Research completed April 2026

DOI: https://doi.org/10.7488/era/7318

Executive summary

Scotland’s transition to a net zero economy presents a significant investment opportunity for renewable energy, green infrastructure and other sectors. Implementation of a net zero transition is complex and urgent. The scale of capital investment requires further significant mobilisation of private finance, alongside government investment. This report comes in response to a key recommendation of the Scottish Taskforce for Green and Sustainable Financial Services to produce an evidence-based report, mapping Scotland’s green finance landscape.

This report begins by examining available data on Scottish investment activity since 2020 in green infrastructure and renewable energy, with a minimum value of £10 million. The report then explores future investor appetite among finance institutions located or active in Scotland. It then examines green financial service provision from Scottish public/private initiatives and banks and funding institutions. It concludes by examining analytical methodologies that may further identify Scottish sustainable finance opportunities and gaps, as well as challenges in capturing future investment. The analysis adopts a mixed-methods approach, using commercial datasets and desk-based research alongside a limited number of targeted stakeholder interviews. The findings should be interpreted as indicative, as the start of a conversation on sustainable financing, rather than exhaustive.

Key findings and lessons learned

Key findings on Scotland’s sustainable finance landscape are:

• Approximately £9.5 billion has been deployed in green infrastructure and sustainable energy in Scotland since 2020; with the total annual investment increasing from £500 million in 2021 to £1.8 billion in 2023 and over £5 billion in 2025. This excludes Mergers and Acquisitions and deals under £10 million. This investment activity involved a broad mix of investors, including energy companies, commercial banks, infrastructure funds, institutional investors and public financial institutions.
  
• While investment activity has grown steadily since 2020 it remains concentrated in a relatively narrow set of mature sectors. For deals partly and fully located in Scotland, electricity transmission had the largest share of total investment (32%), followed by renewable energy (25%), and battery storage (21%). The largest investment sectors included renewable wind energy, electricity transmission and battery storage. These sectors benefit from more established technologies, clearer revenue models and strong policy support. Investment in emerging sectors such as industrial decarbonisation, low-carbon heat & transport and nature-based solutions appears more limited with some evidence suggesting higher risk perception and uncertainty of regulatory support and revenue models.
  
• Financial Services firms are undertaking a range of activities in this space, with key activities including capital allocation, portfolio management, advisory work and climate analytics.
  
• Financing structures appear to be dominated by debt financing, with 56% of the transactions analysed by the research financed by debt, bonds represented 35%. Equity transactions were relatively low, at 9%.
  
• The evidence suggests there are strong levels of further investor appetite for green investment in Scotland. Several asset managers, banks and corporate investors have announced plans for further Scottish investment, particularly in renewables, grid infrastructure and storage. Investment decisions tend to be made at a UK or global level rather than targeting Scotland.
  
• Public financial institutions play important roles across the financing lifecycle, providing patient capital and crowding in private investment. Institutions such as Innovate UK and the British Business Bank support early-stage, higher-risk innovation, while those such as the Scottish National Investment Bank and the National Wealth Fund support businesses as they mature through the crucial scale-up phase in providing patient capital and drawing in private capital.
  
• Initiatives such as the Global Ethical Finance Initiative and Transition Finance Scotland convene industry and public sector actors. Industry bodies and institutions (e.g. Scottish Financial Enterprise, Scottish Renewables and Scottish Futures Trust) support project development, market coordination and the identification of investment opportunities. Together, these stakeholders form an ecosystem that can support scaling of green investment in Scotland.
  

Lessons learned

The findings point to several key lessons for unlocking and mobilising greater flows of private capital in Scotland’s green sectors. Many of these challenges are structural, relate to ongoing challenges such as grid capacity, and the deployment of new types of financing. They include:

• Enhancing revenue certainty and policy clarity to reduce perceived investment risk, particularly in low-carbon heat and transport, nature-based solutions, and industrial decarbonisation. These areas are structurally challenging, and will require collaboration from across industry, academia, and government to address.
  
• Address infrastructure bottlenecks, particularly grid capacity, and improve the efficiency of permitting processes, as critical enablers of greater renewable energy investment. This is also a challenge which cuts across sectors, industry and government.
  
• More effectively target the use of blended finance and risk-sharing mechanisms to support early-stage and innovative projects where private finance still needs to be unlocked, including in sectors such as industrial decarbonisation, heat, transport and nature-based solutions.
  
• Explore mechanisms to attract and mobilise more risk capital into emerging green sectors, including venture capital and growth equity, to support innovation and the scaling of new technologies.
  

Next steps

The analysis presented in this report provides an initial evidence base and highlights areas where further research would support policy development. Further work could therefore build on this analysis to provide a more comprehensive review of Scotland’s green finance opportunities and constraints.

Potential next steps could include:

• Assessing Scotland’s green investment needs from a wider perspective, including sectors not covered in the current analysis, to include more detailed assessment of the scale of investment required to meet policy goals versus expected investment trajectories. This could help identify potential gaps between observed investment activity and sectoral investment needs to reach the net zero target.
  
• Undertaking a broader assessment of the factors influencing investor decision-making, including both barriers and drivers of investment, drawing on a broader range of stakeholders.
  
• Conducting a high-level assessment of emerging sectors such as hydrogen, carbon capture and storage, and nature-based solutions, including their investment readiness, project pipeline and key constraints to capital deployment.
  
• Exploring whether the current mix of financial products sufficiently supports businesses and projects across different stages of development. This would be particularly relevant for innovative or emerging sectors that may require financing between early-stage public support and conventional debt finance.
  
• Assessing where Scotland’s financial services ecosystem needs to develop further specified sustainable finance expertise to support future growth in green investment and identify opportunities for targeted skills development where gaps exist.
  
• Exploring approaches to diversify investment risk across green investment opportunities, helping to address challenges associated with project scale, concentration of capital and the limited ability of investors to diversify risks when investing in Scotland.
  

Glossary / Abbreviations table

Introduction

Policy and strategic context

Private sector investment is crucial in the transition to net zero as well as addressing biodiversity loss and broader environmental pollution in Scotland. It requires the greening of key economic sectors alongside the development of new green industries. With an ambitious target of reaching net zero emissions by 2045 (Climate Change (Emissions Reduction Targets) (Scotland) Act 2019, 2019), Scotland offers strong investment opportunities in its transition to a more sustainable economy. Its draft Climate Change Plan 2026-2040 envisions that decarbonisation contributions from the transport, energy supply, business and industrial processes sectors will be particularly important (Scottish Government, 2025b).

The transition is already making a significant contribution to the Scottish economy. One economic model estimates that 105,000 jobs and £10.2 billion in economic value are currently supported in sectors such as energy, manufacturing, engineering and professional services (CBI Economics, 2026).

Reaching net zero requires further substantial, sustained and targeted investment. The Climate Change Committee (CCC) predicts that the cost for Scotland alone will be £145 billion between 2020-2050, equating to a £5.6 billion investment need per year between 2026-2040 (Scottish Government, 2025a). The Scottish Fiscal Commission estimates that around £41 billion of total investment is expected to come from public sources (Scottish Fiscal Commission, 2024). With public sector finances under sustained pressure, private sector investment is pivotal to achieving the transition. The Climate Change Committee estimates that 65-90% of the UK net zero financing required between 2025 and 2050 will need to come from the private sector (Climate Change Committee, 2025).

Following the success of the United Nations Climate Change Conference (COP 26) in Glasgow, in 2021, the Scottish Government announced an industry-led taskforce to develop an action plan to capitalise on the opportunities of financing the global shift to net zero. This resulted in the Scottish Taskforce for Green and Sustainable Financial Services (“the Taskforce”), which was convened by the Global Ethical Finance Initiative (GEFI) with funding from the Scottish Government. The Taskforce aimed to strengthen coordination within Scotland’s sustainable finance sector and position the country as a leading global hub for green and sustainable finance (GEFI, 2024b).

Scotland has well-established strengths in financial services and increasingly in sustainable finance (The Investment Association, 2024). Its financial ecosystem comprises global institutions, international companies alongside small, locally based companies (GEFI, 2024a). In the 2022/23 PwC Green Jobs Barometer, Scotland had the highest proportion of green financial job openings (PwC UK, 2023; Scottish Financial Enterprise, n.d.; Scottish Financial News, 2025).

Scottish Financial Enterprise aims to build on these strengths and to double assets under management in Scotland’s financial services sector, to £1 trillion by 2030 (Scottish Financial Enterprise, n.d.). However, the share of assets under management in the UK managed by investment managers from Scotland fell to 17% in 2023 from 26% in 2013. This was attributed to merger and acquisition activity among Scottish firms and the relatively faster growth of assets managed in London, among other factors (The Investment Association, 2024). Research by the Productivity Institute also indicated private investment in the Scottish economy was lower than other top-performing countries and lower than the wider UK in areas such as Research and Development (R&D) (D. Williams et al., 2025).

Scotland’s Green Industrial Strategy identifies four key areas where Scotland has existing strengths, that are most likely to lead to growth and with export potential (Scottish Government, 2024). These are: (i) maximising the wind energy economy, (ii) developing a self-sustaining carbon capture, utilisation and storage (CCUS) sector, (iii) growing the hydrogen sector, and (iv) establishing Scotland as a competitive centre for the clean energy intensive industries of the future. The strategy also advocates for additional public support to green economy financial services to support growth in these sectors.

By providing patient capital, helping to mobilise private finance and accelerating growth in priority green sectors, public financial institutions play a role in the net zero transition. For example, the Scottish National Investment Bank (SNIB) in its Investment Strategy for 2025-2026 positions itself as a patient capital investor focused on crowding in private capital seeking to invest in sectors contributing to net zero (Scottish National Investment Bank, 2025). The National Wealth Fund and Great British Energy also target green sectors.

Research commissioned by Skills Development Scotland and published in 2023 estimated that “green investments” taking place or expected to take place in 2025-2026 amounted to around £90 billion, with £48 billion of that “already going ahead or with a high likelihood of proceeding in the next 2-3 years” (Skills Development Scotland, 2023, p.4). This includes investments targeted in energy, transport, construction, manufacturing, agriculture and land use. However, no other recent studies have been identified which estimate investment levels in green sectors in Scotland or via Scottish financial institutions.

The environment in which sustainable investors operate continues to evolve, both in the UK and globally. Investment sentiment has been affected by the Russian invasion of Ukraine and instability in the Middle East has been driving up fossil fuel and other input prices, leading to concern over energy security and affordability. According to the Investment Association, some sustainable investment strategies affected by these developments generally delivered lower returns (The Investment Association, 2024).

In this context, the Taskforce report outlined how Scotland can position itself as a global green finance centre, but noted further work was needed to map the Scottish financial services landscape (GEFI, 2024a). This included exploring past investment trends, potential future developments and offerings of current green financial services. It noted this work would help the Scottish Government attract more green finance. This report is the first step in this direction, aiming to provide a baseline mapping of the green finance landscape in Scotland over the past five years.

Research questions and methodology

This research outlines the sustainable financing landscape in Scotland, as per the Taskforce recommendation. The goal is to understand which institutions have invested in Scotland, in which sectors and which types of projects over recent years. The study also evaluates available information on investors’ interest in Scotland in the short and medium-term future. It seeks to answer four research questions (RQs):

• Which private and public institutions have completed deals for investments over £10 million in Scottish green infrastructure and renewable energy projects since 2020? (RQ1)
  
• Which financial institutions are looking to meaningfully structurally invest in Scottish projects in the short and medium-term future? (RQ2)
  
• Which funding institutions and initiatives operating in Scotland provide green financial services? (RQ3)
  
• What methodologies should be used to identify the opportunities that could be leveraged, the gaps, and challenges for future investment? (RQ4)
  

To answer these questions, we used a mixed-methods approach. To answer RQ1, we used data on past investment deals derived from the London Stock Exchange Group, (LSEG Data & Analytics), and from Standard & Poor’s (S&P) Global databases. These are specialist and comprehensive data providers who maintain the largest financial databases commonly used in academic financial analysis. This was complemented with desk-based research on Scottish investments and financial organisations. To answer RQ2, we further researched company websites and public documents where these contained stated plans and/or announcements on investing in Scottish green sectors. To answer RQ3, we analysed the green financial instruments and services that larger financial service providers located in Scotland currently offer. This report provides an overview of their green targets, commitments and associated strategies towards sustainable investment, based on publicly available information.

To supplement the desktop research, we conducted interviews with eight selected stakeholders representing the key investor types, including banks and asset managers. These stakeholders represented public and private markets as well as trade associations. The interviews gathered information on both past activity and the future plans of the institutions to support analyses for RQ 1, 2 and 3. Due to our sample size, sentiments expressed should not be considered to be fully representative of the wider investment landscape. To answer RQ4, we reviewed methodology guidance documents from various international institutions. A more detailed summary of our methodology is in Appendix A. Whilst this research is not a comprehensive nor exhaustive overview of the sustainable finance landscape in Scotland, it is intended to serve as a starting point for future research.

Definitions adopted in the study

• For the purposes of this study, “investment” in Scottish companies refers to the provision of capital through equity, bonds and loans, or mergers and acquisitions, where a target company or underlying assets are located in Scotland.
  
• This study adopts the definition of “Green Finance” which was developed by the Taskforce. This states “Green finance refers to any financial initiative, strategy, product or service designed to protect the natural environment and support the transition to a sustainable, low-carbon world, and/or to manage climate-related and other environmental risks impacting finance and investment” (Final Report, Scottish Taskforce for Green and Sustainable Financial Services, 2024, p. 12).
  
• Where there was uncertainty about whether an investment activity falls within the above definition, we referred to specific technical definitions in the EU Sustainable Finance Taxonomy (European Commission, 2026). Excluded investments judged to be outside the scope of the project were: (i) electric vehicle (EV) manufacturing, (ii) activities associated with oil supply for wind turbines, (iii) electric coach services, and (iv) smart meters. Although these investments may be classified as “green”, RQ1 focussed on renewable energy and green infrastructure.
  
• Further definitions used in the study relating to for green financial service providers, green instruments, services and finance initiatives are in Appendix B.
  

Limitations

There is a variety of definitions of green activities within the field. While this report adopts a specific framework and definition, the research may reflect different stakeholder perceptions which may result in slight variations in how the data are interpreted.

The research is unlikely to have identified all relevant deals, especially those which would be considered to constitute lower value deals, activities of small private firms or self-financed projects. To mitigate this, we complemented and cross-checked the information from databases with alternative public sources and news coverage as far as possible. Quantitative data is also supplemented with stakeholder interview evidence. Whilst this qualitative information provides additional detail and context, these insights are neither comprehensive nor necessarily representative of the institutions described in the study or the wider market.

Some investments were only partially located in Scotland, and it was not possible to determine the precise share could be attributed to Scotland. For example, an investment in electricity grids connecting Scotland and the rest of the UK may not specify the share of the total amount spent in Scotland. In other cases, a company may list projects in the UK, including Scotland, but may only publicly state total investment values, not individual amounts. To address this, investments were split into those “fully” and “partially” located in Scotland. It is recognised this is not a precise exercise but is intended to aid interpretation of the available data.

The databases used in the analysis include bonds, debt, equity (see Appendix B for definitions), as well as mergers and acquisitions. However, the databases do not include project equity investments where projects were financed from the balance sheet of a company. In cases where a specific deal reference or location was not explicitly identified within the database, the screening process focused on transactions where the investing or issuing company was headquartered in Scotland. Further desk-based research was then conducted to identify additional information on the underlying projects to confirm whether the investment was linked to projects located in Scotland. However, the UK-level deals may include activity in Scotland which is not captured by the approach taken in this study.

Furthermore, this study focuses on past deals in green energy and infrastructure over £10 million only. Also, it does not capture some broader elements of demand for green investment, such as in energy and energy efficiency.

For details on future investment plans, we have relied on information in the public domain, which may be outdated, incomplete, subject to change and limited in detail given commercial confidentiality and competition. Whilst interviews with stakeholders sought to mitigate this, at least some relevant commercially sensitive information will not be publicly available. Hence, the analysis is likely to reflect the lower end of a true level of investment.

Additionally, a total of eight interviews were conducted, and one institution provided a written response. As the sample size is not statistically representative, the input gathered does not provide a robust reflection of the views of all market participants. Among the interviewed organisations, there were banks (3), asset managers working either in private (2) or in public (1) markets, or both (1), and one trade association. Of the three banks, all are UK-based, with one headquartered in Scotland. The names of the institutions interviewed are not provided. They were selected to include large UK retail and commercial banks, and globally active asset managers.

The analysis of deal activity should be interpreted as indicative rather than exhaustive. It is based on a defined methodological scope, including the use of a dataset (LSEG), complemented by desk-based research and stakeholder interviews. While this approach improves coverage, it remains focused on transactions that are publicly disclosed and meet the study criteria (e.g. deals above £10 million). As a result, certain types of investment activity are not captured, including balance sheet financing. An alternative methodology and data coverage might produce a different but overlapping sample of deals, but the overall trends and aggregate investment values appear broadly consistent across data sources identified.

Investment activity in Scotland’s green sectors since 2020

Introduction

This section analyses completed deals in green infrastructure and renewables over £10 million in value in Scotland since 2020. It identifies patterns in scale, instruments, participating actors and other investment characteristics, alongside further insights from interviews. Further detail on data and methodology is reported in Appendix A.

Data for this section are drawn primarily from the LSEG Data & Analytics using the Sustainability flag incorporated into the database to identify green bonds, green loans, equity issuances and mergers and acquisitions of green Scottish companies. We then cross-checked and complemented the data with desk-based research drawing on public sources, company press releases, investor announcements and industry publications. A full list of sources for the desk-based research is reported in Appendix A.

In total, summing bonds, equity, debt and mergers and acquisitions of Scottish companies, we identified 54 deals between January 2020 and February 2026, with a combined amount of £9.8 billion. This figure captures only private capital market transactions (equity, loans, bonds and M&A involving Scottish companies where Scottish companies were acquired). Excluding M&A the figure is £9.5 billion.

Background

Climate-related investment is significant in both Europe and the UK, although consistent data on green investment is difficult to identify. European Union (EU) level investment averaged around €764 billion per year in activities that reduce greenhouse gas emissions between 2011 and 2020 (European Central Bank, 2025). At UK level, the Office for National Statistics estimates the UK low carbon and renewable energy economy amounted to £77 billion in 2024, an 11.8% increase on 2023, with Scotland accounting for £13.3 billion or one sixth of this total (Office for National Statistics, 2026). Note these figures are not directly comparable to the £9.8 billion estimate of investment in Scotland outlined above and the £48 billion projected by Skills Development Scotland outlined in section 3.1. They include public expenditure, infrastructure programmes and operational capital investment that fall outside the scope of deal data that we collected.

A core ambition in Scotland is to strengthen its contribution to total UK assets under management, putting green and sustainable finance as a core pillar of this growth (GEFI, 2024). This provides context for analysing our dataset of completed green deals in Scotland since 2020, capturing a narrow but growing share of private green investment flows.

Overview of green deals, 2020-2026

Figure 1 reports the number and annual volume of completed deals over £10 million identified in the research, focusing on bonds, equity and loans only. In total, we identified 28 deals which had completed since 2020. These deals were in green infrastructure and renewable energy as defined in LSEG. They include investments in sectors such as renewable energy, clean infrastructure, hydrogen, carbon capture, electric vehicles and renewable utilities (refer to Appendix B for more detail on the definition). The analysis was deliberately scoped to these sectors, applying a minimum £10 million deal size threshold to identify qualifying transactions. Focusing on equity and debt (loans and bonds) financing transactions, no relevant deals were recorded in 2020, likely reflecting the disruption and economic uncertainty associated with COVID-19. Investment activity for these deals has grown steadily since 2021, with a peak of 12 deals in 2025. For completeness, we included the deals reported in January and February 2026. As a result, 2026 is partial and not directly comparable with the previous years. These figures capture only discrete private capital market transactions, excluding investment financed directly from firms’ own balance sheets and are based on the methodology set out in Appendix A.

We interviewed stakeholders active in Scotland’s financial industry for comment on investment trends in these sectors. These included large UK-based retail and commercial banks, globally active asset managers (across private and public markets), infrastructure investors, and a leading industry body. One reported that investment in Scotland’s renewables and green infrastructure has grown but remained concentrated in a relatively narrow set of mature sectors, largely driven by project opportunities (source – interview with a bank). Public interventions, including subsidies, are seen to be playing an important role, particularly in de-risking capital-intensive projects, but several interviewees felt that inconsistent policy signals have constrained broader investment expansion (source – interviews with two banks, an asset manager (private markets), and a trade association). While specific policy instruments were not always explicitly identified, stakeholders indicated that gaps in long-term revenue certainty and pipeline transparency remain key constraints.

As of the end of February 2026, a combined value of around £9.5 billion has been invested in green deals which involve Scotland since 2020, excluding M&A. The total annual investment reached around £500 million in 2021, increasing to around £1.8 billion by 2023 and to over £5 billion in 2025. To provide context, approximately £5 billion per year of combined public and private investment is estimated to be required by the end of this decade to meet a balanced pathway to net zero for Scotland (R. Watts, 2024).

It is important to note that the total amount includes deals both fully and partially located in Scotland. The share of value attributable to Scottish assets in the latter is not disclosed. Despite this limitation, these deals are retained in the analysis to provide a full picture of the number and sectoral distribution of deals (see Section 4.4below). As a result, the total value figure may overstate the amount attributable solely to Scotland somewhat. Therefore, details of deals fully located in Scotland are also provided.

Figure 1 and Figure 2 report the number and monetary value of deals, respectively. These include deals fully located in Scotland (64%) versus deals partially located in Scotland (36%), respectively. Note, deals fully located in Scotland refer to deals where all investment activity is in Scotland. Deals partially invested in Scotland refer to deals forming part of a wider UK investment where the Scottish share of total value is not separately disclosed and the boundary of the investment extends beyond Scotland to the rest of the UK. In a small number of cases these deals also extend beyond the UK itself. In 2024, over three-quarters of deals were fully located in Scotland.

To contextualise the scale of these figures, it is useful to set them against wider investment activity in Scotland. The Scottish Government’s total capital budget stood at £6.2 billion in 2024–25 (R. Watts, 2024), of which around £2.2 billion was classified as low-carbon capital investment (Scottish Government, 2022). This means that private green investment in each year since 2021 in our sample has exceeded green public capital investment in 2024-2025. On the private side, total private equity investment across all sectors in Scotland reached £9.4 billion in 2024 (G. Williams, 2025). Note these figures are not directly comparable to our sample. They encompass a much broader cross-section of sectors and deal types, but provide confidence in the estimate from the sample, as these deals will likely comprise only a proportion of the total private capital deployed in Scotland each year.

The number of published deals is relatively small but steadily growing. This trend is likely to reflect macro conditions. Survey evidence from the Bank of England shows strong economic contraction and high volatility at the UK-level during and following the COVID-19 crisis. In contrast, some evidence suggests that the energy price shock following the Russian invasion of Ukraine in 2021-2022 may have boosted green investment intentions (Bank of England, 2024). The Bank’s survey response at the UK-level reports a growth of approximately 40% in green investment intentions between 2021 and 2023.

Figure 1. Number of completed deals in green infrastructure and renewables in Scotland 2020-2026 – loans, bonds, equity

Source: LSEG databases and desk-based research.

