First it was the “green lairds”, billionaire investors such as Danish retailer Anders Povlsen, who were buying up stretches of the Scottish Highlands to rewild grouse-shooting moors.
And the wealthy rewilders have more recently been joined by fund managers investing in commercial forestry and peatland restoration, eyeing incentivised schemes for voluntary carbon credits that can be bought to offset UK-based emissions.
But the latest rush for the Scottish landscape has topped out, deflating a bubble not seen for decades. The slump is indicative of a market that, despite its potential, has yet to mature, say institutional investors.
Questions over the validity of carbon credits, weaker economic conditions and delays in forestry scheme approvals have blown the froth off an overheated market.
In the UK, carbon credits that correspond to reduced or removed carbon dioxide can be bought to compensate for greenhouse gas emissions.
“The promise of natural capital is high, so it’s a matter of timing as to when they become meaningful as markets, rather than as bespoke transactions,” said Tim Coates, co-founder of Oxbury, an agriculture-focused bank. “But we aren’t there yet.”
Interest in carbon credits has funnelled investment into rural Scotland and could bolster the country’s net zero 2045 target. But large-scale schemes have run into opposition, particularly from farming interests, while inflating land prices for other uses.
UK and Scottish government funding is available to plant trees and restore peatland. Between 2021 and 2022 applications for natural capital schemes to the Woodland Carbon Code, a UK-government backed body that oversees woodland creation projects, accelerated, contributing to a spike in land prices.
The value of hill land quadrupled and that of estates trebled from 2018 to 2021.
Private equity veteran Guy Hands, founder of Terra Firma, and his wife Julia have expanded their Scottish landholdings more than threefold over the past 12 years, according to public data, including the Griffin Estate in Perthshire, which was on the market for £130mn last year.
“My family see it as a chance to own and develop sustainable forestry and woodland with the intention of creating a benefit for the environment while achieving a multigenerational economic return,” he said.
The Scottish government in May 2022 strengthened the code with revised “additionality” tests to assure better-quality carbon credits, nudging schemes into planting more native broadleaf trees alongside faster-growing Sitka spruce.
As intended, this weeded out schemes that would have been unviable without credits, cooling the land market while bolstering species diversity.
Natural capital investors, having paid increasingly large sums for land, were caught on the wrong side of inflationary pressures, rising interest rates and lower timber prices.
Foresight Sustainable Forestry, London’s first listed entity devoted to natural capital, was in May taken private in a move widely described as “damaging” by market participants.
The Woodland Carbon Code’s “additionality” reforms have guided investors to plant more deciduous trees, which sequester carbon more slowly but enhance biodiversity.
“That’s fine, but the danger is the pendulum could swing back too far to broadleaf, thereby not providing enough timber,” said Olly Hughes, head of forestry at asset manager Gresham House, which manages a portfolio that has grown to become collectively the third largest landholding in Scotland, according to public data.
The reforms slowing the latest rush for acreage have dovetailed with the focus of land reform activists who argue that these schemes do not benefit local communities.
Willie McGhee, a forester and board member of the Forest Policy Group, is opposed to state support for afforestation using monocultures of non-native conifers and large-scale clear-felling — a process carried out by what he calls the “industrial-forestry complex”.
He says the Scottish government could “rejig grants to reward sustainable management, rather than opportunistic planting for natural capital”, and he backs more community ownership.
Investors have also faced weather risks, such as Scottish brewery Brewdog’s loss of half its saplings at the “Lost Forest” project in the Cairngorms this year through a combination of heatwave, high winds and frost.
The retreat of institutional investors has facilitated a resurgence of “lifestyle” buyers looking for a sporting estate or family property, said Patrick Porteus of sales agency Landfor.
Valuations of land have dipped by 20-25 per cent in the past two years, he added.
“The government’s ambition is to move towards net zero — so there is an opportunity for capital to flow into Scotland,” said Tom Croy, investment director at Par Equity, adding this “won’t be tenable” if there is a significant downturn in investor appetite.
The Edinburgh-based venture capital firm teamed up with Aviva Investors three years ago to regenerate Glen Dye Moor, which was once exclusively managed for grouse shooting.
“Great swaths of the peat on this land were in really poor condition when we took ownership,” he said. The project, however, has run into approval bottlenecks at Scottish Forestry, a government body that manages the code.
David Robertson of forest manager Scottish Woodlands said Scottish Forestry was not staffed adequately to “meet the requirements of carbon credit generation in the UK”.
Scottish Forestry said its team expanded last year, doubling the validation of projects compared to the previous year. Between 2023 and 2024, 170 projects were validated, covering 47 per cent of all new woodland in the UK.
With degraded peatland representing 15 per cent of Scotland’s emissions — the fifth largest carbon emitter — restoration represents a quicker, cheaper means of offsetting emissions than tree planting.
But Freddie Ingleby of peatland specialist Caledonian Climate said doubts about the effectiveness of carbon credits and more limited government funding for peat projects were damaging the market, which is forecast to grow to £1bn this decade.
Buccleuch Estates, one of Scotland’s largest landowners, has embarked on a comprehensive peatland restoration programme but is not engaging with institutional investors, who need defined exit terms on the contracts of up to 60 years that define natural capital projects.
“There is a sense that trying to fit the square peg of finance into the round hole of nature brings its own set of challenges,” said Adrian Dolby, head of agriculture.