning with the UN Ecosystem Accounting (SEEA-EA) ecosystem services classification; updated materiality ratings; and dependency assessments of four new ecosystem services. A caveat therefore needs to be applied to the study no longer being based on the latest version of the ENCORE tool.

Overall, the ENCORE update does not undermine the validity of the methods used in the report, nor the overall policy conclusions about the importance of nature capital in the economy. However, readers of the report should be aware that updates to ENCORE have occurred since it was used for the report’s Method 3 analysis, and that the latest version of ENCORE would produce different results for some specific sectors in Method 3 (e.g., the ecosystem dependencies in service-based sectors such as accommodation, health and education are significantly higher following the update).

6 See online for Cambridge Econometrics study on the economic impact of Scotland’s natural environment: SNH Commissioned Report 304: The Economic Impact of Scotland's Natural Environment (nature.scot)

7 GDP is a different measure to output, as it is measured at producer prices (rather than purchaser prices) and excludes taxes on products. Shares of economy may be marginally larger for estimates that compare GDP as a measure of the total economy rather than output.

8 See online for PwC’s 2023 report on business and natural capital reliance and risks: Managing nature risks: From understanding to action

9 Aspinall, Richard, et al. "Status and changes in the UK's ecosystems and their services to society: Scotland." UK National Ecosystem Assessment: Technical Report. UNEP-WCMC, 2011. 895-978.

10 Bryden, D.M., Westbrook, S.R., Burns, B., Taylor, W.A., and Anderson, S. 2010. Assessing the economic impacts of nature-based tourism in Scotland Scottish Natural Heritage Commissioned Report No. 398.

11 See more information on the Scotch whisky value chain online: Improving evidence for river woodland restoration initiatives

12 The UK SIC 2007 classification of economic activities by industrial sector can be found online: UK SIC 2007 Guidance

13 The 26 sectors identified are a subset of the 128 industry groups in SIC 2003. The authors of the 2008 Cambridge Econometrics study made this determination based on which sectors have “significant” links to the environment, where significant is 20% or more of a sector’s activities being environmentally related.

14 The latest release of T&OL accounts as part of the 2021 UK Natural Capital Accounts update

15 ENCORE, developed by the UN Environment Programme World Conservation Monitoring Centre, Global Canopy and UN Environment Programme Finance Initiative, is a tool that allows financial institutions (including businesses) to assess dependencies and impacts of natural capital at a portfolio level (disaggregated by sector and sub-industry based on the Global Industry Classification Standard). Access the ENCORE tool online.

16 Since being used in WSP and eftec’s work on The Importance of Natural Capital to the Scottish Economy for Scottish Government in July 2024, the ENCORE tool has been updated. This update improves the useability of ENCORE for the analysis conducted by WSP and eftec, thereby confirming the relevance of the approach taken to use it within Method 3 in the report.

However, the update also affects some calculations performed for Method 3, including: use of international Standard Industrial Classification for All Economic Activities (ISIC); aligning with the UN Ecosystem Accounting (SEEA-EA) ecosystem services classification; updated materiality ratings; and dependency assessments of four new ecosystem services. A caveat therefore needs to be applied to the study no longer being based on the latest version of the ENCORE tool.

Overall, the ENCORE update does not undermine the validity of the methods used in the report, nor the overall policy conclusions about the importance of nature capital in the economy. However, readers of the report should be aware that updates to ENCORE have occurred since it was used for the report’s Method 3 analysis, and that the latest version of ENCORE would produce different results for some specific sectors in Method 3 (e.g., the ecosystem dependencies in service-based sectors such as accommodation, health and education are significantly higher following the update).

17 See online for PwC’s 2023 report on business and natural capital reliance and risks: Managing nature risks: From understanding to action

18 See online for the Government of the Netherlands (2021) report: Biodiversity impact and ecosystem service dependencies

19 See online for the SEEA EA, white cover publication (2021): System of Environmental-Economic Accounting

20 Using the with and without approach, SIC codes cover the majority of provisioning services identified by NatureScot.

21 Defined as” Tangible outputs that can be obtained from ecosystems that meet human needs” in Defra’s Natural Capital Guidance, Enabling a Natural Capital Approach guidance - GOV.UK (www.gov.uk).

22 For example, where ONS estimated the intermediate consumption of the timber, supplied by the logging and forestry industry and derived from the ecosystem service of timber removals (using values derived from the natural capital accounts). This raw form of timber may be used within the manufacture of paper and paper products, and products of wood and cork. However, it seems unlikely that this timber would be used in crop and animal production before it has been processed by a different industry.