Figure 2. Volume (£ million) of completed deals in green infrastructure and renewables in Scotland 2020-2026 – loans, bonds, equity

Source: LSEG databases and desk-based research. Note: for deals that are only partly located in Scotland, the reported deal amounts reflect the total value of the larger, international or UK-wide transaction, rather than the share corresponding to Scottish assets.

Table 1 reports cross-border M&A activity, which given its specific nature, is presented separately. The analysis covers acquisitions of Scottish-headquartered companies only; acquisitions made by Scottish companies of targets located elsewhere were excluded.

Observing data on M&A deals involving the acquisitions of green companies in Scotland 2020-2026 provides context to inward foreign direct investment trends, and the attractiveness of Scottish green companies. The data show a total M&A deal value of £307 million, which represents foreign and British companies investing in Scottish assets (so called “pure-play M&As” only) rather than necessarily new physical capital expenditure within the country. The energy and power sector consistently leads in both the number of deals and average deal value, with a notable spike in deal value in 2020 at £162 million. In contrast, the industrials sector has more limited activity, with just one deal in 2024 and 2025 respectively.

Table 1: Average M&A deal value amount per sector and per year

Source: LSEG databases and desk-based research. Note: some of the M&A deal amounts are not disclosed in the LSEG dataset. They are listed as NA in this table.

Sectoral distribution

The available data on sub-sectoral distribution remains highly uneven. The evidence suggests a trend toward mature, de-risked technologies. This suggests sectors critical to longer-term climate goals may face investment barriers driven by scalability constraints, uncertain demand and insufficient revenue certainty. This poses a challenge to longer-term decarbonisation ambitions.

Across Scotland’s green infrastructure landscape, stakeholder perspectives reveal a market where capital has flowed mostly into mature, revenue-certain technologies, while emerging sectors continue to face structural barriers for new investment. Interviewees noted that investment activity in renewables and green infrastructure in Scotland had been concentrated in more established sectors, particularly off- and onshore wind, hydro and increasingly in grid infrastructure and storage. Multiple interviewees noted fixed offshore wind as the dominant area of capital deployment but noted growing interest in enabling infrastructure such as transmission networks and battery storage (source – interviews with two banks, an asset manager (private markets), and a trade association). They viewed a notable gap in areas such as hydrogen and nature-based solutions, where uncertainty around revenue models and market structures was perceived to have constrained investment appetite (source – interviews with an asset manager in public markets, and an asset manager in private markets). Also, although peatland and woodland carbon markets in Scotland are considered relatively mature, the National Strategy for Economic Transformation (NSET) has committed to developing a “high-integrity, values-led market” for responsible investment in natural capital (GEFI, 2024a). Similarly, some interviewees noted retrofitting and energy efficiency initiatives in the built environment had struggled to scale due to weak end-user demand and a lack of compelling financing propositions (source – interviews with two banks). These patterns, drawn from stakeholder experience, are broadly corroborated by the deal-level data.

To understand where the deal amounts discussed above have been invested, we analysed the sector allocation of the identified transactions. To do this, we used sector classifications derived from a combination of the Refinitiv Business Classification (TRBC) business sector field and the “use of proceeds” field for each deal, both from LSEG, and supplementary desk-based research to narrow down specific sub-sectors. This was necessary because the dataset does not directly record whether a deal is located in Scotland, requiring us to verify this manually using project-level details. Figure 3 and Figure 4 show the deal total amount disaggregated by sector. We analyse the deals that are partially located (Figure 3) and fully located in Scotland (Figure 4) separately. Table 2 and Table 3 report the same statistics disaggregated by sector and year.

Among the projects partly located in Scotland, renewable wind energy dominates the debt, bonds and equity investments made, representing 42.6% of the total value. This was around £1.8 billion out of £4.3 billion, from the 10 deals spread over 2022 to 2025. The electricity transmission sector attracted the second largest investment total (32%), but this was concentrated in a single large-scale deal. This likely reflects that many Scottish wind projects comprise parts of larger UK-wide or international portfolios. In offshore wind especially, the project company and investors are often headquartered outside Scotland, while the physical asset may sit off the Scottish coast. For deals that are only partly located in Scotland (

Figure 3), the reported deal amounts reflect the total value of the larger, international or UK‑wide transaction, rather than the share corresponding to Scottish assets.

In terms of the projects fully located in Scotland, the largest amounts of investment were directed toward electricity transmission which was 32% of the total investment via three large-scale deals – and battery storage (26%) (Figure 4). High-value electricity transmission projects related to: (i) investment in upgrading grid infrastructure, (ii) improving connectivity and (iii) enabling the transport of renewable energy. One deal related to green/low-carbon real estate has been recorded in 2026 to date.

The dominance of energy sub-sectors in the identified investments is in line with the findings of a CBI Economics study analysing the Scottish net zero economy in 2025. According to their market analysis, the net zero transition has been the most visible in the energy sector in Scotland. A key factor behind this is Scotland’s historic strength in the oil and gas, offshore engineering and subsea capability sectors. These skills and expertise from the traditional fossil fuel sector can be applied in the development of offshore wind, green hydrogen and CCS technologies (CBI Economics, 2026).

Figure 3. Deals partly located in Scotland – percentage of the total amount per sector, 2020-2026 – debt, bonds, equity

Source: LSEG databases, desk-based research.

Figure 4. Deals fully located in Scotland – percentage of the total amount per sector, 2020-2026 – loans, bonds, equity

Source: LSEG databases, desk-based research.

Table 2: Sum of deal amount per sector by year for projects partly located in Scotland

Source: LSEG databases, desk-based research.

Table 3: Sum of deal amount per sector by year for projects fully located in Scotland

Source: LSEG databases, desk-based research. Note: The three corporate lending deals in this table fall under the Basic Materials and Utilities sectors; no further sector detail is available for these transactions.

Although the total deal value for the peatland restoration project is not publicly disclosed, the landscape-scale nature of the programme, covering 400,000 hectares across Caithness and Sutherland and involving multiple public and private funding streams, suggests a substantial investment value.

Deals partly located in Scotland are characterised by larger deal sizes and are mainly led by larger energy companies, financial institutions and major banks. Their dominance suggests that Scotland’s green finance landscape is concentrated among a limited number of larger, established players. In terms of deal values by sector, electricity transmission deals were in the range of £1-1.3 billion per deal, whilst renewable energy deals were approximately £500–£650 million per deal, both attracting substantial capital. Meanwhile, battery storage, EV infrastructure deals and electric bus financing tend to be smaller in size at around £150 million per deal and typically funded by commercial banks. No detailed information was available on these deals.

Investments fully located in Scotland involve a broader mix of investors and more variation in deal size across sectors. Electricity transmission deals range from around £500 million to £1 billion per deal and are typically backed by a combination of energy companies, public financial institutions and institutional investors buying green bonds, such as pension funds and insurance companies. Renewable energy deals – which include onshore and offshore wind – range from around £50 million to more than £200 million per deal. They are mainly financed through project-specific funding from commercial banks, infrastructure funds, and sometimes public co-investors, e.g. the Scottish National Investment Bank. Battery storage sits in the mid-range, around £60 million to £280 million per deal, with specialist energy investors and banks playing a key role. These patterns may also reflect differences in risk appetite. For example, a commercial bank can typically take on more risk, versus deals in more mature technologies where asset owners may take on more of a role.

Smaller sectors indicate more variety in investor types. For example, “green real estate”, involves properties with low‑carbon design and operations. One example identified involved transforming a major office site in Edinburgh into 282,000 square foot of sustainable high-efficiency office space. These were typically over £100 million per deal and were usually financed by commercial banks through green debt. Nature-based solutions, such as peatland restoration, tend to be much smaller and rely on a mix of public bodies, e.g. NatureScot, private investors and environmental funding schemes. Peatland restoration initiatives are also supported through public-private programmes like the Flow Country Green Finance Initiative.

Around 28% of investment flagged as sustainable in LSEG, is classified as “general corporate lending”. For these investments it was not specified whether the use of proceeds is for specific projects or general activities. Other sectors such as low carbon and green real estate received smaller shares of investment (see Appendix B for definitions).

M&A deals were dominated by activity in the energy and power sector this includes offshore wind, onshore wind, solar and hydro company acquisitions (e.g. the Dalquhandy Wind Farm and Beatrice Offshore Windfarm). The nationality and sector of M&A deals are shown in Figure 5 and Figure 6. The investor base was more geographically diverse, with acquirers split relatively evenly between UK-based investors (52%) and international investors from countries including Germany, the US, Denmark and Japan.

The above trends were consistent with the interviewees’ experiences. They noted that investment activity in renewables and green infrastructure in Scotland had been concentrated in more established sectors, particularly off- and onshore wind, hydro and increasingly grid infrastructure and storage. Multiple interviewees noted offshore wind as the dominant area of capital deployment but commented on growing interest in enabling infrastructure such as transmission networks and battery storage (source – interviews with two banks, an asset manager (private markets), and a trade association). They identified a notable gap in areas such as hydrogen and nature-based solutions, where uncertainty around revenue models and market structures was perceived to have constrained investment appetite (source – interviews with an asset manager in public markets, and an asset manager in private markets). Similarly, they considered some noted retrofit and energy efficiency in the built environment had struggled to scale due to weak end-user demand and a lack of compelling financing propositions (source – interviews with two banks).

Figure 5. Cross-border and intra-border M&A deals in Scotland, 2020-2026, including UK

Figure 6. Cross-border and intra-border M&A deals in Scotland, 2020-2026, excluding UK

Source: LSEG databases, desk-based research

Financing structures and instruments

Loans were the primary financing instrument, accounting for 56% of the total deal amount. As above, the deals in this section were identified through LSEG’s deals database which captures publicly disclosed financing deals. This financing was predominantly directed towards large-scale renewable energy generation, battery energy storage systems (BESS) and electricity network upgrades. The majority of these deals take the form of term loans and revolving credit facilities tied to a specific green project rather than corporate lending backed by the company balance sheet. Bridge short-term loans and other corporate loan structures account for only three deals, all of which are partly located in Scotland (refer to Table 7 in Appendix A for more detail on the deal categories’ breakdown).

Bonds account for 35% of the total deal amount and are commonly used to finance projects fully located in Scotland, including Euro-medium term notes and retail crowdfunding bonds. They were used to support large-scale renewables, transmission upgrades in northern Scotland, and for general corporate purposes, such as refinancing corporate debt.

Equity-based deals appear to play a minor part in financing the green transition to date, representing 9% of total deal value. They largely comprise early-stage or blended public-private investments, typically the highest-risk but potentially highest-reward transactions in the investment cycle. An example is the Scottish RenewCo £38 million funding, in which both public sector bodies, including the Scottish National Investment Bank, and private investors provided capital to advance a 7GW onshore wind and solar pipeline (ESG News, 2025).

Other equity investments funded environmental restoration projects such as Flow Country peatlands and BESS projects. These supported grid preparation, carbon sequestration, biodiversity and grid stability. The concentration of equity activity in early-stage and blended structures points to a critical juncture in Scotland’s green finance landscape. Where revenue certainty is insufficient to attract debt financing and the risk profile remains too high for conventional lenders, public and mission-driven investors such as the Scottish National Investment Bank and the National Wealth Fund play a key role in absorbing first-loss risk and unlocking subsequent private investment.

The distribution of financing instruments used for green investment is shown in Figure 7. These data are calculated based on the total monetary value of each deal. For a more detailed breakdown see Table 7 in Appendix A.

Figure 7. Shares of the instrument types used in green investments in Scotland based on total monetary value, 2020-2026

Source: LSEG databases.

Interviewees confirmed that financing structures have largely remained conventional. They tend to rely on a mix of balance sheet lending and project finance structures such as a special purpose vehicle (SPV) with equity and senior debt. They also noted the increasing integration of ESG criteria into credit assessments (source – interviews with a bank and an asset manager in private markets). Banks primarily provide traditional lending products, including green loans. Larger infrastructure investors deploy equity through project finance vehicles, direct equity stakes, co-investments and secondary market acquisitions of operational assets, particularly in large-scale infrastructure (source – interviews with a bank, asset manager (private markets), and an asset owner). Investment sizes vary significantly, ranging from lending to SMEs below £1.5 million, to large-scale infrastructure projects exceeding £500 million. A substantial proportion of activity occurs in the secondary market, focused on de-risked, income-generating assets (source – interviews with a bank, and two asset managers (private markets).

The main financing approaches identified were:

• Balance sheet lending and green loans: banks primarily provide traditional lending products, including green debt, to businesses ranging from SMEs (below £1.5 million) to large corporates.
  
• Project finance via Special Purpose Vehicles (SPVs): entities that combine equity and senior debt for a single project, typically operating under a head contract with a local authority and subcontracting to a Tier 1 contractor, which helps allocate risk clearly.
  
• Direct equity and co-investment: larger infrastructure investors deploying equity through direct stakes, co-investments and secondary market acquisitions of operational assets, particularly in large-scale infrastructure (source – interviews with a bank, asset manager (private markets), and an asset owner).
  
• Secondary market: a substantial proportion of activity involves buying and selling existing operational assets rather than financing new ones, reflecting investors’ preference for de-risked, income-generating projects (source – interviews with a bank, and two asset managers (private markets).
  
• The increasing integration of ESG criteria into credit assessments was also noted (source – interviews with a bank and an asset manager in private markets).
  

Asset classes

An asset class is defined as a group of investments that have similar attributes, behave similarly in the market, and are subject to the same regulations (A. Ganti, 2025) (see Appendix B for a full list). This section examines the types of assets related to the investments described above, i.e. the main investment categories in which finance was invested.

To provide additional insight into investment patterns, transactions were analysed from two asset-class perspectives. The first considers the type of investment exposure represented by the transaction, such as private equity, private debt or fixed income. The second considers the underlying assets or activities targeted by the investment, such as infrastructure or natural capital. These are represented in the ‘Asset class’ and ‘Asset class subcategory’ columns of Table 4, respectively. Given differences between the financing and M&A datasets used for the analysis, the classification approach varied slightly between them. For financing transactions, the underlying asset class was identified based on the stated use of proceeds, while for M&A transactions, it was determined based on the characteristics of the acquired company or asset.

Across all deals, excluding M&A transactions, private debt was the most common (61% of transactions), followed by fixed income instruments (31%) (see Table 4 below). Private equity transactions accounted for only 8% of deals. Within private debt, infrastructure debt was the prevailing subcategory (50 percentage points (p.p.)), followed by corporate debt (8 p.p.) and real estate debt (3 p.p.). Green bonds accounted for all fixed income transactions. For private equity, the subcategories were growth equity (6 p.p.) and natural capital investment (3 p.p.). Overall, debt-based instruments played a central role in green investment activity during the period analysed.

In our sample, there was a high degree of concentration in infrastructure-related investments, which was not only due to the prevalence of infrastructure debt transactions. Infrastructure assets were also financed through fixed-income and equity transactions, potentially indicating an investor preference for assets with established development pathways and long-term revenue potential. This composition of investment activity has remained relatively stable over the period analysed. While the number and value of transactions have increased, this growth was largely concentrated within existing asset classes. Infrastructure has continued to account for the majority of identified investments. This is partly explained by this research solely investigating deals over £10 million.

The representation of other asset classes, such as investments in natural capital (via private equity) and in green real estate (via private debt), was limited. The small number of transactions may indicate that these markets are less mature. Alternatively, this may be due to such deals financed through channels not captured in this analysis, and/or data not being in the public domain.

Table 4: Asset class types of the completed deals, 2021-Feb 2026

Source: LSEG, desk-based research

The asset class used for M&A activity was less concentrated in infrastructure assets than other deals and included investment in a broad range of green sectors. While the majority of acquisitions still involved companies with exposure to infrastructure assets, many transactions targeted project developers, engineering firms, consultancies, technology providers and other specialised service businesses. As a result, it was not always possible to identify an underlying asset class, especially where the target company’s activities were the provision of services. Overall, M&A activity has facilitated investment in infrastructure assets and supported investment in technical capabilities, development expertise, and specialised services required to deliver the energy transition. Acquisitions have been used not only to obtain ownership of low-carbon assets, but also to strengthen capabilities across the wider green economy value chain. Where data were available, companies were mainly acquired through private equity.

Other investment characteristics

Investors in Scottish renewable and green infrastructure projects were mainly developers or operational firms, headquartered in Scotland or elsewhere in the UK. Operational firms describe those that are neither holding companies nor special purpose vehicles (SPVs), which applies to most corporations in the LSEG dataset. Examples include Pulse Clean Energy Ltd and FirstGroup PLC, whose primary function is to provide a service or good. Our data indicates that most investors were limited companies (65%), with public limited companies accounting for 15%. The remaining 20% are non-company entities such as public authorities. Of the investors from outside of the UK, a small share was from the rest of Europe (7.14%, from Finland and Denmark for example), while 10.7% of deals are from Canada and the United States.

Most deals financed with private capital were in the large-scale offshore wind and battery storage sectors. Public entities participated in strategic, community or blended-finance deals (e.g. Flow Country peatland restoration (discussed in Case Study 2), Orkney community wind and the Caithness-Moray HVDC connection). Debt was used equally by private and public investors. Public entities tend to play a larger role in bond financing, while equity is more commonly provided by private investors or blended capital.

Private investors and corporate subsidiaries were prevalent in M&A activity in Scotland’s renewable energy sector, with publicly listed companies playing a smaller but notable role. A total of 12 deals (48%) involved private investors. Of these, 8 (32%) were subsidiaries of larger groups and 5 (20%) were publicly listed companies, often using SPVs which are common in energy infrastructure deals. While it is not possible to confirm the specific characteristics of these SPVs based on publicly available information, SPVs are typically structured as project-specific entities.

Conditions influencing investment decisions

This section evaluates evidence on the factors influencing investor confidence in Scottish renewable and infrastructure projects. As such, it draws on eight interviews, and a written response from one institution. Where relevant, we also refer to published research to triangulate these views. As the sample size is not statistically representative, the input gathered does not provide a robust reflection of the views of all market participants.

Policy transparency and regulatory stability were perceived as key determinants of investor confidence. Respondents emphasised the importance of a stable legal and regulatory environment, particularly in established sectors such as offshore wind. In these, Scotland was seen to benefit from mature contracting frameworks and predictable governance conditions (source – interviews with a bank and an asset manager (private markets). However, with emerging sectors such as hydrogen, battery storage or nature-based solutions, some interviewees suggest a lack of familiarity and certainty around policy and longer decision processes may have impacted investor confidence (source – interviews with two asset managers (public and private markets), and a trade association). Stakeholders (asset managers, private markets) noted the absence of long-term revenue guarantees for hydrogen projects and limited visibility of local authority pipelines for early-stage renewable energy initiatives. Other research notes the policy landscape is still considered by some to be complex and cumbersome for many green sectors, including building retrofitting and electricity grids (GEFI, 2024a).

Revenue certainty emerged as a critical factor influencing investment decisions, particularly for capital-intensive infrastructure. Projects offering long-term income streams or supported by government appeared to be viewed by interviewees as significantly more attractive to institutional investors (source – interviews with an asset manager (private markets) and an asset owner). These included pension funds seeking stable, long-duration returns (source – interviews with an asset manager (private markets) and a trade association). This involvement was especially important in reducing perceived risk and enabling investment in large-scale assets once key development milestones, such as land access, had been secured (source – interviews with a bank and an asset manager (private markets). One interviewee noted that large infrastructure projects lasting 25 years or more require confidence in a minimum return (source – interview with an asset manager (private markets). The predictability of revenue streams is also important to debt lenders, who require confidence in a project’s cash flows before committing financing.

Interviewees from two banks indicated that their offering of green lending, for green residential real estate, was primarily demand-led, suggesting that capital availability was not the primary constraint where viable opportunities existed (source – interviews with two banks). This aligns with findings from the Scottish Government’s Green Heat Finance Taskforce that private lenders are doing significant work to develop and test products such as green mortgages. It noted the importance of wider measures in creating the overall conditions required for this market to flourish, with demand stimulation being a critical factor (Green Heat Finance Taskforce, 2023). These conditions include regulation, quality assurance standards, a well skilled and knowledge supply chain, and clear consumer protection measures. In relation to capital allocation more broadly, a private markets asset manager noted there is no internal cap or limit on capital allocation in Scotland, with investment decisions driven entirely by the availability of suitable opportunities (source – interview with an asset manager (private markets).

Several structural and delivery-related barriers were identified by interviewees as constraining investment. These included the lack of visible project pipelines and grid-related challenges, which affected project timelines (source – interviews with a bank and a trade association). A lack of a visible pipeline may make it difficult for investors to commit capital in advance or plan resource allocation. While some stakeholders noted the lack of a visible investment pipeline, it was not clear whether this was due to the low number of projects or a transparency issue. Other research has found that when major projects were known to investors, they were focused on a relatively small number of sectors, which meant little opportunity to diversify risk (Investor Panel, 2023).

Given the above, the Scottish Government has published a pipeline of costed and prioritised projects. The Green Investment Portfolio was launched in 2020 comprising ten market-ready projects with the value of £1.16 billion (Scottish Government, 2020). Interviews with stakeholders suggested mixed levels of awareness of the initiative. Further work is currently underway by the Scottish Government to raise awareness and publicise these portals and pipelines as part of its approach to investment.

Additionally, insufficient grid capacity may create uncertainty on whether it will be possible to integrate new RES projects in the energy system. In addition, concerns over weakening public support for decarbonisation and broader sensitivities around energy costs were noted as factors influencing the policy and investment environment (source – interviews with a bank and an asset manager (public markets). These factors may also complicate long-term commitments for investors, increasing the risks and affecting the revenue model.

Challenges were perceived as more acute for projects in emerging or less mature sectors. Hydrogen and nature-based solutions were consistently identified as facing difficulties in securing finance due to uncertain market structures and a lack of clear, reliable revenue streams (source – interviews with two asset managers (public and private markets). Respondents also highlighted the importance of mechanisms such as public guarantees, blended finance and long-term revenue support in enabling investment in these higher-risk areas, where purely commercial financing remained difficult to obtain (source – interviews with a bank, and two asset managers (public and private markets).

Other factors influencing investment decisions were mentioned less frequently but remain relevant. These included specific regulatory constraints such as high charges affecting certain technologies (e.g. pumped storage), as well as the importance of clear pathways for scaling projects from early-stage development to bankable infrastructure (source – interview with a bank and an asset manager (private markets)).

Investment in Scotland’s green and renewable sector is largely driven by existing project opportunities, as well as policy transparency, regulatory stability and revenue certainty. Structural and delivery-related barriers remain, particularly for emerging sectors such as hydrogen and nature-based solutions. While less frequent, other factors such as investor preferences and project scale also influence decision-making, highlighting the need for a stable and supportive environment to sustain growth in green investment.

Public financial institutions

Public financial institutions (PuFins) play complementary roles in crowding in private finance in Scotland. These include the Scottish National Investment Bank, the British Business Bank, the National Wealth Fund, British Patient Capital, Innovate UK, and GB Energy. There are also other public institutions and companies investing or supporting mobilisation of finance in Scotland, such as Scottish Enterprise and Scottish Futures Trust. Each target specific market failures and investment challenges and operates in different sectors based on technology and market maturity. These include: emerging innovations (Innovate UK, British Business Bank); supporting businesses at the growth stage (British Business Bank, GB Energy, National Wealth Fund); to supporting mature markets (British Business Bank, GB Energy, National Wealth Fund) as set out in Figure 8 below (HM Government, 2025).

