Scottish Government

Firm with ‘conflict of interests’ advising Scottish Government on taxpayer handouts

Firm with 'conflict of interests' advising Scottish Government on taxpayer handouts 5

A company with a ‘clear’ financial ‘conflict of interests’ was paid to advise the Scottish Government on public subsidies for tree planting and peatland restoration, The Ferret can reveal.

Consultancy firm Finance Earth wrote two reports for the Scottish Government on how to attract private money into projects to restore the natural environment — a key part of Scotland’s climate plan.

The company’s proposals have been criticised by experts, however, who fear they could result in the taxpayer paying out potentially hundreds of millions of pounds in subsidies to wealthy investors.

Now The Ferret can reveal that Finance Earth is in the process of setting up its own investment vehicle which could invest in Scottish peatland and woodland projects. This means Finance Earth could stand to financially benefit from the controversial proposals it made to the Scottish Government. 

Critics said a firm that could profit from public subsidies should “not be advising the Scottish Government on their design”. One argued ministers should have been able to “spot the conflict of interest” in hiring Finance Earth.

The Scottish Government said the proposals were only “one of a number of models” it was exploring to encourage more “responsible” private investment in nature. 

Finance Earth said recommendations in the reports were the result of work with a “consortium” of partners including the RSPB and Scotland’s Rural College. They were “not designed to transfer public finance to private investors”, the company argued.

Scottish Government

Hundreds of millions

The Scottish Government has consistently missed targets to plant trees and restore peatlands despite handing out millions in grants directly to landowners. 

Environmentalists are alarmed at the lack of progress because trees and healthy peatlands store carbon, which stops it entering the atmosphere and causing global warming. 

According to the Scottish Government, significant private investment is “critical” if these targets are to be met in future, although this approach is controversial and the amount of private money required has been questioned by campaigners.

The Scottish Government was criticised in some quarters last year after it signed a deal with the private sector to attract £2bn of investment into planting trees. Some argued the deal – signed by then minister Lorna Slater – was “privatising Scotland’s trees”. 

Measures such as that deal and the proposals by Finance Earth are necessary because investors have so far been reluctant to fund nature restoration projects. This is partly because they require a big up front investment, which comes with risks. 

Profits are dependent on the price of carbon credits decades in the future – once the trees are mature or the peatland is fully restored – which is hard to predict. 

In its reports, Finance Earth proposes a number of measures through which public subsidies could, in its words,  “de-risk” investment in nature for the private sector. 

Potentially the most expensive of these proposals for the taxpayer is the creation of what’s known as a ‘price floor guarantee’. 

SNP ministers should be able to spot the conflict of interest here but instead this chaotic government is increasingly in thrall to private finance when it comes to nature restoration.

Monica Lennon MSP, Scottish Labour

This guarantee would see investors agree a minimum price for future carbon credits generated by woodland or peatland projects with the Scottish Government before they invest. If the actual price is below this minimum when they come to sell the credits, the taxpayer will pay the investor the difference between the two prices.

There are concerns this arrangement could leave the Scottish Government exposed to a big financial risk.

In this worst case scenario, the guarantee could be a drain on the Scottish budget and leave less money for public services, think tank Future Economy Scotland has warned

They have compared its potential impact to private finance initiatives (PFI) for infrastructure projects, which were branded as “rip offs” and ended up costing the Scottish Government billions of pounds.

Laurie Macfarlane, Future Economy Scotland’s co-director, told The Ferret that Finance Earth’s proposals involve “socialising risk, privatising reward and marginalising local communities”. He fears the price floor guarantee could potentially cost the taxpayer potentially hundreds of millions of pounds in coming decades.

Macfarlane said: “As a major natural capital investor, Finance Earth has a clear vested interest in public funds being used to de-risk private investment in nature. 

“Firms that could potentially benefit from new public subsidies should not be advising the Scottish Government on their design.

“We urge the Scottish Government to go back to the drawing board and explore alternative models that better align with just transition principles.”

Benefitting ‘profiteers’

Finance Earth announced in November 2022 that it is partnering with the American investment giant, Federated Hermes, to set up an investment vehicle called the UK Nature Impact Fund. 

The fund will invest money from the public sector and private investors like pension funds in nature projects across the UK, including potentially Scottish woodland and peatland projects.

Finance Earth will make money from fees it will charge investors in return for managing the fund.

Scottish Labour MSP, Monica Lennon, said our revelations raise “more questions about the competence of the Scottish Government on environmental issues and the use of public funds to benefit profiteers”. 

“SNP ministers should be able to spot the conflict of interests here but instead this chaotic government is increasingly in thrall to private finance when it comes to nature restoration,” Lennon told The Ferret.

The Scottish Government said the contract to produce the two reports was worth £93,923 and was granted through a competitive bidding process. 

A spokesperson said the government had “significantly increased” spending on nature restoration to address the “twin challenges of nature loss and climate change”. The Finance Earth reports outlined “one of a number of models we are exploring to encourage greater responsible private investment” in nature, they claimed. 

Finance Earth said its purpose was to “unlock greater funding and investment for the benefit of nature, climate, and communities”. 

The company told The Ferret in an email: “Price floor guarantee is a well-established mechanism in other parts of the UK and worldwide and is not designed to transfer public finance to private investors. 

“The mechanism would enable a shift away from lump sum capital grant programmes into an approach that can bring in more private funding and potentially pave the way for reducing the need for public grant funding over time.”

Finance Earth response in full

Main image: Scottish Government

1 comment
  1. You NEED to put the ‘Share’ functionality at the top of your articles. You’re losing out.

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