23 ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) is an online tool launched in 2018 by the UN Environment Programme Finance Initiative and Global Canopy in partnership with the UN Environment Programme World Conservation Monitoring Centre. The tool identifies how the economy (divided into sectors, sub-sectors and production processes) depends on and impacts nature, with an emphasis on enabling financial institutions to identify nature-related risks through lending, underwriting and investment in certain industries and sub-industries.

24 More information about the ENCORE data collection methodology is available online.

25 A rating of “very high” indicated that ecosystem services are critical and irreplaceable to the production process, whereas a “very low” rating indicated that the production process may still take place in the absence of the ecosystem service.

26 ENCORE Partners (Global Canopy, UNEP FI, and UNEP-WCMC) (2024). ENCORE: Exploring Natural Capital Opportunities, Risks and Exposure. [On-line], [February 2024], Cambridge, UK: the ENCORE Partners. Available online.

27 It is recognised that inputs to primary industry activities, such as animal feed and other services, are also imported. However domestic expenditure (i.e., excluding imports) is used to reflect the extent that the Scottish economy, represented by expenditure that occurs in Scotland, relies on Scotland’s natural capital.

28 For further details, refer to: NFU Scotland Farming Facts

29 It is noted in the 2023 Supply and Use Tables that, historically, oil extraction was a near zero output industry in Scotland. Nearly all activity was offshore and therefore classed as 'extra-regio' within the UK National Accounts. Recent onshore extraction activity within Scotland has data disclosure implications, as a result we must now add this category to ‘other mining’. This could impact future editions of this type of analysis, where mining could be larger than in the 2019.

30 Not including non-renewables.

31 Scottish Hub for Regional Economic Development.

32 Office for National Statistics Business Register and Employment Survey (BRES)

33 The Imputed Rent industry uses local authority split of GVA instead, as employment in this industry does not exist to use as a proxy.

34 The 19 sectors are defined according to ONS SIC industry sections, excluding activities of households and employers and extraterritorial organisations and bodies. Sections are the broadest industry classification level, which comprise several SIC ‘divisions’, which form the basis of Supply-Use Table industries.

35 Not including non-renewables.

36 The Imputed Rent industry uses local authority split of GVA instead, as employment in this industry does not exist to use as a proxy.

37 Chavez et al. 2022 provides evidence of the genetic contribution to different flavours in their assessment of the contribution of genotypes found in barley to different flavours of beer.

38 Not including non-renewables.

39 Ecosystem services which could be substituted were identified from ENCORE’s definition which is not specific to Scotland and therefore may not identify specific ecosystem services which may be substitutable within the Scotland context.

40 It should be noted that scale is a factor to consider, and that some substitutions could provide overlapping solutions for multiple industries. This was not accounted for in modelling.

41 It is assumed each SIC code has equal weighting as it is not possible within this study to determine individual weighting of substitutes.

42 Not including non-renewables

43 The output and employment effect arising from the extended method 3 definition, is only an output and employment effect of what is substitutable (£2.6 billion).

44 The Imputed Rent industry uses local authority split of GVA instead, as employment in this industry does not exist to use as a proxy.

45 Background to Salmon Scotland

46 Map - Scotland's environment

47 Unclassified habitat type refers to area that habitat data did not exist for, or area was deemed a golf course.

48 Understanding the local economic impacts of natural capital investment

49 Proportion of each economic industry involved in peatland restoration was established in the previous 2023 study for Scottish Government undertaken by WSP and eftec Understanding the local economic impacts of natural capital investment.

50 Includes output effect of substitutable share of nature related expenditure only.

51 These are not impacts due to the land use change effect of peatland restoration (e.g., loss of grazing, forest removal etc) or the improvement in natural capital condition.

52 Health benefits from recreation methodology for UK Natural Capital Accounts

53 UK Natural Capital Accounts air pollution removal methodology

54 Other air pollutants, such as nitrogen dioxide (NO₂), carbon monoxide (CO) and sulphur dioxide (SO₂), are excluded from this analysis on workforce health given that PM_2.5 is a major factor in human health in urban environments (i.e., significant contributions to non-communicable disease burdens) (Global urban temporal trends in fine particulate matter (PM2·5) and attributable health burdens: estimates from global datasets (Southerland, 2022)).

55 Scottish Natural Capital Accounts (2023) section on regulating services

56 “Attributable expenditure” is defined as “an estimate of the amount of money spent on day or overnight visits which were motivated by being able to participate in a specific activity when the decision was made to take the trip”.