The Scottish National Investment Bank (SNIB) provides patient capital, while seeking commercial, societal and environmental impacts from its investments. It invests in debt, equity and external funds (Scottish National Investment Bank, 2025). Since its launch in 2020, SNIB has invested £348.5 million and mobilised an additional £1 billion of third-party capital in net zero-related investment opportunities, which accounts for the largest share of its portfolio. These investments are in addition to the volumes described in the previous section, which were sourced from databases, apart from one £29 million deal. Priority sectors for the Bank’s net zero mission are battery and storage technologies, industrial decarbonisation, grid infrastructure, circular business models and materials, natural resources, and offshore wind supply chain and technologies. Relevant housing sectors from the Bank’s place mission include affordable and sustainable mixed tenure housing and decarbonisation at scale (The Scottish National Investment Bank, 2025). In 2024, SNIB held 39 investments, of which 16 deals were in net zero sectors, including renewable energy, energy infrastructure equipment, and alternative fuels. Leverage of private capital has been highest for investments in green sectors (The Scottish National Investment Bank, 2025). The case study in Box 1 below outlines a key project with SNIB involvement. Further case studies addressing projects with different characteristics in different sectors are summarised in Appendix D.

Meanwhile, the British Business Bank and Innovate UK support smaller early stage businesses. The British Business Bank provides loans and debt finance, including to smaller businesses. The Bank acts as a first mover and tends to invest in riskier but innovative businesses. Similarly, Innovate UK finances innovative businesses at the earliest stage, offering flexible finance and patient capital (HM Government, 2025). Innovate UK provides grants and loans, as well as advisory support for accessing business networks, regular engagement, and technology due diligence (British Business Bank, n.d.; Innovate UK, n.d., 2025).

The National Wealth Fund (NWF) invests for the longer-term. While its risk appetite is greater than that of commercial banks, the Fund focuses on technologies at later stages of development, construction, and commercialisation (HM Government, 2025). Clean energy, CCUS, hydrogen, battery manufacturing and EV supply chain, green steel, power grids, and energy storage are among the priority sectors (National Wealth Fund, n.d.). Additionally, the fund plans to target sustainable aviation fuels and critical minerals, and to accelerate the delivery of core infrastructure, including offshore wind, solar, building retrofitting, heat networks, and EV charging. NWF provides loans, equity and guarantees. In Scotland, it has invested £1.6 billion to upgrade the national grid and enable clean power and energy security across the UK. It also provides bespoke project development and investment support to the local government (National Wealth Fund, n.d.).

Some of the PuFins also partner to crowd in private finance. For example, GB Energy, NWF and SNIB invested in the Pentland Floating Offshore Wind Farm in Scotland, which was developed by funds managed by Copenhagen Infrastructure Partners (NWF, 2025). SNIB and NWF also jointly invested in Nova Innovation to scale up production of recyclable and compostable packaging (HM Government, 2025).

PuFins also support community projects in green sectors. In 2025, GB Energy (GBE) pledged to provide finance for local renewable energy projects in Scotland. Scottish Government has already defined a list of projects to be supported, including by its own investment (UK Government, 2025a). This commitment is part of GBE’s Local Power Plan, under which up to £1 billion of public investment is planned to scale community and locally owned energy projects across the UK (DESNZ, 2026). The plan provides for direct funding through grants, debt, and project finance, aiming to unlock wider investment in local and community energy projects. GBE has also established a £5 million Community Fund to support energy projects, though it is currently limited to England. It invests in equity and joint ventures for both clean energy projects and supply chain investments. It also provides grants, loans, blended finance, and capacity support for local government or community groups with a ringfenced Scottish element (HM Government, 2025).

Some public agencies facilitate increasing private investment in green sectors. For example, Crown Estate Scotland (CES) contributes to the development of offshore wind in Scotland by awarding and managing leases and other enabling work (Crown Estate Scotland, n.d.). It deploys patient capital, aiming to create environmental or social value alongside commercial returns. The Crown Estate – a separate entity to CES – focusses on a broader list of sectors such as science and innovation, clean energy, and nature and biodiversity (HM Government, 2025).

Overall, public financial institutions play a key role in addressing market gaps and enabling investment across different stages of the financing lifecycle. In doing so, they help to reduce risks and support the mobilisation of private capital into green sectors in Scotland. The ecosystem of PuFins with diverse mandates and risk appetites helps create financing continuity for businesses in green sectors as they transition from innovation and demonstration to commercial deployment. An important contribution is the provision of patient capital. This is particularly important in green sectors, which face long payback periods, often greater policy uncertainty, and substantial upfront infrastructure costs. In these cases, commercial finance alone may be reluctant to invest at early stages.

There was limited evidence from interviewees on the role of public institutions in mobilising private finance. However, stakeholders stressed the importance of a favourable regulatory environment and support mechanisms for the green sectors. The effectiveness of public finance institutions in mobilising private capital depends not only on the availability of public investment, but also on wider policy and regulatory certainty across the UK, particularly in capital-intensive and technologically nascent sectors.

Figure 8: Map of public financial institutions relevant for Scotland

Source: An introduction to the UK public investment landscape, HM Government.

Box 1. Case study: Quanterness Wind Farm loan

The Quanterness wind farm is a 28.8 MW community-owned onshore project in the St Ola region of the Orkney Islands, developed by Orkney Islands Council with financial support from the National Wealth Fund. Approved for investment in 2025, the project forms part of a wider portfolio of community wind developments across the islands. It will consist of six turbines, each with a capacity of 4.8 MW, and has an estimated build cost of £50 million. The project is fully financed through a £62.1 million government loan provided by the NWF, offering favourable interest rates aligned with government bond yields. A 15-year Contract for Difference (CfD) has been secured, ensuring long-term revenue stability and strengthening the project’s financial viability. Construction is expected to begin in 2027, with operations commencing in 2028, and debt repayment planned largely within the CfD period.

The investment is an example of broader policy support for onshore wind capacity in the UK and Scotland, as well as of the efforts to enhance local community benefits from RES projects. Quanterness benefits from proven wind technology, high local wind resource, and the potential to export electricity to the Scottish mainland via a planned interconnector. The project is expected to generate approximately 96.6 GWh of electricity annually – enough to power around 26,000 households – while avoiding approximately 40,000 tonnes of CO₂-eq each year. The project illustrates the role of public financing and revenue stabilisation mechanisms for development of green sectors.

Future investment appetite and priorities

Introduction

As noted in section 3.1, the Scottish government is developing a supportive environment to attract investors towards sustainable finance opportunities. In line with actions originally set out in the Green Industrial Strategy (2024), the government hosted a Global Offshore Wind Investment Forum in 2025, where it highlighted £500 million of investment in the Scottish offshore wind supply chain and outlined a goal of leveraging £1.5 billion of private investment.

The InvestScotland portal, also launched in 2025, is hosted by Scottish Development International, the agency responsible for trade and inward investment as the international arm of Scottish Enterprise. It showcases large-scale investment opportunities in renewable energy and other infrastructure. It is intended to support participation from international investors in major projects already underway or planned. These projects include Orkney energy infrastructure, Green Volt Floating Offshore Wind Farm, and Coire Glas pumped storage hydro.

This section provides an overview of publicly available information on which financial institutions are looking to meaningfully, structurally invest in Scottish projects in the short and medium-term. We focussed on the companies identified in Section 4 with completed deals in Scotland since 2020 and the major financial services firms currently operating in Scotland. Furthermore, we conducted a review of relevant news portals to identify published investor plans in Scotland since 2020. We also asked investors active in Scotland to comment on their investment plans. These stakeholders include large UK-based retail and commercial banks, globally active asset managers (across private and public markets), and infrastructure investors. Data in this section should not be treated as exhaustive. A lack of data on certain sectors does not imply a lack of investor interest. Evidence from stakeholders was used to complement desk-based research. Appendix A provides more details on the specific methodology. It should be noted that while the analysis of past deals in Section 4 does not include balance sheet financing, this form of financing is included in the analysis of future plans. This reflects the data available in public sources.

Institutions planning to invest in Scotland

A total of 28 existing and new investors has announced plans to invest in green sectors in Scotland. Of these, 16 were asset management companies, eight were corporate investors, and four were PuFins (see Figure 9). The asset management category includes those seeking to adopt several different investment strategies, including private equity strategies, such as venture capital and growth equity (see Appendix B for definitions), and infrastructure investing.

The corporate investor category included several that plan to invest in Scotland either via their balance sheets or by raising equity and/or debt from the market. For example, SSE plc has announced significant investment planned in electricity transmission, distribution, flexibility and renewables. It plans to invest £33 billion over the course of 2026-2030, with the financing being sourced through a combination of equity issuance and debt (Latief, 2025). For six of the identified investors, the available information does not specify clearly the method, only that the plan to invest was announced.

Several PuFins were also identified: the National Wealth Fund, the Scottish National Investment Bank, and Great British Energy. These institutions either provide grant capital, guarantees, debt or take equity stakes depending on their mandates and the nature of the deal. The National Wealth Fund, under its five-year strategic plan until 2030-2031, plans to invest in power grids, carbon capture and storage, hydrogen, energy storage, offshore wind, solar and EV charging infrastructure (National Wealth Fund, 2026). As of February 2026, the SNIB has committed over £1 billion to Scottish businesses and projects in the preceding five years. With the Scottish government announcing a £2 billion capitalisation over a 10-year period, the SNIB expects to deploy another £1 billion over the next five years (SNIB, 2026). Finally, GBE was awarded £8.3 billion in the 2025 UK government spending review for projects across the UK, however, the total allocation to Scotland has not been indicated (Great British Energy, 2025). There have, however been standalone announcements on funding for Scotland through GBE for public sector buildings and community and local renewable schemes with £4.85 million allocated in March 2025 (UK Government, 2025b) and another £5.5 million in December 2025 (UK Government, 2025a).

Figure 9: Organisations with future plans to invest in Scotland, announced since 2020

Source: desk-based research conducted in February and March 2026, which focused on identifying investors with plans to invest in Scotland. This included reviewing public announcements from the companies identified in Section 4 with completed deals in Scotland, major financial services firms currently operating in Scotland and relevant news portals. For more detail on methodology and sources, see Appendix CC. The figure only includes organisations that have publicly announced intentions and therefore should not be considered exhaustive.

Short- and medium-term priorities

This section categorises identified investment plans into short (< 5 years) to medium (5-10 years) term and within five broad categories: renewable energy; energy storage; grid infrastructure and transmission networks; nature-based solutions; and carbon capture and storage. These categories are based on themes emerging from desk research as well as insights on sectors of interest gleaned from stakeholder interviewees, publicly available data and investor announcements. These investors themselves are described in section 5.1.

A total of 20 investors were identified. These include investors that announced plans for a specific sector. Note we excluded eight investors that are “open to multiple sectors” from this section. These are discussed in section 3.

Figure 10: Number of investors that plan to invest in Scotland by sector of investment, as announced since 2020

Source: desk-based research conducted in February and March 2026,

The most common form of capital deployment that investors plan to utilise is taking equity stakes in the target project or company. There were 20 investors that intend to invest through equity stakes. The review also identified several instances of investors planning to finance projects through the firm’s own balance sheet. This is followed by the provision of loans by lenders. The least common forms were guarantees or grants, which would be likely to be provided by the UK government or PuFins.

Ticket sizes vary significantly and reflect both the investment need and stage of development of the target business or project. As an example of lower ticket size investments, the Foresight Group’s Foresight Scotland Fund invests between £1-5 million in “growing businesses across Scotland”, with businesses in the renewables sector eligible for investment through various deal types (Foresight, 2026; Scottish Enterprise, n.d.). For large-scale projects or major business expansion plans, investment sizes can run into billions of pounds. An asset manager estimated that wind farm and storage assets may require additional capital of £1 billion over the next four years (source – interview with an asset manager (private markets).

Banks and asset managers investing in the UK do not publicly quantify their Scottish green investment plans. Interviewees referred to two banks active in the UK that do not have specific plans for Scotland, but rather UK-wide environmental spending and sustainable finance goals (source – interviews with two banks). A similar sentiment was expressed by two asset managers. They noted investment allocations in the UK are not regionally based, but rather, on the most attractive investment opportunities which meet their customers’ risk and return expectations across various asset classes (source – interviews with an asset manager (public markets) and an asset owner).

Sector and technology focus

Using the investor categories and the priority investment sectors described above, Figure 11 disaggregates the type of organisations that are planning to invest along with the destination sector. The renewable energy category is the most common sector and has the greatest diversity of investor types, followed by nature-based solutions and energy storage. The “open to multiple sectors” category comprises asset managers with past activities or investment in green sectors that have either announced a plan to invest in several green sectors in Scotland, or have general investment volumes, or funds allocated to Scotland.

Figure 11: Investment plans by sector and type of investor

Source: desk-based research conducted in February and March 2026, which focused on identifying investors with plans to invest in Scotland. This included reviewing public announcements from the companies identified in Section 4 with completed deals in Scotland, major financial services firms currently operating in Scotland and relevant news portals. For more details on methodology and sources, please see the Appendices. Note: the investment plans by sector may number more than the plans identified.

Available investment plan evidence suggests that renewable energy is the most common sector of interest for investors with plans for Scotland (see Figure 11). In Scotland, this sector primarily consists of onshore and offshore wind farms, given that onshore wind represents 59% and fixed offshore wind represents 24% of installed renewables capacity in Scotland as of Q3 2025 (UK Government, 2026). A bank interviewed as part of the study noted that it is keen on supporting the UK Clean Power Plan, has developed an internal strategy to align with that plan and has become a financier of the energy transition in the UK (source – interview with a bank). Interviewees also implied increasing interest in complementary sectors key to the rollout of renewables and clean power transition, for instance grid infrastructure, transmission networks and energy storage. Two asset manager interviewees indicated that the pump hydro storage sector will be a priority for them in the near future as such projects provide long term revenue certainty (source – interviews with two asset managers (private markets)).

This is in line with the findings of CBI Economics, which noted that Scotland has a significant role in the UK’s planned energy infrastructure development, with around £211 billion of planned energy infrastructure investment and 88 GW capacity. This is equivalent to 34% of the UK’s total infrastructure pipeline by value. Battery storage (33.4 GW), onshore wind (20.3 GW), offshore wind (17.7 GW) and pumped storage hydroelectricity (9.6 GW) account for the largest shares of planned capacity (CBI Economics, 2026).

Nature-based solutions are another common category of interest for investors. There are a wide variety of projects that fall under this category. The research identified five investment plans in the areas of rewilding, peatland restoration and forestry management. Rewilding typically generates returns through natural capital markets, peatland restoration through carbon credit sales and broader ecosystem services, and forestry management through sustainable timber harvesting and carbon credits. While there is investor interest in nature-based solutions, stakeholders noted uncertainty around offtake and long-term returns, which can reduce their attractiveness relative to other investment opportunities. They judged that if these issues could be mitigated, for example via market-based or government mechanisms, they have potential for further scale in Scotland (source – interviews with an asset manager (public markets) and a bank).

Limited evidence was found of investments plans for the carbon capture and storage (CCS) sector. The research identified one plan for this sector. In addition to publicly disclosed plans, two interviewees expressed that CCS projects could be developed in Scotland (source – interviews with an asset manager (public markets) and a bank). We did not find specific evidence on why the number of companies that have announced plans on CCS was low. This could be due to a lack of viable and attractive investment opportunities, insufficient policy and regulatory support, the carbon dioxide removal market not yet reaching the scale required for supporting revenue streams, the status of non-pipeline transport options for greenhouse gas removals, or simply due to investors not divulging their plans.

These findings align with investor preferences at the UK level, as reported in the Deloitte survey on investing in the energy transition (Deloitte, 2026). This survey comprised of 106 investors and included both institutional and corporate investors, 49% of whom were located in the UK. This indicated that investors have greater interested in energy storage, mature renewables (solar and onshore and offshore wind), grid infrastructure, and some emerging technologies (green hydrogen). These are followed by EV charging infrastructure, CCS, low-carbon buildings, low-carbon transport and others.

Barriers and opportunities for scaling investments

Several interviewed stakeholders had positive views on investment opportunities in Scotland, with one asset manager noting that it will likely have more progress than the rest of the country due to more ambitious climate targets. The preceding analysis highlights the growing scale of investment deals to date. Moreover, according to a 2026 survey by Deloitte, UK investors appear more committed to the energy transition than a year ago (Deloitte, 2026). At the same time, stakeholders identified several structural barriers to scaling investments. In many cases, this reflects challenges in scaling investment and associated activity and cannot be interpreted as indicative of wider sentiment. Similarly, several reflect external factors arising from global conditions. These barriers and opportunities were:

• Project-level investment risk: One bank noted that investment in sustainable finance could be scaled by more targeted blended finance or instruments such as guarantees or insurance that reduce investment risk for banks (source – interview with a bank). This aligns with the findings of Deloitte’s 2026 survey of investors interested in the UK energy transition. This indicated a desire for more direct public funding/support for early-stage projects, such as tax credits, exemptions and public co-funding. While scaling needs blended finance, including CfDs, Regulated Asset Base (RABs) and revenue support (Deloitte, 2026).
  
• Long-term certainty to reduce risk: The 2026 Deloitte survey found that clear visibility of risk or predictable cash flows is crucial for investments in energy transition (90% of respondents), and that this is a crucial challenge for the sector. In an interview an asset manager underlined that for capital intensive projects, investors require long-term certainty that returns on investment are secure (source – interview with an asset manager (private markets). This is in line with findings from the “net zero: investment panel” report, which recommends the private and public sectors work closely together (Investor Panel, 2023).
  
• Lack of grid infrastructure: The Deloitte survey noted above found that for most investors (70%), an expanded and modern electricity grid is a key energy transition enabler, with policy support to incentivise investments in grid optimisation, balancing services, data and technology solutions, and hardware manufacturing.
  
• Inefficiency of permitting processes: The Deloitte survey also confirms that faster planning and permitting should be a key energy policy priority, (77% of respondents).
  
• Shortage of skilled human capital: Previous research has noted a need to increase understanding of private sector investment skills requirements to better inform upstream policy development and downstream policy implementation (Investor Panel, 2023). It is not clear that this relates to green investments specifically or acknowledges the extent of devolved powers, however. Despite this, the Deloitte survey notes investors are cautiously optimistic that the UK will develop the green skills needed for energy transition by 2030.
  
• City-level partnerships: One asset manager pointed to city partnerships in England where cities and local authorities appoint a private-sector partner to work with and develop a pipeline for green projects. These are long-term partnerships over 10-15 years working towards specific KPIs. A similar model in Scotland may encourage investors to invest in projects which otherwise may be riskier (source – interview with an asset manager (private markets). There have been recent developments towards such partnerships in Scotland, such as the national Wealth Fund’s Regional Accelerator Project in Glasgow (NWF, 2025).
  
• Adaptation investment: One bank noted that while there is often a business case for adaptation and resilience investment, many businesses do not yet see it as a revenue generating opportunity. As better climate intelligence and data become available, more investment in this area could be made (source – interview with a bank).
  
• Nature investment: One asset manager pointed out that the challenge with nature-based solutions is the lack of certainty about the end market for carbon credits, which puts investors’ returns at risk (source – interview with an asset manager (public markets). One bank similarly noted that there is greater equity risk in nature-based investments, as there is relatively less price and offtake guarantee (source – interviews).
  

In summary, the renewables sector features most prominently in investors’ priorities with complementary plans announced in the grid infrastructure and energy storage sectors. There is also investor interest in nature-based solutions, although they generally seek more certainty around project viability and profitability to scale investment in this sector. There are several opportunities to facilitate further sustainable finance flows in Scotland. They include:

• 
  growing investor relations management capacity, providing clarity to investors on who to engage with and how.
  
• 
  devising a pipeline of strategic investment priorities with transparency on Government support. Targeted support to Small and Medium Sized enterprises (SMEs) is likely to be particularly important.
  
• 
  Consider the need for further supporting mechanisms around business models for adaptation and nature-based investments.
  
• 
  Undertake further specific analysis on targeted investment support needs to decrease project level risk.
  

Green financial service providers in Scotland

Introduction

This section identifies the institutions providing green financial services in Scotland and outlines the services and products they offer. We evaluate their green investment targets, commitments, and note sustainable investment strategies, where data are available. It should be noted that not all investors disclose their activity in Scotland, hence, most findings in this section are based on evidence gleaned via global financial institutions. Appendix C Provides a list of data sources. Green financial initiatives in Scotland are also analysed.

We identified the largest financial service providers present in Scotland using the LSEG database and the Net Zero Finance Tracker of the Climate Policy Initiative. This list was complemented with a further review of financial institutions, which identified one further company. These institutions were screened in terms of the green financial services or products they offer. As noted above, many Scotland-based institutions operate within wider group structures, which report sustainability performance at the international group level. As such, analysis was conducted at the group level where appropriate. A total of 49 institutions were identified and included in the analysis. Desk-based research also identified green services and financial instruments, green targets, associated commitments, and governance structures. The institutions analysed is not exhaustive, reviewing all financial service providers present in Scotland (over 1,700) was outside of the scope of this research. Additionally, nine interviews were conducted, and one institution provided answers in writing. Organisations represented included banks (4), asset managers working either in private (2) or in public (1) markets, or both (1), and a trade association. The names of institutions interviewed are not provided for reasons of confidentiality.

Overview of service providers

Most of the large financial institutions that were analysed have headquarters in Scotland, elsewhere in the UK and the United States. Out of the 49 financial service providers analysed, 27% have either their main or regional headquarters in Scotland. The remaining companies are headquartered in the rest of the UK, mainly London (31%), and the USA (24%), Canada (6%), Australia (4%), Switzerland, Luxembourg, Denmark and France (2% each). This pattern is in line with other published research. For example, the United States was the single biggest originator of Scottish foreign direct investment (FDI) projects in 2024, comprising 27% of Scotland’s total FDI based on analysis from Ernst and Young (EY, 2025).

Among the Scottish providers, we distinguished between four types of institution. These categories are used as practical groupings for the purposes of the analysis and do not imply that institutions’ activities fall exclusively within a single category:

• Asset managers in public markets, defined as companies that manage third-party capital and invest it in public markets, i.e. listed companies.
  
• Asset managers in private markets, defined as companies that manage third-party capital and invest it in private markets, i.e. projects or non-listed companies.
  
• Asset owners, defined as institutions that invest their own capital institutions and invest it directly and/or via external managers, e.g. insurance companies or pension funds; and
  
• Banks.
  

In terms of the number of investors, asset management companies were the largest category identified as providing green financial services and products (63%), followed by banks (20%) and asset owners (16%). In the asset management category, the majority of institutions focused their overall activity on private markets (33 percentage points (p.p.), although many worked both in public and in private markets (22 p.p.), and a smaller share focused solely on public markets (8 p.p.). Those categories can be further broken down into subcategories:

• Asset managers working in private markets were represented by global alternative asset managers (see Appendix B for definitions) investing across a range of sectors and strategies, including private equity. Those included Blackstone, KKR, Apollo Global Management, Brookfield Asset Management, the Carlyle Group, CVC, Permira, Bain Capital. While these organisations invest in green sectors, this tends not to be the primary investment focus. Brookfield invests across multiple sectors (e.g. infrastructure, real estate, private equity). It appears to have stronger activity in green sectors than those listed, but this is undertaken as part of a broader strategy. The second largest subcategory was investors specialising in green sectors, such as renewables and storage, as well as infrastructure more generally. These tend to invest long-term, alongside developing and operating assets. They include Macquarie/Green Investment Group, Quinbrook, Equitix, IFM, Schroders Greencoat, Copenhagen Infrastructure Partners, InfraRed, and Foresight.
  
• Asset managers working in public markets allocate capital in listed equities, including those in green sectors. These include Baillie Gifford, Alliance Witan, Scottish American Investment Company. Their role in green finance is mainly indirect, as they invest in listed companies rather than directly fund green projects. They support green outcomes by choosing to invest in greener companies or by influencing companies they own shares in. Hence, their role can become more active through long-term stewardship. While these institutions have a global reach, these managers allocate capital to Scottish companies in addition to international portfolios.
  
• Asset managers working in private and public markets comprise two types. The first is companies operating globally and investing mainly in public markets with some exposure in private markets. These include BlackRock, State Street Global Advisors, Amundi, Invesco, Pimco, Franklin Templeton, Northern Trust. They act through capital allocation, integration of green and climate aspects in their investments, and stewardship. The second type is UK-based asset managers who, while investing in public markets, have a stronger presence in private markets, for example, abrdn, Schroders, M&G, Foresight.
  
• Asset owners were represented by pension funds – for example, CPP Investments, Ontario Teachers, and insurance companies – for example, Scottish Widows, Aegon, Prudential, Legal & General, Royal London, Phoenix. Based on publicly available information on their past activity, nearly all have significant exposure to the UK market. However, Scotland does not appear to be identified as a distinct focus market. Some evidence suggests that Pension funds are increasing their investments in renewable infrastructure, such as solar, wind, and hydropower more generally (Pensions Policy Institute, 2024).
  

The most common sector that institutions in Scotland invest in or finance is renewable energy. Nearly all investors have exposure in renewables, with wind and solar being the most common (see Figure 12). Most of the identified institutions also appear to channel capital into projects or companies involved in energy storage. Despite this, investments portfolios appear to be diversified and include buildings, transport, industry, energy efficiency, circular economy, sustainable water management, nature-based solutions and carbon removal. In terms of specific examples, Equitix and Macquarie Asset Management have supported the offshore wind sector in Scotland, Copenhagen Infrastructure Partners has financed the construction of battery energy storage in South Lanarkshire, and Carlyle has invested in green ammonia company based in Edinburgh (Carlyle, 2022; Copenhagen Infrastructure Partners, n.d.; Equitix, 2023; Macquarie Group, 2024). Banks, such as TSB and Virgin Money, have provided finance for energy efficiency in residential buildings. Some banks are increasingly establishing dedicated teams and platforms to support green infrastructure and emerging low-carbon technologies, including Lloyds Banking Group, NatWest, and HSBC.

Figure 12. Investment sectors of Scottish green financial service providers

Source: desk-based research, see Appendix C for the list of sources. RES is “renewable energy sources”.

Green financial instruments

Our research indicates financial service providers present in Scotland tend to use the three key types of instruments to finance their activity in green sectors. Those are equity investments that differ between public markets (listed shares) and private markets (direct project or asset ownership), green bonds, and loans. The use of these instruments and their subtypes vary between institutions.

Asset managers in private markets primarily use equity and debt, where equity represents direct ownership in green infrastructure and projects, particularly in the renewables sector. Some large generalist investors may deploy all three instruments, including bonds – for example, Blackstone, KKR, Brookfield, Apollo. More specialist managers, such as Quinbrook, Equitix, and Schroders Greencoat tend to focus on equity. Additionally, some asset managers offer green and sustainable funds or sector-focused investment strategies. For example, Quinbrook manages the Net Zero Power Fund, and Apollo’s Sustainable Investing Platform helps to deploy capital in energy transition and decarbonization (Garcia, 2024).

Conversely, asset managers operating in public capital markets rely more on listed equities and bonds, which reflects their investment strategies. For example, Baillie Gifford, Alliance Witan, and the Scottish American Investment Company. ESG-labelled or sustainability funds with a broader mandate than funds focused on climate and environment objectives are also offered – for example abrdn’s Global Corporate Sustainable Bond Fund, range of ESG ETFs and active funds of Invesco.

Asset owners, such as pension funds and insurers, tend to use all three instruments, i.e. equity, bonds, and debt. This is likely due to their diversified portfolios and long-term strategies that include both public and private markets for example CPP Investments, Ontario Teachers’, Legal & General.

Larger international banks, such as JPMorgan, HSBC, and Barclays, tend to use a mix of equity and debt, while the smaller or domestic banks – e.g. TSB, Hampden & Co, Virgin Money, appear to usually provide debt only. Other banks also use labelled debt instruments – green bonds, sustainability and sustainability-linked loans – for example NatWest, JPMorgan, HSBC.

Green services

Green financial service providers present in Scotland offer a wide range of services, which vary by institution type. Our research indicates that institutions working in private markets tend to invest directly in projects and assets, while institutions working in public markets appear to allocate capital and influence companies through investment decisions and engagement. Banks also help structure transactions, while asset owners primarily supply long-term capital.

Table 5 provides a summary of the services offered, by the types of institution. These services include direct ownership of projects as well as ongoing asset management. In practice, functions such as due diligence, structuring and climate risk assessment also form part of their service but built into the investment process. This reflects the nature of investments in green infrastructure and other real assets, which often require hands-on involvement.

Table 5: Services offered by green financial service providers

Source: based on desk-based research, see Appendix C for the full list and Appendix B for definitions. In this report, we understand stewardship and engagement as cases in which investors use their ownership rights to influence company behaviour. Banks do not undertake stewardship in this sense, but may influence counterparties through the credit process, including through lending conditions, covenants, and ongoing borrower engagement. This aspect of banks’ activity was not analysed in the current study.

Private market asset managers appear to provide the most comprehensive range of services. Their activities usually cover the full investment lifecycle, from allocating capital to managing assets in the long run. But public market asset managers also provide a range of services, focussed on investments in listed markets. Their role focuses on portfolio management, supported by research and company analysis, including the integration of climate considerations into investment analysis and decisions. They engage with companies through stewardship activities, such as dialogue with management and voting at shareholder meetings, influencing decision-making and investment strategy. Some firms provide analytical tools, such as climate risk metrics or scenario analysis, although these are usually part of their broader investment offering rather than standalone services – for example, Blackrock, Amundi, Northern Trust Asset Management.

The identified asset owners, such as pension funds and insurers, mainly act as providers of capital. They allocate capital across asset classes and investment managers, with investment strategy typically set in-house but implementation often delegated. While they use climate-related analysis to inform their decisions, these capabilities are typically internal and not offered externally. Their role in green finance is therefore indirect, as they support investment rather than deliver financial services. This role is closely linked to asset managers, with asset owners influencing investment outcomes through the mandates and requirements they set.

Banks provide green financial services via lending and by arranging and structuring transactions, including loans and bond issuance, but the extent and diversity of services differ. Larger banks offer a wider range of services, including lending, underwriting and support with structuring transactions. They may also provide advisory support, for example Lloyds Banking Group, incl. Bank of Scotland, advises on energy transition finance and provides transition planning advisory services. These activities are often supported by internal analytical capabilities. Smaller or more domestically focused banks tend to focus on lending only, such as green mortgages or financing for smaller businesses, with limited involvement in capital markets or advisory services.

Green financial service providers also use proprietary tools and frameworks to support green investment. Several firms have developed internal platforms and methodologies, such as climate scenario analysis tools (e.g. Blackstone), ESG data and analytics systems (e.g. Invesco, Northern Trust Asset Management), and decarbonisation or net zero frameworks used to guide portfolio companies (e.g. Brookfield). These tools are used to support investment decisions, risk assessment, and portfolio monitoring, rather than being offered as standalone services. At the same time, banks also provide client-facing services, including carbon foot printing tools, business transition planning, and assistance with regulatory reporting and ESG ratings – for example, NatWest Group (NatWest and Royal Bank of Scotland), JPMorgan Chase. Some banks also provide more targeted support, such as mentoring or advisory services for climate-focused businesses, e.g. Barclays.

Banks appear to be the most active providers of finance for small and medium enterprises (SMEs). The majority institutions reviewed provide loans to SMEs, including those working in green sectors. Asset managers, both those in public and in private markets, appear to have a mixed approach. While a few firms, e.g. Blackstone, KKR, Carlyle, Schroders, Invesco, Amundi, invest in SMEs, others do not, focusing on large-scale investments only. Overall, SME financing in green sectors appears to be driven mainly by banks, with other institutions contributing either in a more targeted or indirect way. At the same time, SMEs make up the vast majority of Scotland’s net zero economy, accounting for around 90% of identified firms (CBI Economics, 2026).

Limited evidence has been identified that institutions in the sample provide venture capital to companies in green sectors in Scotland. Some asset managers, a small number of banks and asset owners invest in early-stage companies. However, many others, particularly those focused on large-scale infrastructure, do not appear to provide this service. The available data do not specify whether they direct venture capital towards green sectors. As a result, while some institutions provide venture capital, its role in supporting early-stage development in green sectors cannot be established based on the available evidence. We did not identify evidence that private equity firms support the growth and scaling of such companies.

Green targets and commitments, internal governance structures

As a result of regulatory requirements as well as industry initiatives, financial institutions are increasingly required to measure, disclose and reduce emissions, including those associated with their financing and investment activities. Financial institutions are also increasingly being evaluated on the real-economy impact of their transactions, with data providers such as LSEG and Bloomberg incorporating such metrics into their assessments. This section summarises thematic findings on whether the institutions we analysed have published green targets or have associated governance structures supporting green investment activities.

Most of the analysed institutions have adopted targets on greenhouse gas (GHG) emissions reductions, although their scope and level of ambition vary. The most common approach is the adoption of net zero targets by 2050, often supported by interim targets for 2030. In particular, the asset managers and banks in our sample have set such targets, for example Brookfield Asset Management, Carlyle, Schroders and Legal & General. These organisations combine long-term net zero commitments with interim emissions reduction or portfolio alignment targets. Despite this, around a third of institutions do not appear to have adopted explicit 2050 net zero targets. A number of firms either focus on operational emissions only or have not set portfolio-level targets. Some have weakened GHG emission reduction targets or withdrawn from net-zero or climate alliances. Overall, their scope, coverage, and implementation vary.

Often these targets cover financed or portfolio emissions. However, in some cases it was not clear which emissions the targets cover. In private markets, green targets are often linked directly to portfolio companies and assets. For example, Blackstone has introduced an emissions reduction target applied to certain investments where it has operational control, while CVC sets targets for portfolio companies to adopt science-based emissions reduction targets over time. InfraRed Capital Partners also focuses on portfolio alignment with net zero pathways and has committed to engaging with the companies responsible for the majority of its financed emissions. Overall, these investors appear to have more influence over underlying assets compared to public market investors.

In addition to setting targets, many institutions have made commitments to increase financing or investment in green and transition activities over a defined period. Large banks in the sample have been the most active in setting quantified commitments, often in the range of hundreds of billions or more, typically covering lending, underwriting, and investment in green and transition activities. For example, NatWest Group, HSBC, Barclays and JPMorgan have all set substantial targets. The commitments are not typically specifically linked to Scotland or other countries and regions. This is in line with the findings from stakeholder interviews, as several banks confirmed they do not have specific Scottish targets or commitments (source – interviews with two banks).

Among asset managers, several institutions have explicit pledges on green financing, but this practice does not appear widespread. Firms such as Blackstone and Apollo have announced large-scale investment targets in green or decarbonisation strategies, while Brookfield has raised significant capital for funds dedicated to the energy transition. Infrastructure-focused investors sometimes commit to allocate capital to specific green sectors. Copenhagen Infrastructure Partners aims to raise €130 billion by 2030 for greenfield renewable energy investments.

Governance of green investment is usually embedded in broader corporate governance and risk management. Boards and Board committees, e.g. risk, sustainability, or governance committees, often set overall direction, approve strategies, and monitor progress. Executive committees and senior leadership translate strategic objectives into operational processes.

Many companies have dedicated sustainability or responsible investment teams. These teams develop policies, provide analytical support, and coordinate reporting, while working closely with investment, risk, and business units. It is not clear if there are dedicated teams for Scottish investment. Additionally, climate and sustainability aspects are often integrated into existing functions such as risk management frameworks, due diligence processes, and portfolio monitoring.

Moreover, green financial service providers often integrate climate considerations throughout the investment lifecycle. They embed climate risks and opportunities in investment decision-making, instead of treating them as a separate activity. This spans initial screening and due diligence to asset management and stewardship, in particular, for private market investors.

Interviewees suggest climate considerations are integrated into institutions’ strategies in different ways. For banks, this may involve a combination of internal operations, customer products, and supplier engagement (source – an interview with a bank). For asset managers, client demand often determines the way climate change is integrated, depending on the mandates from investors (source – an interview with an, asset manager (public markets)).

Overview of initiatives aimed at mobilising green finance

There are several initiatives that aim to mobilise green finance in Scotland. We have identified some of the key partnership-led efforts to strengthen Scotland’s green finance ecosystem below. They support different stages of the green investment cycle, including early-stage innovation and commercialisation, project pipeline development, system-level coordination and strategy, as well as capital mobilisation and scaling. While some initiatives focus on specific segments, such as climate technologies or nature-based solutions, others take a broader approach to enabling green finance across sectors. The initiatives are as follows (the full list of participants is in Table 6):

1. Climate Tech Accelerator supports early-stage climate technology companies by providing mentoring, network access, and business development support (ScotlandIS, 2025). It was founded in 2025 through a partnership between Barclays and Sustainable Ventures (Sustainable Ventures, 2021).
   
2. Facility for Investment Ready Nature in Scotland (FIRNS) focuses on developing a pipeline of investable nature-based projects (NatureScot, n.d.-b). It addresses barriers such as limited sources of revenue and limited pipeline and scale (NatureScot, 2026). While it does not deploy capital directly, it is designed to unlock private investment into nature. It was founded in 2023 by a partnership of the Scottish Government, NatureScot, National Lottery Heritage Fund and Green Finance Institute (Green Finance Institute, 2026).
   
3. Restore Scotland’s Native Woodlands supports the financing of environmental projects such as forestation, targeting landowners interested in nature restoration and carbon capture programmes (NatureScot, 2023). It was founded in 2023 by a partnership of Hampden & Co Bank, NatureScot, Lombard Odier Investment Managers, and Palladium. It aims to mobilise up to £2 billion for landscape-scale native woodland restoration projects.
   
4. Transition Finance Scotland supports the mobilisation of capital into priority decarbonisation sectors (Green Finance Institute, 2025). Objectives of the initiative include unlocking green investments across Scotland, generating economic and employment opportunities and leveraging public finance to crowd in private investment. It was founded in 2025 by a partnership of the Green Finance Institute and 40 leading Scottish organisations across financial services, project developers and the public sector, to help facilitate expansion of investment in net zero initiatives.
   
5. Carbonplace supports the secure and transparent transfer of carbon credits by providing market infrastructure that improves efficiency and trust in carbon markets (Segal, 2023). It was founded in 2021 by a partnership of banks including NatWest Group and other global financial institutions and became independent in 2023.
   
6. The Scottish Taskforce for Green and Sustainable Financial Services supported the development of Scotland’s green finance sector through coordination, strategy, and policy alignment (Global Ethical Finance, 2024). It was active in 2022-2024 and was a partnership of the Scottish Government, Global Ethical Finance Initiative, Scottish Financial Enterprise.
   
7. The accelerating Scotland’s Impact Investing Ecosystem initiative supports the growth of Scotland’s impact investing market by improving coordination, strengthening networks, and increasing visibility of investment opportunities (Impact Investing Institute, n.d.). It is a partnership of the Scottish National Investment Bank and Impact Investing Institute. SNIB supports the design of the initiative as the key partner and shares key insights on the investment landscape in Aberdeen and the larger Scottish ecosystem.
   
8. The Scottish Business Climate Collaboration supports SMEs in developing carbon reduction plans and transition strategies (Scottish Business Climate Collaboration, 2026). It was founded in 2021 by Aggreko, Bank of Scotland, Diageo, EY, Scottish Power, Scottish Water, and Zero Waste Scotland (Newlands, 2021).
   

Table 6. Initiatives with aims including mobilisation of green finance in Scotland

Source: desk-based review.

Nearly all the identified initiatives involve the Scottish Government as a key partner. This highlights the importance of public–private collaboration in efforts to mobilise green finance in Scotland. In addition to these initiatives, there are other Scotland-based programmes that do not directly mobilise financial capital or address investment barriers but which do contribute to net zero, nature restoration and broader sustainable development objectives more generally (Landscape Finance Lab, 2026; Scottish Government, n.d.). These initiatives leverage existing finance for net zero or adopt a more research and advisory-oriented approach (Adaptation Scotland, 2024). For example, the Clean Transport Accelerator supports early-stage clean transport companies by providing mentoring, expert guidance, and access to networks (Flux Aviation, 2024; NatWest Group, 2023). It was established through a partnership between NatWest Group and Warwick Manufacturing Group and focuses on strengthening innovation and investment readiness in the transport sector.

Frameworks to identify gaps and opportunities

Introduction

This section presents approaches that could be used to identify the opportunities that could be leveraged for green finance in Scotland, as well as the gaps, and challenges for future investment. It is based on a targeted review of international best-practice approaches and guidance that could be adopted by the Scottish Government or their agencies to support identification of market gaps and investment opportunities. We reviewed documents that capture both conceptual and practical approaches to diagnosing how to attract private green investment.

Assessment of investment opportunities

In the documents reviewed, the identification of investment opportunities tended not to be viewed as a separate step, rather as the result of other actions, such as policy prioritisation, analysing sector needs and associated financial flows. However, several principles can be observed. These are discussed below, with examples.

• Climate policy priorities should be a starting point. The available documentation suggests that opportunities for investments in green sectors should be identified by starting from sectors or technologies prioritised in climate and development strategies and then assessing their investment potential. The idea is that opportunities emerge where policy objectives have been translated into sectoral priorities and investment needs. For example, the UNDP guidebook on catalysing climate finance recommends identifying priority mitigation and adaptation technologies based on green and low-emission development objectives, as well as national socio-economic conditions. The toolkit on developing roadmaps by Sustainable Banking and Finance Network (SBFN) notes that sustainable finance roadmaps should help channel finance into priority sectors for which the financing need is the largest.
  
• Demand for financing within the priority sectors needs to be assessed. The SBFN toolkit highlights the need to identify financing needs or market demand in priority sectors. This implies assessing the scale of investment needed to achieve climate objectives in certain sectors, as well as the extent to which current financing is (in)sufficient. For example, in the energy sector, national strategies may prioritise the expansion of green hydrogen capacities. While this creates a need for investment, access to long-term finance for this sector may be limited either due to projects being perceived as higher risk or due to regulatory framework not providing enough support. To define actions and measures needed to support its development, one of the first steps should be quantifying its finance needs.
  
• Analysis of the existing financial flows and market patterns. The approach of the Climate Policy Initiative (CPI), an international research organisation specialising in climate finance, in Guidelines for Building a National Landscape of Climate Finance, suggests that comprehensive tracking where finance is currently flowing may reveal areas with potential for scaling up investment. Accordingly, sectors that have attracted low capital flows relative to their importance in national climate strategies can potentially indicate underinvestment and missed opportunities (CPI Guidelines; CPI Global).
  
• Project pipelines. Several documents, for example, UNCTAD’s Investment Policy Framework for Sustainable Development, highlight that the visibility of project pipelines is important. While policy prioritisation and sector potential are important, without a sufficient pipeline of concrete projects those sectors may struggle to attract investment. As noted in section 5, in 2025, the Scottish Government established the InvestScotland portal to showcase key opportunities for investment. As the portal develops, a greater number of opportunities are expected to increase investment, provided wider awareness of those opportunities among stakeholders is ensured.
  

Identification of investment gaps

A common recommendation in the identified literature is to identify investment gaps by systematically comparing investment needs by sector in terms of policy targets and priorities with actual finance flows (Climate Policy Initiative, 2025; IMF & SBFN, 2023). Furthermore, some documents encourage analysis of gaps across different layers of the financial system. For example, the OECD report emphasises that assessment should cover “real-economy investments, financial assets, financial institutions, and financial jurisdictions”, meaning the gaps may arise at multiple levels, and investment volumes should not be the only indicator (OECD, 2024, p.18). For example, the report makes a distinction between financial flows, meaning new financing over a period, and stocks or existing financial assets, both of which need to be tracked.

Investment barriers

Policy and regulatory frameworks are responsible for creating enabling environments for investments in green sectors. For example, the EU Strategy for Financing the Transition to a Sustainable Economy highlights a need to have a framework for sustainable finance that is “clear, consistent and robust”. This is not further defined or explored in the document, however. The OECD report also notes that some existing policies still inadvertently create incentives for investments in high-emitting sectors (European Commission, 2021; OECD, 2024). The relevance and severity of the barriers vary across sectors and are influenced by their maturity, with emerging technologies usually facing higher risks, costs, and uncertainty than more mature sectors.

Overall, several barriers are recurring across the reviewed literature. The UNDP framework provides a comprehensive list of possible barriers to attracting finance in the green sectors. It categorises these into behavioural, e.g. knowledge gaps, reliability concerns, higher cost perception, institutional, e.g. weak policy implementation and enforcement, regulatory, e.g. legacy policies, administrative barriers, financial, e.g. higher upfront costs, transaction costs, and technical, e.g. lack of technical skills or certification facilities (UNDP, 2011).

Other documents, including “A Guide to Adaptation Climate Finance” by the Scottish Government, Adaptation Scotland, and SNIFFER (Scotland and Northern Forum for Environmental Research), emphasise market and project-level barriers, such as financial viability, information gaps, and the fact that some investments generate benefits that are not captured by investors, such as improved health, environment, well-being (Adaptation Scotland, 2022). This is particularly relevant for adaptation measures, as they often provide wider societal benefits but struggle to have clear private revenue streams (Adaptation Scotland, 2022).

In addition, the lack of assessment of the scale and distribution of financing needs and related emission reductions across sectors may act as a barrier, limiting effective policy development. In particular, this applies to less well-established areas compared to sectors such as renewable energy. Here, a distinction should be made between the actual needs where businesses have determined them but are struggling to attract finance, and needs based on the gap to policy targets (e.g. in terms of emission reductions, installed RES capacity). It is important to estimate both.

Data requirements and data gaps

In all identified documents, data availability, completeness and consistency appear to be a potential constraint in identifying opportunities, gaps and barriers (Clark, 2018; Climate Policy Initiative, 2021, 2025; OECD, 2024). Common challenges include fragmented and insufficient data availability, particularly for private sector actors.

Some documents also identify challenges of limited data as well as inconsistent methodologies for tracking climate finance. Data on financial flows in different sectors may be incomplete, while definitions of climate finance vary. This may lead to differences in assessments of the gap or their underestimation (CPI Global). These issues lower the reliability of analysis and highlight a need for credible, transparent, and comparable metrics and data on climate finance flows (Adaptation Scotland, 2022; Climate Policy Initiative, 2025; OECD, 2024). This implies that data availability and quality can directly affect the ability to identify opportunities, gaps and barriers.

To improve the identification of opportunities, gaps, and barriers, more granular, consistent data would be required across several areas. This includes:

• 
  Data on bank lending to UK businesses, disaggregated by sector and geography (including Scotland).
  
• 
  Information on private investment flows into green sectors in Scotland, including equity, debt, bonds, and project finance.
  
• 
  Estimates of financing needs across sectors and technologies, including actual needs of businesses and financing needs based on policy priorities and targets.
  
• 
  Data on project pipelines, including early-stage and pre-financial close projects, to improve visibility of future investment opportunities.
  
• 
  Data on risk and return profiles of green investments, including cost of capital and revenue stability across sectors.
  
• 
  Information on the use of proceeds for general corporate lending and bond issuance, to better identify alignment with green activities.
  
• 
  Data on SME financing, in particular on access to finance for smaller firms in green sectors.
  

Addressing these data gaps would likely require regulatory measures. Those may include standardised reporting requirements for financial institutions, improved disclosure of lending and investment activity, and the development of centralised datasets or platforms to aggregate and share information. Such measures should draw on experience from other policy areas, such as the Streamlined Energy and Carbon Reporting regulation, emissions trading, and social value reporting.

Relevance for Scotland

Several of the identified sources are either global in scope or focus on emerging economies. However, many thematic measures they recommend are applicable for advanced economies such as Scotland. For instance, the analysis of opportunities and gaps based on policy priorities, comparing finance flows and needs, and identification of barriers using the key categories are all relevant (Adaptation Scotland, 2022; Climate Policy Initiative, 2025; OECD, 2024).

To define the next steps for addressing gaps and barriers, and for leveraging or creating opportunities for green investments, a deeper understanding of the Scottish sustainable finance landscape is needed. This report is intended as the first step in investigating the landscape of sustainable finance in Scotland and is necessarily limited. Further research alongside regular engagement of the investment and energy sectors are required.

While this study relied on data from closed databases, open sources and interviews, it is likely that details on many past investments are not publicly available. This may be particularly true for project equity investments financed from companies’ balance sheets. Expanding the evidence base, including via the stakeholder engagement noted above would improve the robustness and representativeness of the findings. This will also help to understand whether green financial services and instruments offered by financial service providers differ in Scotland compared to the rest of the UK and other countries. A larger database of deals would allow for the identification of investment trends based on more granular investor categories than in the current study. Those could be different types of banks, asset managers, asset owners, etc. This would support more targeted policy measures.

The current research has analysed gaps and barriers to investments in green sectors raised by stakeholders; however, this was not the primary focus of the study. At the same time, any future efforts to scale green investment will need to be grounded in a robust understanding of the barriers, gaps, and challenges investors face. Future research could analyse them comprehensively and estimate their impact.

More broadly, future research could aim at a strategic assessment of the factors influencing investors’ decision-making, including not only barriers but also drivers of investment. This may include further stakeholder consultation to explore factors related to why Scotland attracts or loses investment compared to the rest of the UK or other countries.

While the report provides an overview of past and announced investment activity, it does not assess how these flows compare to the level of investment required to meet Scotland’s net zero target. Future research could develop forward-looking scenarios that estimate the scale of investment needed across sectors and compare this with current and expected investment trajectories. This could draw on existing evidence, such as high-level estimates from the Climate Change Plan, and be extended to consider investment needs from a broader societal perspective, including sectors not covered in the current analysis. The current analysis could be used to identify potential investment gaps between observed activity and estimated need. This would help inform the design of policies to mobilise capital in green sectors. Scenario analysis could also be used to assess the potential impact of different policy measures on investment outcomes.

Furthermore, while this study focuses on past deals in green energy and infrastructure, it does not capture the demand side for green investment, e.g. in energy and energy efficiency. Future research could address this gap.

Key findings and lessons learned

This section summarises the main findings and lessons learned from the study. It highlights patterns in past investment activity, investors plans and priorities for the future, and the ecosystem of Scottish green financial service providers.

Some of the key findings on the completed deals in green energy and infrastructure are:

• 
  54 deals over £10 million in green infrastructure and renewable energy were identified in Scotland since 2020, either fully or partially located in Scotland, with a total value of around £9.5 billion (excluding M&A).
  
• 
  Total annual investment increased from £500 million in 2021 to £1.8 billion in 2023 and over £5 billion in 2025.
  
• 
  64% of deals were fully located in Scotland, with the remainder having been a part of wider activity.
  
• 
  For deals partly and fully located in Scotland, electricity transmission had the largest share of total investment (32%), followed by renewable energy (25%), and battery storage (21%). The largest investment sectors included renewable wind energy, electricity transmission and battery storage. Investment appears concentrated in a relatively narrow set of mature assets, with more limited activity in less mature sectors such as green hydrogen and nature-based solutions.
  
• 
  Investment activity involves a broad mix of investors, including energy companies, commercial banks, infrastructure funds, institutional investors and public financial institutions.
  

The figures above are based on publicly available data and LSEG databases and are likely to underestimate total investment flows.

A key trend in Scotland’s green finance landscape is the role of public financial institutions in crowding in private finance. Over recent years, a network of public investors has emerged, including the Scottish National Investment Bank, the British Business Bank, InnovateUK, the National Wealth Fund, and GB Energy. Public financial institutions appear to play complementary roles across different stages of the financing lifecycle. Through guarantees, patient or concessional capital, and early-stage funding, these institutions help de-risk projects and mobilise additional private finance in green sectors. For example, the Flow Country Green Finance Initiative is funded through public-private partnerships and attracts investments in carbon credit projects (see Case study 2). Another example could be joint investments by the private sector and GB Energy, NWF, and SNIB, e.g., in the Pentland Floating Offshore Wind Farm.

Analysis of future investment plans identified 29 existing and new investors who have announced plans to invest in green sectors in Scotland. Key sectors of interest are renewable energy, being the most common, energy storage, and grid infrastructure and transmission networks. Emerging interest in nature-based solutions was identified, in areas such as peatland restoration, forestry and rewilding. Several stakeholders also mentioned CCS and the circular economy as promising sectors.

Asset managers and corporates were the most common investor types with publicly documented investment plans. Planned investment sizes varied significantly, from £1-5 million to £1.5 billion and from smaller-scale investments in growing businesses to large, capital-intensive infrastructure projects that can require commitments of hundreds of millions or billions. Some stakeholders perceive Scotland as a relatively stable market, and some held mixed views on its attractiveness for future investment. Some considered Scotland is likely to make more progress in investment activity than the rest of the UK due to more ambitious climate targets. Evidence also suggests that, as public financial institutions mature and develop, clearer engagement with investors and definition of roles may increase their impact.

To understand green financial services provided in Scotland, 49 of the larger institutions present in Scotland were reviewed. Most have headquarters in Scotland, elsewhere in the UK and the United States, operate globally and allocate capital across multiple geographies. They tended not to distinguish between Scottish and other services in publicly available documents; hence the assessment reflects general offering of services and instruments as well as company-level targets and commitments. The key categories of services providers were asset managers investing in public markets, i.e. listed companies, asset managers investing in private markets, asset owners, such as insurance companies or pension funds, as well as banks. The extent to which they specialised in green sectors differed. The most common sector that institutions present in Scotland invest in or finance is renewable energy, followed by energy storage, green buildings, low-carbon or clean transport, and grids. Private market asset managers appear to provide the most comprehensive range of services, covering the full investment lifecycle, from allocating capital to managing assets in the long run. Some firms have also developed internal platforms and methodologies, such as climate scenario analysis tools, ESG data and analytics systems, and decarbonisation or net zero frameworks used to guide portfolio companies. However, it was not possible to establish whether they provide the whole spectrum of green services and instruments in Scotland.

Initial findings from this research suggest there are several barriers that constrain the scale and diversification of private investment in Scotland’s green sectors. Some of the barriers for scaling up investments in these sectors include scalability, demand and revenue certainty. Among the conditions influencing investment decisions, interviewees mentioned policy transparency and regulatory stability, revenue certainty, and visible project pipeline. Sustained growth in capital deployment depends on a pipeline of investable projects, which some consultees considered to be lacking. Revenue uncertainty is a further constraint. Whilst renewable energy benefits from clear and predictable future revenues, other such as nature-based solutions or climate adaptation can face greater uncertainty around returns limiting their attractiveness. The research also identified that infrastructure constraints may also be limiting investment, with challenges in connecting new projects to the grid acting as a bottleneck, even where demand is strong. Supply chain pressures, rising costs and skills shortages also affect the ability to deliver projects at scale. At the same time, capital-intensive and projects in less developed sectors have higher risks, which may be mitigated with blended finance, guarantees or supportive regulatory frameworks.

While Scotland has established strengths in sustainable finance, it operates in a competitive international market for green capital. Ensuring policy stability, revenue certainty, and a predictable investment environment for priority sectors will be important for influencing investment decisions.

To better understand the gaps, barriers and challenges of green investment in Scotland more thorough analysis is necessary. A targeted review of international best-practice approaches and guidance on approaches to determining the opportunities, gaps, and challenges for green investment was undertaken through a review of guidance documents and reports of international institutions. A common recommendation in the identified literature is to identify investment gaps by systematically comparing investment needs by sector in terms of policy targets and priorities with actual finance flows. Possible barriers were categorised into behavioural, e.g. knowledge gaps, reliability concerns, higher cost perception, institutional, e.g. weak policy implementation and enforcement, regulatory, e.g. legacy policies, administrative barriers, financial, e.g. higher upfront costs, transaction costs, and technical, e.g. lack of technical skills or certification facilities.

While some of the identified sources are either global in scope or focus on emerging economies, many thematic measures they recommend are applicable for advanced economies such as Scotland.

Lessons learned

The findings suggest cross-cutting lessons on how private investment in Scotland’s green sectors is currently mobilised and requirements to scale it further.

• 
  Private investment in green sectors is most readily mobilised in areas with established technologies, clear delivery models and predictable revenue streams. Sectors such as renewable energy and core infrastructure continue to attract the majority of capital.
  
• Effectively target the use of blended finance and risk-sharing mechanisms where private finance still needs to be unlocked, including in sectors such as industrial decarbonisation, heat, transport and nature-based solutions, and to support early-stage and innovative projects.
  
• The public sector plays a key role in enabling private investment. Investors prioritise opportunities with stable and predictable returns, while higher-risk or less mature sectors require additional support. Risk mitigation mechanisms, including blended finance and guarantees, can help improve the attractiveness of such investments. Another core role of the public sector is creating regulatory environment that enables investments in green sectors.
  
• A visible pipeline of investable projects is essential for further scaling private investment. Fragmentation or lack of project readiness can limit capital deployment, even where investor interest exists. Strengthening project development and improving the clarity of investment propositions can therefore play a key role in unlocking investment. Since the Scottish Governments launched such a portal for investors in 2025, it will need to make sure ongoing engagement dialogue supports its use and awareness continues to increase.
  
• Infrastructure and delivery constraints significantly slow investment activity. Limitations in grid capacity, planning processes, supply chains and skills availability affect the ability to bring projects to market and deliver them at scale. Addressing these constraints is critical to sustaining investment momentum.
  
• Mechanisms should be explored to attract and mobilise more risk capital into emerging green sectors, including venture capital and growth equity, to support innovation and the scaling of new technologies.
  

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Scottish Government. (2025b). Scotland’s Draft  Climate Change Plan: 2026–2040. https://www.gov.scot/binaries/content/documents/govscot/publications/strategy-plan/2025/11/scotlands-climate-change-plan-2026-2040/documents/scotlands-draft-climate-change-plan-20262040/scotlands-draft-climate-change-plan-20262040/govscot%3Adocument/scotlands-draft-climate-change-plan-20262040.pdf

Scottish National Investment Bank. (2025). Investment Strategy. https://www.thebank.scot/sites/default/files/2025-07/SNIB111%20Investment%20Strategy_v5_240725.pdf

Segal, M. (2023). Bank-Backed Carbon Market Carbonplace Raises $45 Million. https://www.esgtoday.com/bank-backed-carbon-market-carbonplace-raises-45-million/

Skills Development Scotland. (2023). CESAP Pathfinder. https://www.skillsdevelopmentscotland.co.uk/media/5hcorb5t/cesap-pathfinder-wp1-report.pdf?_gl=1*13lhuc3*_up*MQ..*_ga*MTkyNjAxODc4Ny4xNzcyMDE2MDQw*_ga_2CRJE0HKFQ*czE3NzIwMTYwMzckbzEkZzEkdDE3NzIwMTYyNTMkajYwJGwwJGgw

SNIB. (2026). £1bn milestone surpassed with Aurora investment. https://www.thebank.scot/ps1bn-milestone-surpassed-with-aurora-investment

Solar Power Portal. (2025). Zenobē 200MW BESS operational, first to provide stability services for NESO. https://www.solarpowerportal.co.uk/battery-storage/zenob-200mw-bess-operational-first-to-provide-stability-services-for-neso

Strategy for Financing the Transition to a Sustainable Economy (2021). https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021DC0390

Sustainable Ventures. (2021). New Climate Tech Accelerator in Scotland Launches with Barclays & Sustainable Ventures. https://www.sustainableventures.co.uk/sustainable-stories/glasgow-programme-launch

The Investment Association. (2024). Investment Management in the UK 2023-2024. The Investment Association Annual Survey. https://www.theia.org/sites/default/files/2024-10/Investment%20Management%20in%20the%20UK%202023-2024.pdf

The Flow Country. (n.d.). The Flow Country. Retrieved April 9, 2026, from https://theflowcountry.org.uk/the-flow-country-2/

The Flow Country Green Finance Initiative. (2025). Facility for Investment Ready Nature  in Scotland – End of Project Report. https://theflowcountry.org.uk/wp-content/uploads/2025/11/FCGFI-FIRNS-End-of-Project-Report.pdf#:~:text=Funding%20was%20successfully%20secured%2C%20with%2089%25%20of,private%20investment%20to%20allow%20full%20loan%20repayment.

The Register. (2025). Scotland now home to Europe’s biggest battery as windy storage site fires up. https://www.theregister.com/2025/03/05/blackhillock_europes_largest_battery_scotland/

The Scottish National Investment Bank. (2025). Impact Report. https://www.thebank.scot/sites/default/files/2025-05/SNIB099%20Impact%20Report%202025_v8.pdf

UK Government. (2025a). Great British Energy backs Scotland, Wales and Northern Ireland. https://www.gov.uk/government/news/great-british-energy-backs-scotland-wales-and-northern-ireland

UK Government. (2025b). Great British Energy to cut bills for hospitals and schools. https://www.gov.uk/government/news/great-british-energy-to-cut-bills-for-hospitals-and-schools

UK Government. (2026). Energy Trends: UK renewables. https://www.gov.uk/government/statistics/energy-trends-section-6-renewables

UNDP. (2011). Catalyzing Climate Finance. www.anvilcreativegroup.com

University of Leeds. (n.d.). Environmental and Socio-economic Benefits of Peatland Restoration. Retrieved April 9, 2026, from https://water.leeds.ac.uk/our-missions/mission-3/parliamentary-question-on-peat/#:~:text=Restored%20peatland%20can%20increase%20biodiversity&text=Recent%20drain%2Dblocking%20initiatives%20to,climate%20change%2C%20drought%20and%20wildfire.

Wärtsilä Corporation. (2025). Now operational: Wärtsilä delivers first-of-its-kind energy storage system for Zenobē in Scotland. https://www.wartsila.com/media/news/03-03-2025-now-operational-wartsila-delivers-first-of-its-kind-energy-storage-system-for-zenob%C4%93-in-scotland-3558119

World Trade Organization. (n.d.). Annex on financial services. Retrieved April 9, 2026, from https://www.wto.org/english/tratop_e/serv_e/10-anfin_e.htm

Zenobē. (n.d.-a). Blackhillock: Europe’s largest grid-scale battery. Retrieved April 9, 2026, from https://www.zenobe.com/case-studies/blackhillock-battery-scotland/

Zenobē. (n.d.-b). Building Blackhillock: Stacking services to power bigger, better battery systems. Retrieved April 9, 2026, from https://www.zenobe.com/insights-and-guides/building-blackhillock-stacking-services-to-power-bigger-better-battery-systems/

Zenobē. (n.d.-c). Zenobē begins construction on pioneering battery storage projects totalling £750 million in Scotland. Retrieved April 9, 2026, from https://www.zenobe.com/news-and-events/zenobe-begins-construction-on-pioneering-battery-storage-projects-totalling-750-million-in-scotland/

Zenobē. (2023a). Zenobē breaks ground on pioneering 300MW battery project in Blackhillock. https://www.zenobe.com/news-and-events/zenobe-breaks-ground-on-pioneering-300mw-battery-in-blackhillock/

Zenobē. (2023b). Zenobē secures £235 million of non-recourse project finance debt from a club of five banks to support the build-out of grid-scale energy storage in Scotland. https://www.zenobe.com/news-and-events/zenobe-235-million-project-finance-five-banks-energy-storage/

Zenobē. (2025). Zenobē powers up a world first solution and Europe’s biggest battery at Blackhillock, Scotland. https://www.zenobe.com/news-and-events/blackhillock-battery-storage-launch/

Zenobē. (2026). Zenobē powers up 300MW/600MWh Kilmarnock South battery storage project. https://www.zenobe.com/news-and-events/zenobe-powers-up-kilmarnock-south-battery-storage-project/

Appendices

Appendix A: Methodology

Data sources

The study used a mixed-methods approach that combines desk-based evidence with stakeholder interviews. The data sources were:

LSEG Data & Analytics, provided by London Stock Exchange Group (LSEG) and S&P Global, provided by Standard & Poor’s (S&P) Global Inc, databases for data on past deals, list of investors who expressed interest in investing in Scotland, and financial service providers present in Scotland. These sources were chosen for their comprehensive coverage of sustainable finance and specialisation in green finance. They are trusted by investors, analysts and regulators for providing accurate and reliable data on renewable energy and sustainable investments, making them the ideal platforms for this report’s analysis.

Desk-based research for additional data on completed deals in green infrastructure and RES sectors. We also researched which companies have stated plans or made public announcements on investing in Scottish green sectors. Via desktop search, we also gathered data on financial service providers in terms of green financial instruments and services they offer, their green targets, commitments etc.

Interviews with eight stakeholders, including banks (N=3), asset managers (N=4), and a trade association of pension schemes (N=1). The initial list of stakeholders to who we reached out was compiled based on the large financial institutions present in the UK and Scotland. We developed and used an interview guide that was tailored depending on the stakeholder. These interviews aimed at collecting data on the past activity and future plans of these institutions.

Three case studies are included in Appendix D to illustrate how different types of sustainable finance are being deployed in practice. These case studies were selected to reflect a range of financing models and sectors, including mature renewable energy projects, blended finance structures and large-scale strategic infrastructure. Taken together, they highlight key enablers of investment in Scotland, such as the importance of stable policy frameworks and revenue certainty, the role of public finance in de-risking and mobilising private capital in less mature sectors, and the use of private debt financing within broader government-supported programmes.

Method for each research question

This section provides further detail on our approach to each research question (RQ). In addition to the methods described below, a total of eight interviews were conducted, with one institution providing answers in writing. The topics spanned RQ 1-3. The names of institutions interviewed are not provided for reasons of confidentiality. In total, the project team reached out to 28 financial institutions, however, the response rate was low presumably due to the end of financial year (March 2026). Several organisations declined the invitation as they were present in the UK but not active in Scotland.

RQ1: Which private and public institutions have completed deals for investments over £10 million in Scottish green infrastructure and renewable energy projects since 2020?

The data collection process was conducted using the LSEG Workspace Deals Screener consisting of the LSEG Project Finance Database and the LSEG Deals Databases (equities, loans and bonds). The initial screening was performed using the Sustainable Finance Flag (Y/N) filter, where only transactions marked as “True” were included to ensure that the deals were classified as sustainable finance transactions.

Following this screening process, the search was repeated separately for green bonds, green loans/debt, and sustainable equity transactions in the database. Further detail was obtained from the Project Finance database, another database provided in LSEG, which provides more granular information on infrastructure and energy deals. Where possible, transactions were matched using the deal number to merge information between the Project Finance database and the equities, bonds, and loans databases within LSEG.

In cases where a specific deal reference or location was not explicitly identified within the database, the screening process focused on transactions where the investing or issuing company was headquartered in Scotland. Further desk-based research was then conducted to identify additional information on the underlying projects, including project announcements, company disclosures, and industry reports, in order to confirm whether the investment was linked to renewable energy or green infrastructure projects located in Scotland.

Investments were split into those which are “fully” and “partially” located in Scotland. For example, an investment was considered to be partially located in Scotland in cases of electricity grids connecting Scotland and the rest of the UK. Additionally, in some cases, the total amount for several projects was indicated, of which only some were in Scotland. It was not possible to disaggregate the amount of investment for projects in Scotland in those cases, hence we make use of the total amount for the project.

Additional desk-based research was conducted using publicly available sources including the Financial Times, company press releases, investor announcements, and industry publications, relating to those which were not identified from the LSEG databases. These sources were used to confirm project locations, financing structures, and the classification of transactions as green or sustainable finance instruments. Desk-based research also enabled the identification of transactions associated with specific renewable energy and infrastructure projects such as wind farms, battery energy storage systems, transmission infrastructure, and electric vehicle charging networks that were partly or fully located in Scotland but were not explicitly captured through the database screening (i.e. the “Workspace Deals Screener”) function in LSEG.

For each identified deal, a range of variables was extracted from the LSEG databases to construct the analytical dataset. These variables include unique identifiers and deal-level information, such as the SDC Deal Number. Firm-level characteristics were collected, including company name, company headquarters and company location. Financial characteristics of the transaction include instrument type, instrument amount in GBP, total deal amount in GBP, year of issuance, etc. Sectoral classifications were captured using the TRBC sector classification. Project-level variables were also recorded, including project description, use of proceeds and project location. These fields were limited to that investment in the LSEG Project Finance Database. Finally, supplementary qualitative information such as project website links from investing companies, relevant news sources, and additional external references were recorded to support verification.

In addition to financing transactions, mergers and acquisition (M&A) activity related to renewable energy and green infrastructure in Scotland was also analysed using the LSEG “Workspace Deals Screener” which is a function in the database. The screening process focused on transactions where the asset class was classified as M&A, and when Sustainable Finance Flag is selected. For M&A activities, this flag indicates whether a transaction involves a party that is classified as sustainable according to the TRBC industry codes. Specifically, the flag is set to “True” if either the buyer side or seller side is linked to a sustainable industry: the Buyside Sustainable flag is true when the acquirer, or any parent entity is in a sustainable industry, while the Sellside Sustainable flag is true when the target, or any parent entity of the target or seller, is in a sustainable industry. We filtered the deals where a target company has a sustainable flag and is located in Scotland, as only investments in Scotland were of interest.

Since the database does not provide a direct filter for Scotland, transactions were further refined through manual verification of target company location information, including postcode or operational location data corresponding to Scotland for the target company.

RQ2: Which financial institutions are looking to meaningfully, structurally invest in Scottish projects in the short- and medium-term future?

In response to RQ2, we provide an overview of publicly available information on investors plans for investing in Scotland’s green sectors. We focus on information from 2020 onwards. We examine the types of institutions expressing interest in deploying capital in Scotland in the short, defined as < 5 years, to medium term, defined as between 5-10 years. These are illustrative but align with benchmarks. We analyse stated investment priorities including the focus sector(s), the target asset classes, ticket sizes, as well as strategic positioning of such investments within broader portfolios. We also briefly review constraints that may limit investment flows, although this is not the focus of the current study.

We focussed on the companies already identified in Section 4with completed deals in Scotland since 2020 and reviewed public announcements on their future plans. Further research was also undertaken on the major financial services firms currently operating in Scotland. These firms were identified through the Net Zero Finance Tracker, S&P and LSEG databases. A review of relevant news portals was also conducted, to identify published investor plans in Scotland, such as Renewable Energy Magazine, BusinessLive, Sustainability Magazine, Business Green, ESG News, Scottish Construction Now, and the Solar Power Portal. The analysis in this section is a thematic summary of the evidence from various sources.

The research is limited by the extent of publicly available information. Investors tended to announce plans for the UK as a whole rather than Scotland specifically and often do not disclose the amount they plan to invest. As a result, data in this section should not be treated as exhaustive. A lack of data on certain sectors does not imply a lack of investor interest. Evidence from stakeholders was used to complement desk-based research.

RQ3: Which funding institutions and initiatives operating in Scotland provide green financial services?

Three types of data sources were used. The first data source was the LSEG financial database, which provided a list of financial firms which have their headquarters in Scotland. The list had over 1,700 legal entities/companies, and we narrowed it down by choosing the largest legal entities, with assets over £1 billion.

Since the list sourced from LSEG did not cover companies present in Scotland but headquartered outside of it, additional desk-based research was conducted.

The second data source was the Net Zero Finance Tracker compiled by Climate Policy Initiative. Over 150 largest financial service providers were identified based on their size, i.e. total assets or assets under management. Second, we checked which of them have activity in Scotland. Additional green financial service providers from the completed deals and interviews lists were also included in the list of companies.

The list of companies was then finalised through a further round of screening, which applied a more thorough and consistent assessment of relevance and geographic presence. This screening ensured that the first group of companies headquartered in Scotland are filtered to those who provide either green financial services or instruments.

The list of green financial service providers identified 42 in total.

Further a data gathering was conducted through desk-based research. This looked at location of the company, type, sector and regional focus of the company, green services and financial instruments they provide, green targets, green commitments, and relevant governance. We reviewed each institution’s sustainable and responsible investing pages, climate commitments and policies-related documents, and corporate website disclosures, as relevant. In addition, disclosures were drawn from their Task Force on Climate-related Financial Disclosures (TCFD) reports, stewardship reports, annual reports, sustainability reports, and emissions reports where these were available.

RQ4: What methodologies should be used to identify the opportunities that could be leveraged, the gaps, and challenges for future investment?

Through desk-based research, various documents were identified that are relevant for helping policy makers to identify opportunities, barriers and gaps to attracting green investments. In total, nine documents were identified:

1. 
   Investment Policy Framework for Sustainable Development, UNCTAD, 2015.
   
2. 
   Catalyzing Climate Finance, UNDP, 2011 (guidebook).
   
3. 
   Developing Sustainable Finance Roadmaps, SBFN and IFC, 2023 (toolkit).
   
4. 
   Guidelines for Building a National Landscape of Climate Finance, CPI, 2021 (guidance).
   
5. 
   OECD Review on Aligning Finance with Climate Goals, OECD, 2024 (report).
   
6. 
   Global Landscape of Climate Finance 2025, CPI, 2025 (report).
   
7. 
   A Guide to Adaptation Climate Finance, Scottish Government, Adaptation Scotland, Sniffer, 2022 (guide).
   
8. 
   Bridging funding gaps for climate and sustainable development: Pitfalls, progress and potential of private finance, R. Clark et al, 2018 (academic paper).
   
9. 
   Strategy for Financing the Transition to a Sustainable Economy, European Commission, 2021 (regulation).
   

While the focus was on guidelines, frameworks and toolkits, the European Commission Strategy for financing the transition to a sustainable economy was included. The strategy was deemed to be relevant for the context of a developed country, since it may serve as a policy reference point from a mature financial system.

The identified documents fall into five categories: 1) high-level policy frameworks that establish principles; 2) practical toolkits that provide stepwise methods; 3) analytical reports that quantify investment flows and gaps; 4) an academic paper which contained a literature review and analysis of barriers and gaps; 5) a specific regulatory act.

Most of the identified documents provide high-level overview and principles or analyse financial flows, policy frameworks and barriers. They provide limited guidance on how to identify opportunities, gaps and barriers to attracting private investment in green sectors; however, steps and actions are inferred from these sources.

The documents were reviewed to identify recommendations on or implications for identifying opportunities, barriers and gaps to attracting finance in green sectors. We also analysed whether these findings are relevant for the Scottish context. A limiting factor was the fact that nearly all identified documents do not explicitly provide the granular, practical recommendations on approaches to identifying opportunities, gaps, and barriers that we were seeking. Rather they discuss the opportunities, barriers and gaps themselves. Additionally, many were designed for developing countries, although some of those recommendations would be relevant for advanced economies as well.

Additional charts

In the analysis, instrument types were aggregated for simplicity (see Figure 7) in Section 4. The table below summarises the types of different instruments used for green bonds, equities and loan/debt deals for projects partly located in Scotland and fully located in Scotland. Note that revolving credit facility, term loans and other loans were summed up into one category of loans.

Table 7. Instrument types used in investments fully and partly located in Scotland, 2020-2026

Source: LSEG databases.

Limitations

Overall, data on completed deals (RQ1) and future plans (RQ2) were limited, even considering those cleaned via databases. We assume that a large share of this information is not available to access publicly. Hence, the analysis likely covers the minimum volume of deals and should be seen as a lower end of the potential range.

Both LSEG and the desk-based research tend to over-represent larger transactions with associated public information. Our sample might underreport early-stage and unlabelled green deals, such as project equity investment financed directly from corporate balance sheet. The databases used in the analysis cover bonds, loans, equity and M&As, but they do not include project equity investment, where projects were financed from balance sheet of a company. In addition, the scope of the research limited deals to those over £10 million. Some of these data have come from stakeholder interviews, but as the number of interviews was small, relevant evidence is not comprehensive.

In research on green financial service providers (RQ3), the central limitation was the lack of detailed data available in public access. Where companies do not disclose their green targets, internal structures and governance arrangements, or they are not up to date, incomplete or simply not public, that is reflected in the findings. Interviews provided some further data, but as noted above, the number was modest.

The central limitation of the method used to identify opportunities, barriers and gaps for attracting green investments was the lack of relevant sources. Documents generally did not provide such guidance, although in some cases it could be inferred from other recommendations therein.

Appendix B: Definitions used in the study

The definition of green finance adopted in this report uses the overarching definition of the Scottish Taskforce for Green and Sustainable Financial Services. This is: “Green finance refers to any financial initiative, strategy, product or service designed to protect the natural environment and support the transition to a sustainable, low-carbon world, and/or to manage climate-related and other environmental risks impacting finance and investment”.

To identify the list of completed green deals reported in LSEG Data & Analytics we used their operational definition. LSEG defines green investments/deals based on the Refinitiv Business Classification (TRBC) industry code of the acquirer, investor, target company, seller, or their immediate or ultimate parent, if it falls into one of the sustainable industry classifications defined in their Sustainable Finance Quarterly Review. These classifications include renewable energy and clean infrastructure sectors, such as renewable energy equipment and services, wind systems and equipment, solar power systems, hydropower equipment, renewable fuels, hydrogen fuel, carbon capture and storage, electric vehicles, power charging infrastructure, renewable utilities, and renewable independent power producers. LSEG applies an operational definition of sustainable investment based on the industry classification of the parties involved.

We include international and interregional mergers & acquisitions to capture green Foreign direct Investment (FDI) into Scotland.

Where there was a discrepancy or uncertainty regarding whether a LSEG sustainable-flagged investment activity falls under the above definition, we used the EU Sustainable Finance Taxonomy to resolve it (European Commission, 2026). This is a comprehensive classification system defining which economic activities qualify as “environmentally sustainable”. No similar document has been adopted by the Scottish government or at the UK level. For example, waste-to-energy deals were excluded from scope, as they are not considered to be environmentally sustainable under the EU Taxonomy. We also excluded deals if they were outside the scope of the project or RQ, such as waste-to-energy deals investments in electric vehicle manufacturing, supply of oil for wind turbines, electric coach services, and smart meters. Although they were classified as “green” in the LSEG, these deals do not fall in the scope of the study, as its focus is on renewable energy and green infrastructure. However, investments in support services for Renewable Energy Sources (RES) industries and technical services for the power sector were considered to be in the scope. Other sectors considered were green/low-carbon real estate and peatland restoration/carbon offsetting.

In the study, we also examine green instruments, services and finance initiatives. These are defined as green if they fall into the above green finance definition. Rather than an exhaustive academic definition, we provide working definitions to capture market realities as:

• Green instrument is used to mean financial instruments including green bonds, loans, equity and investment fund shares. Source: IMF (IMF, 2024).
  
• Green deals/investments is used to mean projects/investments classified (by LSEG/Refinitiv TRBC codes) as environmentally sustainable, involving companies or assets in sectors such as renewable energy, clean infrastructure, low-carbon technologies, and climate solutions, e.g., solar, wind, hydropower, hydrogen, carbon capture, electric vehicles and related support systems like charging and renewable utilities.
  
• Green service is used to mean other financial services such as asset management, underwriting, advisory, intermediation and other auxiliary financial services, including investment and portfolio advice, advice on acquisitions etc., where they are provided to achieve environmental objectives alongside financial returns. The definition is based on the definition of the WTO, (see “Banking and other financial services”) (World Trade Organization, n.d.).
  
• A green finance initiative is used to mean a targeted programme or mechanism that aims to support and enable the mobilisation of financial capital towards projects and activities that create environmental alongside financial returns. Their goal is to help tackle investment barriers, create suitable financial instruments, and create an enabling policy environment so that capital flows contribute to net zero and other environmental objectives. A bond is a fixed income investment issued by governments or corporations to raise funding (Investopedia, 2025a).
  
• 
  A loan or debt is a financial arrangement where an entity provides money to another with the expectation of repayment over time, often including interest as a cost of borrowing (Investopedia, 2026).
  
• 
  An exchange-traded fund (ETF) pools a group of securities into a fund and can be traded like an individual stock on an exchange. This allows investors to hold a diversified portfolio through the purchase of single investment.
  
• Equity: in the stock market, shareholders’ equity or owners’ equity for privately held companies represents the difference between a company’s assets and liabilities (Investopedia, 2025b).
  
• Venture capital is high-risk, private funding provided to early-stage companies in exchange for an ownership stake, usually delivered in stages as the business proves it can scale.
  
• Growth equity is a type of investment opportunity in relatively mature companies that are going through some transformational event in their lifecycle with potential for significant growth.
  
• Ticket size is the typical amount an allocator invests in a single fund, deal, or commitment.
  
• 
  By alternative asset managers we mean asset managers specialising in assets other than stocks, bonds and cash, e.g. infrastructure, real estate and private equity.
  
• 
  By capital allocation, we mean the process of directing capital from investors to assets, projects, or companies.
  
• 
  By portfolio/investment management we mean the management of investment portfolios on behalf of clients, including asset selection, allocation, and ongoing performance monitoring.
  
• 
  By asset ownership, active management we mean direct ownership of assets or companies, combined with active involvement in their management, strategy, and performance.
  
• 
  By lending we mean the provision of debt financing to companies, projects, or individuals, typically through loans or credit facilities.
  
• 
  By underwriting (bonds/equity) we mean the structuring, pricing, and issuance of securities (such as bonds or shares), including facilitating their sale to investors.
  
• 
  By advisory/structuring we mean providing advice and designing financial structures for transactions, including mergers, acquisitions, and project financing.
  
• 
  By climate analytics/scenario tools we mean analytical tools and methodologies used to assess climate-related risks, opportunities, and alignment with transition pathways.
  
• 
  By stewardship/engagement we mean the use of investor influence to engage with companies and encourage improvements in environmental performance.
  
• 
  An accordion facility is a provision in a loan agreement allowing a borrower to increase the credit limit or add a new term loan to an existing agreement. It offers flexible, pre-approved access to extra capital, often for acquisitions or growth, without needing to negotiate a new loan agreement.
  
• Green real estate is used to refer to buildings with low-carbon design and operations e.g. redevelopment of large-scale property assets to deliver energy-efficient space or transforming a major office site in Edinburgh into 282,000 sq ft of sustainable high-efficiency office space.
  
• Immediate parent is the organisation that is reported as ‘parent’, ‘majority owner’ or not reported as ‘parent’, ‘majority owner’ but owns more than 50% shares of voting stock of another company. If the immediate parent is not known, it is considered as self-owned.
  
• 
  An asset class is defined as a group of investments that have similar attributes, behave similarly in the market, and are subject to the same regulations (A. Ganti, 2025).
  

Table 8. Asset classes

Source: Investopedia, Aviva

Appendix C: Sources

Data were collected through desk-based research on completed deals (Section 4), future plans of investors (Section 5), and green financial service providers (Section 6).

In Section 4, the following open sources were used to find information on past investments:

www.zenobe.com, www.pulsecleanenergy.com, www.gridserve.com, www.zenobe.com, www.pulsecleanenergy.com, www.gridserve.com, www.easterngreenlink1.co.uk/, www.oeg.group, www.zenobe.com, www.pulsecleanenergy.com, www.gridserve.com, www.easterngreenlink1.co.uk/, www.oeg.group, www.ssen-transmission.co.uk, www.beatricewind.com, www.sse.com, www.scottishconstructionnow.com, www.investegate.co.uk, www.linkedin.com/company/lloyds-corporate-institutional, www.brockwellenergy.com, www.enspecpower.com, www.energy-storage.news, www.solarpowerportal.co.uk, www.slrmag.co.uk, www.edfenergy.com, www.ft.com, www.ft.com, www.energyvoice.com, www.renewablesnow.com, www.nationalwealthfund.org.uk, www.globalethicalbanking.com, www.markets.ft.com, www.shareprices.com, www.esgnews.com, www.scottishfinancialnews.com, www.justtransition.scot, www.bankofireland.com, www.triodos.co.uk.

In Section 5, the following open sources were used to find information on the future plans of investors:

www.scotsman.com, www.scottish-enterprise.com, www.mavencp.com, www.otp.tools.investis.com, https://otp.tools.investis.com/clients/uk/mercia_fund1/rns/regulatory-story.aspx?cid=1002&newsid=2011652, www.truetide.co.uk, www.reuters.com, www.sse.com, www.renewableenergymagazine.com, www.business-live.co.uk, www.thebank.scot, www.orbitalmarine.com, www.sustainabilitymag.com, www.businessgreen.com, www.macquarie.com, www.gov.uk, www.bloomberg.com, www.esgnews.com, www.scottishconstructionnow.com, www.highviewpower.com, www.solarpowerportal.co.uk, www.nationalwealthfund.org.uk, www.realassetinsight.com, www.scottishfinancialnews.com, www.esgtoday.com.

The following sources were reviewed to identify such future plans, when announced since 2020:

www.environmental-finance.com/, https://www.reuters.com/, https://www.environmentuk.net/, https://greenbusinessjournal.co.uk/, https://www.greeneconomy.co.uk/news-and-resources/news/, https://businessclimatehub.uk/, https://www.business-live.co.uk/all-about/climate-agenda, https://www.businessgreen.com/tag/sme, https://sustainabilitymag.com/, https://www.environmenttimes.co.uk/news, https://eeb.org/en/, https://earthwatch.org.uk/news/, https://theecologist.org/, https://www.rechargenews.com/, https://www.greenpeace.org.uk/, https://www.carbonbrief.org/, https://www.greenenergynews.co.uk/, https://www.scottishfinancialnews.com/, https://www.sfe.org.uk/news, https://renews.biz/.

In Section 6, the following open sources were used to find information on financial service providers:

Blackstone: www.blackstone.com, bppeh.blackstone.com, www.ainvest.com, www.junipersquare.com, cbonds.com, future.portfolio-adviser.com, www.newprivatemarkets.com. KKR: www.kkr.com, www.wsj.com, www.vortexenergy.ae, www.reuters.com. Apollo Global Management: highgrowth.scot, www.scottishfinancialnews.com, www.apollo.com, pe-insights.com, carbonherald.com, www.globalcapital.com. Brookfield Asset Management: bam.brookfield.com, bep.brookfield.com, brookfield.egnyte.com, www.brookfield.com, www.google.com, www.solarpowerportal.co.uk. The Carlyle Group: www.carlyle.com, pitchbook.com, www.scottishfinancialnews.com. Green Investment Group/Macquarie): www.greeninvestmentgroup.com, www.macquarie.com, financialnewswire.com.au. Quinbrook Infrastructure Partners: www.quinbrook.com, www.solarpowerportal.co.uk. Equitix:
equitix.com, uksif.org. CVC Capital Partners: www.cvc.com.

Permira: www.permira.com, media.permira.com, www.reuters.comwww.reuters.com. Bain Capital: www.baincapital.com, baincapitalventures.com, cdn-east2.baincapital.com. Baillie Gifford Group: www.bailliegifford.com, media.bailliegifford.com. abrdn: www.aberdeeninvestments.com. Franklin Templeton: franklintempletonprod.widen.net. BlackRock: www.blackrock.com, www.clientearth.org, www.esgtoday.com, www.reuters.com, www.scottishfinancialnews.com, future.portfolio-adviser.com. State Street Global Advisors:
www.ssga.com, www.statestreet.com. Amundi: www.amundi.com, www.esgtoday.com, www.ifc.org. Northern Trust Asset Management: www.northerntrust.com, ntam.northerntrust.com. Invesco: www.invesco.com. Pimco: www.pimco.com, www.marketsmedia.com, www.accountingforsustainability.orgwww.accountingforsustainability.org. Schroders:
www.schroders.com, www.schroderscapital.com, publications.schroders.com. Alliance Witan Plc: www.alliancewitan.com, www.wtwco.com. Scottish American Investment Company Plc:
www.bailliegifford.com, media.bailliegifford.com. Canada Pension Plan Investment Board:
www.cppinvestments.com, www.newswire.ca, www.shiftaction.ca. Ontario Teachers’ Pension Plan: www.otpp.com, www.investpsp.com, www.aimco.ca, ppp.worldbank.org. Scottish Widows Ltd: www.scottishwidows.co.uk, adviser.scottishwidows.co.uk, www.esgtoday.com, pensionsage.com. Aegon UK PLC: www.aegon.co.uk, www.aegon.com, www.aegonam.com.

Prudential plc: www.prudentialplc.com, www.mandg.com, group.mandg.com, www.fintechscotland.com. Legal & General: group.legalandgeneral.com, www20.landg.com.

NatWest Group Plc: www.natwestgroup.com, investors.natwestgroup.com, www.natwest.com, www.investors.rbs.com. Royal Bank of Scotland Plc: www.rbs.co.uk, www.rbsinternational.com, investors.natwestgroup.com, www.investors.rbs.com. TSB Bank Plc: www.tsb.co.uk, www.fintechfutures.com. Hampden & Co Plc: www.hampdenbank.com, www.hampdenandco.com. JPMorgan Chase: www.jpmorgan.com, www.jpmorganchase.com, www.scotsman.com. HSBC Holdings: www.hsbc.com, www.privatebanking.hsbc.com, www.about.hsbc.co.uk, sustainabilitymag.com, www.scottishfinancialnews.com. UBS:
www.ubs.com. Barclays: home.barclays, www.barclays.co.uk. Virgin Money: uk.virginmoney.com, www.virginmoneyukplc.com. IFM Investors: www.ifminvestors.com. PXN / Par Equity: www.parequity.com, www.pxnventures.co.uk, www.scottish-enterprise-mediacentre.com. Lloyds Banking Group: www.lloydsbank.com, www.lloydsbankinggroup.com.

Aviva: www.aviva.com, www.avivainvestors.com. Royal London Group / Dalmore: www.royallondon.com, www.rlam.com, citywire.com, www.actiontogether.org.uk. Phoenix Group: www.aberdeenplc.com, www.netzeroinvestor.net, privatemarketsprofile.com, www.infrastructureinvestor.com, www.privateequityinternational.com, alternativecreditinvestor.com, www.insurancebusinessmag.com, www.carbonaccountingfinancials.com, www.google.com. M&G: www.mandg.com, group.mandg.com. Foresight Group: foresight.group, www.foresightgroup.it. Schroders Greencoat: www.schroderscapital.com, www.greencoat-ukwind.com. Copenhagen Infrastructure Partners: www.cip.com, www.un.org. InfraRed Capital Partners:
www.ircp.com, www.trig-ltd.com.

Appendix D: Case studies

Case study 1: Quanterness Wind Farm loan

Project/Investment overview

In October 2025, the National Wealth Fund formerly the UK Infrastructure Bank provided a long-term loan to the Orkney Islands Council for a community-owned onshore wind farm at Quanterness. The project is located in in the St Ola region of the Orkney Islands and has been in development since 2019. In addition to providing renewable electricity, the Quanterness wind farm is purported to also support the delivery of the Scottish and Southern Electricity Networks interconnector cable to the Scottish mainland (Orkney Community Wind Farms, n.d.-b; Scottish Construction Now, 2025).

The Quanterness project is part of a broader portfolio of community-owned wind farms in the Orkney Islands, including Hoy and Faray (National Wealth Fund, n.d.). It reached a final investment decision in 2025, and construction is anticipated to start in 2027. It is a fully council-owned model, where long-term income will be retained locally. The NWF loan is the only source of financing for the wind farm; the Orkney Islands Council funded the development of the project up to taking its final investment decision from its Strategic Reserve (Orkney Community Wind Farms, n.d.-b).

Investment details

The Quanterness project is a 28.8 MW onshore wind farm with six turbines, 4.8 MW generation capacity each. The turbines are Nordex N133 models, with heights of 149.1 meters and rotor diameters of 133.2 meters. They are custom-designed for Orkney’s specific wind environment (Orkney Community Wind Farms, n.d.-b). The build cost of the project is estimated at £50 million (Orkney Islands Council, 2025). The project has secured a 15-year Contract for Difference (CfD), a government-backed mechanism for stabilising long-term revenue from the sale of low-carbon electricity by agreeing a fixed strike price (Orkney Islands Council, 2025).

The NWF loan financing the project is a government loan with a total value of £62.1 million. It is provided through the Local Authority Advisory and Lending team to cover the cost of project build. The interest rates will be fixed at the government bond rate at the time of borrowing, thus providing a lower-cost financing option than those generally available on the capital market. The Orkney Islands Council plans to repay most of its loan within the CfD period and clear all debt by the end of the turbine lifetime (Orkney Community Wind Farms, n.d.-b).

Drivers and context

Although it is difficult to ascertain from public information the ultimate drivers for this particular investment, several factors are likely to have contributed to securing it. Firstly, it is part of a broader effort on behalf of the UK government to accelerate onshore wind production. This includes a renewed focus on ensuring community benefits from wind farms, although these remain voluntary (Department for Energy Security and Net Zero & Michael Shanks MP, 2025). Secondly, onshore wind is a mature and proven technology, with high levels of technology readiness and increasing efficiency of wind turbines (IEA, n.d.). Although for onshore wind this is generally limited by height restrictions. Thirdly, the fact that the Quanterness project secured a CfD may have increased project bankability, as the wind farm will benefit from long-term revenue certainty allowing it to repay the NWF loan. The potential to export electricity to the Scottish mainland has also boosted the project’s forecasted profitability, estimated at £3.3 million average annual real profit, equivalent to a total of £119 million profit over the project’s 25-year lifetime, including inflation. Beyond bankability of the project itself, the project is part of the new generation capacity required to justify spending on the new high-voltage transmission connection from Orkney to the Scottish mainland (Orkney Community Wind Farms, 2023). Finally, while onshore wind can encounter greater local community resistance than offshore generation, the Orkney Islands community wind farm proposals were met with a high level of public approval during 2023 consultations, increasing the certainty that the project will be deployed according to plan (Orkney Community Wind Farms, n.d.-b).

Outcomes/Impacts

The Quanterness project is currently awaiting construction, due to start in 2027, with generation expected to start in 2028. It is estimated to avoid nearly 40,000 tCO₂e per year and create/support 170 jobs, the majority in construction. With its capacity of 28.8 MW and an average capacity factor of 38.3% for the Orkney Islands, the wind farm is estimated to produce approx. 96.6 GWh of electricity per year, enough to power nearly 26,000 average UK households (National Wealth Fund, n.d.; Orkney Community Wind Farms, 2023). A portion of the annual project revenues will be ringfenced in a community benefit fund of £144,000, with 60% going to the local council of the host community and the remainder split between the Islands’ other 19 Community Councils (Orkney Community Wind Farms, n.d.-a).

Key takeaways/Lessons

Although the project itself is still under development, we have selected the NWF loan to Quanterness as an example of a successful case study, given its potential role in unlocking the substantial wind energy resources of the Orkney Islands. It is also an investment which demonstrates the key role of public financing instruments, by offering low-cost financing options supported by revenue stabilisation mechanisms, both key advantages for bankability. No public information is available on barriers overcome by the Quanterness project. However, its business case appears to have been more robust than comparative wind farm proposals that were not progressed.

Case study 2: Flow Country Green Finance Initiative

Project/Investment overview

The Flow Country Green Finance Initiative (FCGFI) is a locally led blended finance initiative to fund the restoration of peatland in the Flow Country region in the north of Scotland (NatureScot, 2025; The Flow Country, n.d.). The Flow Country peatland bog, which the FCGFI primarily targets, is the largest in Europe, spanning an area of 400,000 hectares, estimated to store 400 million tonnes of carbon, and home to a wide range of wild plants and birds. It has been historically degraded by activities such as forestry and agriculture and is in need of restoration to continue contributing to carbon storage and biodiversity (North Highland Initiative, n.d.-b).

As of winter 2025, the FCGFI had supported two pilot restorations to demonstrate investment pathways that could be scaled up across the Flow Country (North Highland Initiative, n.d.-b; The Flow Country Green Finance Initiative, 2025). The pilots secured funding and completed restoration in 2025, at Armadale Farm (farmland) and Achentoul Estate (mixed-use land), the former through a full public grant and the latter through a mix of public grants and commercial short-term financing (The Flow Country Green Finance Initiative, 2025). Public grants were awarded through Scotland’s Peatland ACTION programme and its Facility for Investment Ready Nature in Scotland (FIRNS), in a partnership which includes the Scottish Government, Scottish Water, Cairngorms National Park Authority, and the National Lottery Heritage Fund (North Highland Initiative, n.d.-a). Little detail is publicly available on extent of private investment, however private finance was secured from Social Investment Scotland and Highland Opportunities Investment Limited (The Flow Country Green Finance Initiative, 2025). Private investment also came through landowners; for example, the restoration of approx. 10% of the surface of Armadale Farm, outside of the FIRNS-funded pilot, was funded through a compensatory restoration scheme by SSE Renewables (NatureScot, n.d.-d).

Investment details

The FCGFI is a blended finance initiative, seeking to combine public grants, private investment, and sales of carbon credits under the UK’s Peatland Code voluntary carbon market. In this carbon market, landowners with damaged peat who meet the Peatland Code carbon market standard can attract private finance for peatland restoration through the sale of carbon credits on the voluntary market (NatureScot, n.d.-c). The FCGFI aims to enable the sale of “premium” carbon credits by landowners in Flow Country. These so-called “charismatic” carbon credits are credits which provide tangible biodiversity and social benefits as well as emissions reductions (North Highland Initiative, n.d.-b).

With the restoration project being in pilot stage, the scale of funding raised under the FCGFI is small compared to Scotland’s renewable energy or green infrastructure financing. There is no publicly available information on the size of the public grants received, while the commercial short-term finance in the form of bridging loans raised to complete pilot restorations totalled £180,000 at the end of October 2025. Most of the financing for pilot restoration projects is from public sources, which is 100% at Armadale Farm and 89% at Achentoul Estate.

Drivers and context

Peatland restoration is a relatively matured measure for climate change mitigation and adaptation compared to other nature-based solutions. The exact restoration techniques depend on the characteristics of the specific area, but generally include stabilisation, damming, and re-profiling eroded peat edges (University of Leeds, n.d.). However, peatland restorations, such as those under the FCGFI are fundamentally ecosystem services-focused projects and tend to be small-scale. Many of the benefits they generate, such as carbon sequestration and biodiversity are not captured in market prices, which can make the business case for attracting private financing more difficult (NatureScot, n.d.-a). To overcome this, the FCGFI is designed at landscape scale, identifying synergies between economic activities and ecosystem services which could be packaged into a larger investment opportunity. For example, an increase in eco-tourism facilitated by restoration which also improves access to peatland areas for visitors (North Highland Initiative, n.d.-b). It also leverages the UK voluntary carbon market to increase bankability for private investors. However, the fundamental uncertainties surrounding voluntary carbon credits mean that although the pilots have been successful, the success of scaling up the project will depend on the ability to sell carbon credits at a premium and at scale. The extensive public-private collaboration, as well as the commitment to pilot investment models, likely also contributed to the success of the FCGFI in securing public and private funding for its pilot projects.

Outcomes/Impacts

The pilot projects at Armadale and Achentoul were completed in 2024 and 2025, respectively. Together, the two pilots covered restored approx. 1,000 ha of peatland and were estimated to generate 200,000 carbon credits. A third project, at Borgie, is currently pending a decision from the Land Court (Just Transition Commission, 2025). If successful, the project would restore 400 ha of peatland at a common grazing site. The FCGFI has mapped a further 129,000 ha of Flow Country land, currently not part of the pilot restorations, which would be eligible for carbon credit sales under the Peatland Code (Just Transition Commission, 2025). Alongside carbon storage and biodiversity benefits, the project also foresees job creation in “green skills” areas, including a commitment to fund a pre-restoration apprenticeship. Wider economic benefits could include boosting eco- and heritage tourism in the region (Nature Finance Pioneers, n.d.).

Key takeaways/Lessons

The FCGFI is a successful example of wide-ranging partnership between public entities, private finance providers, and landowners in deploying nature-based solutions for reducing Scotland’s emissions. The success of this investment to date is evidenced through the successful completion of its pilots. While it has demonstrated investment readiness, ongoing challenges will remain for demonstrating the price premium which project developers hope will be achieved by Flow Country carbon credits. This is a systemic barrier, generated by the lack of a benchmark price and limited trading volumes for credits on the UK voluntary carbon market, as well as investor caution around the still-emerging market for nature capital finance. The project has reported interest from a carbon buyer, which could signal evolving market demand, however challenges remain in securing long-term financial commitments and competing in the UK and international carbon markets (NatureScot, n.d.-a).

Case study 3: Zenobe Blackhillock BESS

Project/Investment overview

The Blackhillock Battery Energy Storage System (BESS) is a 300MW / 600MWh capacity grid-scale energy storage project developed by Zenobe, a UK headquartered provider of electric fleet solutions, large-scale battery storage, and second-life batteries. The project is aimed at maximising the usage of Scotland’s renewable energy output and contributing to grid flexibility. Its location between Inverness and Aberdeen allows the battery to reduce grid congestion from major offshore wind farms in the North Sea, including Viking (443MW), Moray East (950MW) and Beatrice (588MW) (Zenobē, n.d.-a). Phase 1 (200MW) of the project went live in 2025, with the remaining 100MW expected to become operational in 2026. The £235 million long-term debt facility for the project was announced in 2023. At the time of announcement, it was the largest project finance facility for battery storage to be arranged in Europe. The debt financing was provided by NatWest, the structuring bank, Canadian Imperial Bank of Commerce, Rabobank, Santander UK, and Siemens Financial Services through Siemens Bank (Zenobē, 2023a).

Investment details

The £235 million financing for the Blackhillock project forms part of a total £750 million investment in Scotland across Zenobe’s portfolio (Zenobē, n.d.-c). The debt structure also included a £400m accordion facility that would be used to finance expansions at Zenobe’s Blackhillock and Kilmarnock South BESS sites and future projects in Zenobe’s battery storage portfolio (Zenobē, 2023b).

Once fully operational, the project will have a capacity of 300MW / 600MWh, with 200MW in operation since 2025. The Blackhillock project is the first project delivered under the National Energy System Operator’s (NESO) Network Options Assessment (NOA) Stability Pathfinder programme. This programme aims to improve the long-term stability of the electricity system. Zenobe procured the energy storage system from Wartsila Energy, who provided their Quantum battery energy storage system alongside their GEMS Digital Energy Platform for remote monitoring and operations (Wärtsilä Corporation, 2025). Zenobe has also contracted EDF and Kraken to provide real-time charge/discharge optimisation and to ensure effective utilisation of the battery (Zenobē, n.d.-b).

Drivers and context

The key drivers for this project were the need for stability services in the grid, storage of excess wind power at times of low demand and delivery when demand is high. The project earns revenue through meeting these needs. NESO’s NOA Stability Pathfinders programme was created to develop technologies that generate important system characteristics like inertia and short-circuit level, as an alternative to fossil fuel plants providing these services. The programme was set up to enable NESO to decide where investment into reinforcing the system should be directed, including the types of technologies and geographical location of projects. Through market tenders, NESO contracts with stability service providers to address stability issues on the grid (National Energy System Operator, n.d.). The Blackhillock BESS is the first project delivered under this programme (Solar Power Portal, 2025). Grid congestion from Scotland’s rapidly growing offshore wind capacity was another driver for this project.

This investment also aligns with the broader energy goals of the UK and Scottish governments. Zenobe’s analysis indicated that over 22GW of battery capacity is needed to meet the UK’s Clean Power 2030 Action Plan’s targets (The Register, 2025). Furthermore, Scotland’s Draft Energy Strategy and Just Transition Plan, alongside an emphasis on scaling renewable energy, calls for additional energy storage projects (Scottish Government, 2023).

Outcomes/Impacts

Phase 1 (200MW) of the project has been operational since March 2025. Phase 2 (100MW) is expected to become operational in 2026. Upon completion, this project will represent roughly 30% of installed battery storage capacity in Scotland. The project is expected to prevent approximately 2.61 million tonnes of CO₂ emissions and lower consumer energy bills by £172 million over 15 years. £8 million of these savings are attributed to the use of the battery storage technology for grid stability, instead of fossil gas. Zenobe assumed that this contract for the provision of inertia and short-circuit level, historically provided through fossil fuel plants, will avoid the use of combined-cycle gas turbines (CCGTs). This will result in savings for the consumer given the efficiency levels of CCGTs and the outlook for gas prices. The remaining £164 million in consumer savings is attributed to balancing services and constraint management. The battery is expected to provide savings when compared to the alternative actions that grid operators would undertake in its absence. This includes storing excess energy instead of curtailing wind generation during periods of network constraint or offering more competitive electricity prices in auctions rather than the grid having to rely upon gas peakers or CCGTS. At full capacity, the site will store enough energy to supply over 3.1 million homes for one hour (Zenobē, 2025).

Key takeaways/Lessons

This case highlights the role that supportive policies can play in technology uptake and project developments. The UK and Scottish governments provided the signalling that battery storage is a key element of meeting clean power goals. NESO began a programme to procure stability services from clean technologies instead of fossil fuel plants. These conditions play a key role in attracting financing from the private sector. Kilmarnock South, another Zenobe BESS project, went live in January 2026 about 10 months after Blackhillock (Zenobē, 2026). This shows the likely replicability of this operational model. The project also highlights successful collaboration between public bodies such as NESO and the private actors including Zenobe, Wartsila, Kraken, EDF and the financing banks.

How to cite this publication:

Kulaga, D, Umer, H, Aycan, D, Tyrer, D, Chiara Iannino, M, Vella, S. (2026) ‘Mapping Scotland’s sustainable finance landscape’ , ClimateXChange. DOI https://doi.org/10.7488/era/7318

© The University of Edinburgh, 2026
Prepared by Logika Group and the University of St. Andrews on behalf of ClimateXChange, The University of Edinburgh. All rights reserved.

While every effort is made to ensure the information in this report is accurate as at the date of the report, no legal responsibility is accepted for any errors, omissions or misleading statements. The views expressed represent those of the author(s), and do not necessarily represent those of the host institutions or funders.

This work was supported by the Rural and Environment Science and Analytical Services Division of the Scottish Government (CoE – CXC).

ClimateXChange

Edinburgh Climate Change Institute

High School Yards

Edinburgh EH1 1LZ

+44 (0) 131 651 4783

info@climatexchange.org.uk

www.climatexchange.org.uk

Research completed: March 2026

DOI: https://doi.org/10.7488/era/7087

Executive summary

Background and purpose

Scotland’s businesses, infrastructure, communities and natural environment face increasingly severe climate change impacts. Yet, the required adaptation actions – how they will evolve over time, what they will cost, and who should pay – remain poorly understood.

This report provides the first estimate of Scotland’s climate adaptation investment needs through to 2040 across five sectors (and eight subsectors):

• agriculture;
• communities (flooding);
• the natural environment (woodland creation, peatland, nature restoration);
• transport (trunk roads, motorways, railways); and
• water (public water and wastewater services).

It then presents two further discrete analyses: macroeconomic modelling to estimate the wider economic effects of similar levels of adaptation spending, The five sectors were chosen to reflect the diverse approaches required to assess indicative adaptation costs. We examine four aspects of climate adaptation investment: required investment, its macroeconomic impacts, public-private funding splits, and the potential to mobilise private capital. This work is intended to support the Scottish Government in building an evidence based ahead of the fourth Scottish National Adaptation Plan (SNAP4).

Estimating future adaptation cost is inherently challenging. It requires assumptions about future warming, the level of climate risk that society are willing to tolerate, and the associated scale of adaptation and residual damages. Deep uncertainty in climate projections, socioeconomic change, asset vulnerability, and political priorities make precise modelling both challenging and resource intensive. As a result, the findings in this report should be treated as pragmatic, evidence-based approximations that indicate the order of magnitude of investment needs—not definitive targets.

Why adaptation investment matters

Failing to invest in mitigation and adaptation carries significant economic costs. Estimates for this study suggest climate change could reduce GDP by 0.3-0.4% a year in the 2030s, rising to 1.2-1.6% by the 2050s and 1.6-3.3% by the 2070s. Other studies project higher impacts but these depend on the models and assumptions used. The Scottish Environment Protection Agency estimate that flooding alone already costs Scotland an estimated £500 million per year. Adaptation can reduce these damages, but it also requires upfront investment, is rarely fully effective, and involves trade‑offs between expenditure and residual risk. The key question is therefore not whether to invest in adaptation, but how much and who should pay.

Adaptation investment also delivers wider benefits, often described as the “triple dividend”: avoided losses, economic gains, and social and environmental co-benefits such as biodiversity improvements, carbon sequestration, and better mental health. These co-benefits further strengthen the economic case for adaptation.

Climate costs are projected to rise significantly beyond 2040. The research and strategic priorities below are therefore time-sensitive: early action on adaptation can reduce long-run costs and delivers benefits that delayed investment may not recover.

Estimated climate adaptation investment need for Scotland in five sectors

Adaptation investment needs across the five sectors and eight subsectors assessed in this study are estimated at £7.8–£14.2 billion between 2026 and 2040, or £566–£1,027 million per year. Sector and subsector level results are shown in Table 1.

Previous estimates from the Climate Emergency Response Group, Paul Watkiss Associates, and the Office for Budget Responsibility – based on UK wide analyses and international benchmarks – suggested Scotland’s total adaptation costs would range from £196 million to £1,340 million per year from 2030 onwards. The sector specific estimates in this study fall within that range. However, because this analysis covers fewer sectors than the Scottish National Adaptation Plan, the findings suggest that Scotland’s full adaptation investment needs may be higher than previously anticipated.

The study also compared the estimated annual adaptation investment needs to current allocations in the Scottish budget. It found that only the agriculture sector is likely meeting its adaptation needs. The communities (flooding), transport, and nature sectors will likely require additional investment to maintain current risk levels. We could not assess the water sector due to a lack of available information on existing adaptation spending.

The results in this report carry low confidence and should be viewed as indicative, not precise. Confidence levels vary by sector (Table 1) due to fragmented data, limited understanding of asset vulnerability, and the lack of clear adaptation targets to scale investment needs. Where Scottish specific data was unavailable, we crosschecked estimates with international comparisons, which also have limitations because of differing risks and institutional contexts. These figures therefore represent order of magnitude estimates designed to inform policy discussion and future research, rather than definitive costings.

The macroeconomic effects of investing in climate adaptation

A full assessment of the macroeconomic costs and benefits of adaptation were beyond the scope of the study. However, the study did model the direct economic effects of adaptation spending across sectors. It also explored how different approaches to cost recovery affect economic activity, employment, and household incomes.

The modelling consistently shows that adaptation spending generates a positive economic stimulus during the investment period, supporting jobs and output particularly in construction, engineering, and land-based supply chains. However, the way costs are recovered matters considerably. Income-tax-based recovery is progressive but dampens household consumption and reduces activity in consumer-facing sectors. Charging-based approaches – such as higher food prices in agriculture or water bills in the water sector – tend to be regressive, falling disproportionately on lower-income households for whom essential goods represent a larger share of budgets. Recovery through public spending cuts generates the most widespread economic losses, particularly across service sectors. Funding design is therefore important to consider alongside investment scale.

These results should not be interpreted as a full cost-benefit assessment of adaptation. The modelling captures the demand-side effects of spending and cost recovery, but does not account for avoided climate damages, residual risks, or the broader triple dividend of adaptation.

How will costs be borne by households, businesses, and the public sector?

The study investigated how adaptation is currently funded in each of the sectors. Climate adaptation in Scotland is currently funded predominantly by the public sector. Central and local government fund and finance most adaptation-relevant expenditure across transport, flood management, water infrastructure, agriculture, and the natural environment. This is largely through existing budget lines that deliver multiple objectives alongside adaptation. However, households and businesses pay more than previously understood, through Council Tax and Non-domestic rates. Households and businesses also bear some costs directly, for example through property-level insurance and on-farm investments, but this remains modest in most sectors.

This balance is unlikely to shift fundamentally. Most of the adaptation investment – including flood protection, transport resilience, and natural flood management – generates little or no direct financial return and is therefore structurally dependent on public funding. Analysis suggests that approximately three-quarters of adaptation investment needs will require public financing regardless of innovations in private finance mechanisms.

Scope to boost private sector participation

The study reviewed the innovative funding and financing models being used internationally and within Scotland. Analysis found that there is modest potential to increase private sector participation in adaptation funding and financing across all five sectors, and a range of innovative mechanisms are emerging. These include parametric insurance in agriculture, biodiversity credits and voluntary carbon markets in the natural environment, green and resilience bonds for flood and transport infrastructure, and catchment co-investment models in water. However, several important caveats apply:

• Scaling private investment will not happen through market forces alone. It will require concerted public policy action, enabling conditions, and in many cases public co-financing to de-risk private investment. The private sector’s role is best understood as complementary to, rather than a substitute for, public adaptation finance.
• There is a critical distinction between private financing (where private capital provides upfront funding) and private funding (where costs are ultimately borne by the private sector rather than transferred back to government or consumers). Many instruments that appear to increase private participation in practice shift the funding burden, rather than share it. Policy ambitions to mobilise private capital should be assessed against this distinction.
• High benefit-cost ratios in the adaptation literature typically reflect societal and environmental returns, including non-market values that generate no cash flow. Private investors assess financial returns, incremental revenues and recoverable costs, which are considerably lower. Treating strong societal co-benefit ratios as evidence of private investment attractiveness risks generating unrealistic expectations about the scale of private finance that can realistically be mobilised.

Recommendations

The report lays out the following key recommendations, in no particular order:

Table 2: Key recommendations for further research and strategic priorities.

Glossary

Introduction

Overview, aim and scope

Tackling the climate emergency is a priority area for the Scottish Government – alongside eradicating child poverty and growing the economy and delivering high quality sustainable public services (Scottish Government, 2025a). As part of tackling the climate emergency, three questions have emerged associated with the need to better understand:

• The costs of the Scottish Government climate change ambitions for adaptation and the residual damage of necessary trade-offs.
• The macroeconomic effects of climate impacts and adaptation.
• How these costs are being met today, and options for how these costs will be met by different groups, including public and private sectors.

This project provides an initial exploration of some of these issues. In doing so, it supports the Scottish Government in developing an evidence base on the potential costs of climate adaptation across a range of sectors. This is important information to assist in strategically planning and driving forward future adaptation action, in line with Scotland’s National Adaptation Plan.

The analysis focuses on three interconnected research objectives:

1. Estimate adaptation investment needs for five sectors – agriculture, communities (focusing on flooding), natural environment (woodland creation, peatland restoration and nature restoration), transport (trunk roads and motorways and railways), and water (supply and treatment) – until 2040. This should be aligned with the with adaptation objectives defined in the Scottish National Adaptation Plan 3 (SNAP3) 2024–2029;
2. Assess the likely investment split, over time, between the public sector, private sector businesses and individuals for each sector; and
3. For each sector, identify the potential to support private sector participation in funding and financing adaptation, highlighting barriers to scale, and recommending policy instruments to mobilise private capital.

Context: climate risks in Scotland

Scotland’s businesses, infrastructure, communities and environment are becoming increasingly exposed to climate change. These impacts carry serious economic consequences.

The estimated impact of climate change on the UK’s economy differs depending on the climate scenarios used and wider socio-economic assumptions made within modelling. This study assessed the results for Scotland using results from a major EU project (Bosello et al., 2020). Across several climate scenarios, these suggests that from 2030 Scotland’s economy could be 0.3 – 0.5% smaller each year. By 2050, losses could rise to 1.2 – 1.6%, increasing further to 1.5 –3.3% by the 2070s. These are shown in Figure 1, and have been used as the basis for supporting subnational assessments of economic impacts in Scotland (e.g. Climate Ready Clyde, Highland Adapts, South East Scotland and Forth Valley).

Figure 1: Projected impact of climate change on GVA in Scotland for a range of future climate scenarios using Shared Socioeconomic Pathways 2 (SSP2). High Investment Mobility. SSP2 is also known as ‘middle of the road’ and assumes the world follows a path in which social, economic and technological trends to not shift markedly from historical patterns…

A second study, Rising et al. (2022), included additional risks, such as low-probability high-impact events, projecting that under current policies – and compared to a 2000 baseline – the total cost of climate change damages to the UK are projected to increase from 1.1% of GDP at present to 3.3% by 2050 and up to 7.4% by 2100 (Rising et al., 2022). Furthermore, the Office for Budget Responsibility (OBR) estimate that the cost of climate change could even reduce the UK level of GDP by 8% by 2070 if the world was to warm by 3^oC by the end of the century (Office for Budget Responsibility, 2025).

While adaptation can significantly limit climate related damages, fully eliminating climate risk is neither technically feasible nor economically rationale (Rexer & Sharmer, 2024). This means that even robust adaptation actions will leave some residual risk, highlighting the need to target measures that deliver the greatest benefit relative to their cost.

The Climate Change (Scotland) Act 2009 requires a National Adaptation Plan to be published every five years, aligned with the latest UK Climate Change Risk Assessment (CCRA). The latest, SNAP3, covers 2024 – 2029. SNAP3 sets out outcomes, delivery objectives and policy actions. It the first UK Adaptation Plan to also be supported by a monitoring and evaluation framework to track progress. However, specific objectives around risk reduction, as well as associated costs or budgetary allocations remain undefined in Scotland and across the UK.

As the Scottish Government prepares to receive the upcoming fourth UK Climate Change Risk Assessment (CCRA4) and Well Adapted UK report, there is growing recognition of the need to be more specific about the assumptions underpinning adaptation planning, and the costs and benefits. The Climate Change Committee (CCC) recommends that the Scottish Government introduce quantified, timebound adaptation targets to better track progress and strengthen accountability, consistent with preparing for +2°C warming by 2050 while managing risks associated with up to +4°C by the end of the century (Scottish Government, 2025b). However, setting such targets requires clarity on the level of climate risk that government and society are willing to tolerate.

This raises the important question of the acceptable level of risk, and for whom. Different communities, sectors and social groups will be affected in different ways. Given these complexities, developing adaptation targets will likely require broader engagement, including opportunities for the public and stakeholders to contribute to discussions about acceptable levels of risk. It also involves considering who pays – raising questions of equity and risk ownership. As such, adaptation target setting can be closely linked to Just Transition principles.

Defining the level of climate risk that is acceptable is therefore closely associated with the question of how much adaptation investment is needed, and who should pay for it.

Yet current evidence on these questions for Scotland is limited. There are partial estimates of adaptation investment need within the literature, but no agreed sector-specific adaptation targets, no systematic estimates of the investment required to meet them, and no established framework for understanding how costs should be shared between the public sector, private sector, and individuals.

This gap matters: without a clearer picture of adaptation investment needs, it is difficult to plan strategically, allocate budgets effectively, or make the case to mobilise private capital alongside public expenditure. But it is also challenging due to the deep uncertainty of climate change – including our warming trajectories and socioeconomic change.

This report seeks to begin closing that gap. Drawing on a range of analytical methods and the best available evidence across five sectors – agriculture, communities (flooding), transport, water, and the natural environment – it provides indicative estimates of Scotland’s adaptation investment needs to 2040, an assessment of public-private investment splits, and an exploration of opportunities to increase private sector participation in financing Scotland’s adaptation.

This report is structured as follows:

• Section 2 sets out a general account of the economics of adaptation. This sets out the conceptual framework for estimating investment needs, and approaches exploring the public-private investment split. It also positions the existing evidence base for Scotland.
• Section 3 presents our approach and methods.
• Section 4 provides sector-specific results for agriculture, communities (floods), the natural environment, transport, and water. It explores adaptation investment needs, macroeconomic effects and wider impacts, and funding and financing arrangements across all five sectors.
• Section 5 presents a summary of our analysis
• Section 6 outlines recommended research and strategic priorities.

The economics, costing and financing of adaptation

The economics of adaptation

In simple terms, adaptation costs and benefits can be estimated by first assessing the current and future impacts of climate change, then evaluating how much these impacts can be reduced and at what cost (Boyd and Hunt, 2004; UNFCCC, 2009). Adaptation measures can substantially reduce damages, but even well-designed strategies involve trade-offs: investing more in adaptation may deliver greater risk reduction but also increases cost. As a result, reducing risk to zero is neither technically feasible nor economically desirable, and some residual risk will always remain (Rexer & Sharma, 2024).

The scale of costs and benefits depends heavily on chosen objectives. For example, whether aiming for economic efficiency, reducing risks to acceptable levels, or maintaining today’s relative level of climate risk despite worsening conditions. In practice, estimating adaptation costs is highly complex because of deep uncertainty, with issues of socioeconomic change, future emissions, climate models, regional scenarios, impacts, adaptation responses, and political priorities combining to make modelling challenging (Wilby and Dessai, 2010; Taylor et al., 2025; Valverde et al., 2022). These uncertainties make it challenging to assess costs and benefits, creating the potential for over or underestimation of investment.

Despite this, there are some examples. These include national design standards for flood risk (e.g.to a 1-in-200-year event in Scotland, or up to 1-in-10,000-year in the Netherlands (Westerhof et al., 2023)), and emerging work on resilience in warming trajectories more broadly. The UK Government’s Long Term Investment Scenarios explore the optimum levels of investment under different climate scenarios and then use that to guide the spending envelope in the UK’s Flood and Coastal Erosion Risk Management (Environment Agency, 2021). And on reference scenarios, the Climate Change Committee has advised the UK Government to plan for 2 degrees of warming and prepare for 4, while in France the French Government has adopted a reference trajectory of four degrees.

Furthermore, adaptation investment can deliver multiple co-benefits, collectively known as the ‘triple dividend’ (Global Commission on Adaptation, 2019):

• The first dividend relates to avoided losses from successful adaptation. For example, a home that doesn’t flood because flood defences were built.
• The second relates to induced economic benefits such as the stimulus to the economy. For example, from capital investment in infrastructure development projects.
• The third includes social and environmental benefits. For example, afforestation projects that slow water runoff to rivers provide flood mitigation but also deliver biodiversity gains, carbon sequestration, and mental health benefits through green space access.

Considering all three dividends has the potential to improve the economic rationale of investing in climate change adaptation (Figure 2). In this report, while our analyses partially explore triple dividend benefits, it is beyond the scope of work to comprehensively consider wider savings made on triple dividends (see Section 8 on next steps).

Figure 2: The economics of adaptation. The orange line shows projected climate change impacts on GDP (%) without adaptation; the teal line shows residual damages with adaptation. The gap between them represents the gross benefits of adaptation – subtracting the cost of adaptation yields the net benefits, comprising components such as avoided losses and economic, social and environmental co-benefits. Shaded areas indicate indicative uncertainty ranges only. The benefit breakdown is illustrative and not to scale. Adapted from Boyd and Hunt (2004), Global Commission on Adaptation (2019), and Watkiss et al. (2026a).

Apportioning adaptation costs

A key challenge in estimating adaptation investment needs is defining what constitutes ‘adaptation’ and how to attribute costs when activities serve multiple purposes. Climate adaptation rarely occurs in isolation – it is typically integrated into broader investment programmes, delivered alongside other policy objectives, or embedded within routine infrastructure maintenance and renewal. This raises practical questions for cost estimation: should we count the full cost of a project that includes adaptation as one of several objectives, or only the incremental cost of climate-proofing measures above a baseline investment?

To address this, the study adopted the adaptation cost taxonomy developed by the Multilateral Development Banks (MDBs), which has been widely applied internationally to track adaptation finance and compare investment needs across countries (MDB, 2022). This taxonomy categorises adaptation investments into three types based on the role adaptation plays in the overall investment (Figure 3):

Figure 3 Taxonomy of adaptation costs. Adapted from Watkiss et al. (2026a) based on Multilateral Development Banks (2023).

• Building climate adaptation into proposed programmes and investments (climate proofing). For example, to include climate change in the design standards for new road investments. In this case, adaptation is not a major objective. Instead, assessments investigate the incremental costs of adaptation, over and above the core programme / investment costs.
• Targeted/pure adaptation programmes and investments (targeted adaptation). In this case, the primary objective of the policy, programme or project is adaptation to climate change. For example, investing in coastal flood protection to address sea-level rise. In this case, the total costs of the investment are counted as adaptation.
• Investments with multiple benefits that include adaptation (mixed objectives). Sitting between the two extremes above are a set of cases where adaptation is one of several objectives of the policy, programme or project (a secondary or significant objective). For example, investing in peatland restoration will lead to greater resilience of the peatland (to climate change) as well as off-site benefits (water management) but this investment is primarily associated with biodiversity and ecosystem services. In this case a proportion of the cost is attributed to adaptation, but this is often difficult to do accurately and involves more subjective decisions.

These distinctions are important for climate adaptation investment estimation and the economic rationale for investment. However, this categorisation can create potential for confusion in practice. Activities that might have been pursued primarily for economic development, environmental restoration, or other policy goals can be classified as ‘adaptation’ if they deliver climate resilience benefits – even when adaptation was not the original or primary driver. This raises important questions about additionality: would the investment have proceeded anyway without climate considerations?

Approaches to costing adaptation investment

International approaches

There is no single ‘correct’ method for costing climate adaptation. Instead, there are a variety of approaches, and the most appropriate approach depends on the context. Factors such as specific objectives, analysis level, measure types, and critically, the available data and resources all influence the choice (World Bank, 2024; Taylor et al., 2025).

Climate adaptation objectives can be framed in several ways – by setting targets based on future warming levels, engineering resilience standards, specific risk reduction goals, economic thresholds, or process-based requirements (World Bank, 2024). Each framing influences the scale of action, investment needs, and acceptable levels of residual risk. These choices shape how ambitious adaptation efforts must be, the types of projects prioritised, and the balance between public, private, and household responsibilities. Higher resilience standards typically require greater upfront investment, while economic optimal or process-based approaches may lower costs but leave more risk unaddressed (Taylor et al., 2025).

Costing methodologies exist on a spectrum: ‘top-down, science-first’ approaches use economic models and sector-level damage assessments to estimate aggregate costs, while ‘bottom-up, policy-first’ approaches build estimates from detailed project-level information gathered from contractors, engineers, and technical specialists, focused on answering specific near-term questions. There are also hybrid methods that blend top-down and bottom-up approaches. The World Bank identifies various tools and approaches for both sets of methods including top-down sector integrated assessment models (IAMs), computable general equilibrium (CGE) models, through to bottom-up sector-based costing, climate adaptation markups, and budget tagging approaches at the more granular level (World Bank, 2024).

The most accurate estimates for appraisal or project delivery come from bottom-up costing based on detailed contractor quotes. However, this approach requires substantial resources, data availability, time, and technical capacity to progress projects through to a level of maturity which can provide this, and this is not always available (Taylor et al., 2025).

European estimates

Multiple European countries have recently attempted to quantify their national adaptation investment needs, each developing similar, yet distinct, methodologies suited to their institutional context and data landscape. To inform the approach to Scotland, this study reviewed literature from these studies and drew key lessons from each, as follows:

Austria took a parallel approach (Knittel et al. 2017), adopting a top-down budget review using expert interviews to assign flexible apportionments of current spending to climate adaptation (such as 60% for flood infrastructure for example) and bottom-up costing of 67 National Adaptation Strategy measures grouped into cost bands. The two methods produced different results, €488m/yr versus €385m/yr respectively, revealing they measured fundamentally different things: current government activity versus strategic intent (Knittel et al., 2017).

France compiled existing estimates across 15 policy areas, gathering what stakeholders had already produced and providing unit-cost benchmarks from completed projects. It was openly acknowledged this represented ‘what exists’ in planning discussions rather than rigorous comprehensive costing (Dolques et al., 2025).

Spain aggregated funding from multiple sources, historical environmental spending, COVID recovery allocations, and department budgets, applying different percentages based on how directly measures addressed adaptation (100% for flood defences, 40% for ecosystem restoration, 10% for co-benefits). This reached €1.55bn for 2021-2025, though many costs remained undefined and excluded (MITECO, 2020).

Bulgaria grouped measures into Low/Medium/High-cost bands (up to €1m, €1-100m, over €100m) but using specific figures where detailed studies existed, such as €347.81m for irrigation from cost-benefit analysis (Dale & Zhekova, 2019).

Croatia took a strategic approach, developing a prioritised 20-year portfolio of adaptation investments (€3.6bn) through climate modelling and stakeholder workshops, then justifying the annual cost (€183m) by showing it was less than current average damages from extreme weather (€295m) (Croatian Parliament, 2020).

EU level analysis by Neumann et al. (2025) compiled national studies, adjusted them for different emission scenarios and hazards, then extrapolated to countries lacking data using sector economic output as a proxy. Transport estimates drew on seven national studies while agriculture relied on only three, highlighting persistent data gaps (Neumann et al., 2025). A separate EU level study (European Commission, 2026) conducted a bottom-up analysis, which reviewed member state risk assessments, identified and costed relevant measures and then scaled them to the EU. This suggests annual investment needs of €69bn/year to 2050, dominated by infrastructure and ecosystem investments.

There have also been estimates for the UK. These have focused on the costs of adaptation today by categorising actions in the National Adaptation Plan (NAP) in line with Multilateral Development Bank (MDB) taxonomies and estimating investment needs (Watkiss et al., 2026a), though there have been some estimates for future costs as part of the forthcoming Well Adapted UK report (e.g. in Watkiss et al, 2026b and others).

All these studies were transparent about the limitations of the methods used, acknowledging uncertainty rather than presenting false precision. They demonstrated that pragmatic, evidence-led approaches are essential given current data constraints, and framed estimates as ‘evolving documents’ requiring iterative refinement, not as definitive adaptation investment estimates.

Existing estimates for adaptation investment need

Globally, climate finance flows have grown significantly, with total flows reaching US$1.9 trillion in 2023 and private contributions exceeding US$1 trillion for the first time. However, the vast majority of this is directed towards mitigation, with Climate Policy Initiative (2025) estimating only 3.4% is going towards adaptation. The latest United Nations Environment Programme (UNEP) estimates show that developing countries will need at least US$320bn/yr – $400bn/yr for adaptation by 2035, which is roughly ten times higher than today’s international public adaptation finance flows (Watkiss and England, 2025).

To date, there has been limited research specific to Scotland on climate change adaptation investment need. Estimates are instead deduced from broader studies, ranging from £196–£1,340m per year:

• A recent World Bank study suggests that near-term adaptation investment for the EU27 could amount to 0.1% – 0.4% of GDP annually by 2030 (World Bank, 2024). Scotland’s Climate Emergency Response Group (CERG) applied these values to Scotland, estimating £196 – £784m per year by 2030 (CERG, 2024).
• Indicative estimates for the UK suggest adaptation costs of around £5bn/yr to 2030 for a subset of priority risks, rising to £10bn/yr or more when all 61 CCRA3 risks and proactive adaptation measures are included (Watkiss, 2022). These figures are expected to increase significantly after 2030 as the number of high magnitude climate risks grows from 12 to 21 by the 2050s. Yet these estimates remain partial and indicative, with substantial gaps in sectoral coverage, inconsistent assumptions, and a bias toward engineering solutions rather than social or institutional adaptation (Watkiss, 2022). Using Watkiss (2022) values, and assuming Scotland accounts for 7.5% share of UK economic output as a proxy (Harari & Murray, 2024), implies adaptation costs of approximately £375 – £750m per year.
• Analysis by the Office for Budget Responsibility (OBR) suggests adaptation costs of around 0.3% of GDP per degree of warming (OBR, 2021). The OBR also highlights that adaptation costs are likely to rise unevenly over time, with larger and more frequent economic shocks expected later in the century. Using 2024 prices, these costs are equivalent to £670 – £1,340m per year for Scotland under 1 – 2°C of warming respectively.

Scotland’s specific vulnerabilities and policy landscape mean these broader UK estimates may not accurately reflect Scotland’s climate adaptation investment need. For example, Scotland faces a distinctive combination of climate hazards and geographic contexts. This includes a higher proportion of woodland and peatland, topographic challenges, and 93 inhabited islands, that may not be captured by downscaling UK-wide estimates based on Scotland’s share of GDP. The CCRA3 Scotland summary is also the only national summary to identify flooding as the most severe and costliest hazard to businesses, further highlighting the limitations of direct comparison to UK-level estimates.

Investment need will also vary within Scotland, with some regions more vulnerable to climate risks. Nascent estimates of the public sector adaptation gap in Glasgow City Region (Climate Ready Clyde, 2021) suggested a gap of £187m in 2018/19 alone for the region’s local authorities and the health board, equivalent to around 2% of combined local authority and NHS expenditure across the region’s eight councils and two health boards. No other regional estimates in Scotland have been published.

While national climate adaptation investment estimates are lacking, some public bodies, such as Scottish Water and Network Rail Scotland, have conducted bespoke asset climate vulnerability assessments and initial adaptation cost estimates to facilitate strategic business planning (e.g., Network Rail Scotland, 2024; Scottish Water, 2025). Others have more limited research on specific adaptation investment need. Therefore, while some sector specific information exists, it is fragmented.

As well as absence of Scotland-wide adaptation estimates, there is a lack of robust estimates of the wider returns from adaptation investment. These include avoided climate damages, economic benefits, and broader socio-environmental gains that comprise the ‘triple dividend’ of adaptation.

Who pays for adaptation?

Financing versus funding

A critical but often overlooked distinction in climate adaptation investment is the difference between financing and funding (Watkiss and England, 2025). Financing refers to where the upfront money comes from, whether public grants, government borrowing, sovereign green bonds, or private capital, and the financial instruments and terms involved. Funding, by contrast, refers to who ultimately pays for the adaptation over the lifetime of the investment, whether through public budgets, taxation, or user charges. This distinction matters because private sector involvement can help close the financing gap without necessarily closing the funding gap: costs may simply be transferred back to governments or households rather than genuinely shared.

This is illustrated in Figure 4, which shows options for delivery of a programme of coastal flood protection in a developing country context. Here, the delivery is provided by the private sector, who build the contract. The financing can be provided in many ways, including from public budget, tax rises, or private sector financing through the capital markets. These are important since there is much greater potential for private sector financing than for developing business. For example, it is possible to attract significant amounts of private sector financing to support public sector investment, but ultimately government repays with interest. Therefore, it is important to consider whether we are seeking to boost private sector funding (i.e. the proportion of companies and businesses that actually contribute to the costs of adaptation), or merely the financing.

Figure 4: A simple example of the financing, funding, and delivery of adaptation for coastal protection. Source: Watkiss and England. 2025.

The role of public and private sectors

In recent years, there have been substantial efforts to better understand the factors which can inform whether such activities should be funded by the private or public sectors. These include whether the costs and benefits of activities are public or private as well as the level of financial returns they offer. These can be none/limited (and are therefore typically public), below-market or market level returns (OECD, 2023). The level of market returns for many adaptation options have been classified in Table 3, and these have been reviewed and updated to be relevant to the sectors in scope of this study:

Table 3 – Adaptation activities and potential returns in developed countries for the sectors explored in the study. Updated from Watkiss and England, 2025 and OECD, 2023.

Building on this approach, UNEP (2025) outline a useful typology (adapted into Figure 5) for understanding where public and private actors are best placed to act, based on the combination of level of returns and whether the costs and benefits are public, private or joint. These can be used to help classify a broad range of activities which are funded by either the public sector, private sector, or a mix of both.

Type A actions are public goods, such as major flood protection schemes, that generate little or no financial return and are therefore typically initiated and funded by government. Type B actions involve a mix of public and private costs and benefits, and where returns are typically below market. For example, supporting climate-smart agriculture. These typically involve blended finance arrangements. Type C actions sit within existing well-functioning markets and generate commercial returns, such as industrial cooling systems, and would be expected to be entirely privately financed and funded.

Figure 5: Simplified categorisation of adaptation types (A-C) and opportunities for private sector engagement. Adapted from UNEP (2025).

Barriers to adaptation finance

Private sector investment in climate adaptation remains persistently low, despite adaptation often delivering high economic returns for society (World Bank, 2024).

The core problem is that while the societal benefits of adaptation can be substantial, the financial returns that matter to private investors are much lower. Adaptation frequently reduces losses or damages and generates limited revenues, making it difficult to construct a viable business case for private finance. This is especially the case, given the opportunity cost of capital, and difficulties of modelling climate-related disruption in cashflows and returns (Watkiss and England, 2025). There are also issues of discounting, where costs arise today, but benefits occur far in the future and are therefore higher. The private sector also uses higher discount rates than the 3% in the public sector (HM Treasury, 2026), compounding this issue.

Many studies reporting high benefit-to-cost ratios for adaptation are measuring economic or societal returns, which include non-market benefits such as environmental value. Private investors, however, assess financial returns, incremental revenues and cash flows, which are considerably lower. This distinction is frequently misunderstood and leads to unrealistic expectations about the role private finance can play (Watkiss and England, 2025).

Watkiss and England (2025) identify five main categories of barrier to adaptation finance:

1. Information barriers, including insufficient data on climate risks and limited investor understanding of adaptation as an asset class.
2. Market failures, including public good characteristics and underdeveloped adaptation markets.
3. Behavioural barriers, including low perceived urgency and limited willingness to pay for risk reduction.
4. Policy and governance barriers, including weak or conflicting regulation and poor cross-sector coordination.
5. Financial and bankability barriers, including long payback periods, small project sizes, high complexity, and limited replicability.

Scaling private investment into publicly identified adaptation priorities remains a significant challenge, particularly for smaller, fragmented projects involving many actors and beneficiaries.

Boosting private sector opportunities

Globally, current private sector contributions to climate adaptation are very small (approximately 3% of total needs). Even with substantial innovation and concerted effort, the private sector is expected to deliver only around 15% of required adaptation by 2035, with even less in least developed countries and small island developing states (Watkiss & England, 2025). However, this varies significantly based on country and sector structure. Recent analysis of the UK’s third National Adaptation Plan finds much higher numbers, suggesting around 45% of total adaptation costs are borne by private households and businesses (Watkiss et al., 2026a), in part driven by the privatised nature of the water sector in England. As Scottish Water is publicly owned, the equivalent figure for Scotland is likely to be lower, with a greater share of adaptation costs falling to the public sector.

As a result, climate adaptation is currently funded predominantly by the public sector, both globally and within the Scotland. Central and local government fund most adaptation-relevant expenditure across transport, flood management, water infrastructure, agriculture and the natural environment, largely through existing budget lines that deliver multiple objectives alongside adaptation, climate-proofing, or pure adaptation investment (e.g. for flood protection). Across all sectors, households and businesses also bear some adaptation costs directly. For example, through property level insurance or on-farm investments. However, this remains modest.

Crucially, scaling up private sector participation will not happen through market forces alone. It will require concerted public policy action, enabling conditions, and in many cases public co-financing to de-risk private investment. The private sector’s role is therefore best understood as being complementary to, rather than a substitute for, public adaptation finance (Watkiss and England, 2025).

Governments can adjust the financial characteristics of adaptation activities to increase private sector participation, either at the market level or at the level of individual investments. At the market level, this can include improving existing markets (e.g. through better provision of climate risk information), creating new markets (e.g. through water credits), or supporting public provision where markets fail (Greenhill et al., 2026). At the level of individual investments, policy and regulation or blended finance arrangements can be used to alter financial characteristics and improve commercial viability (World Bank, 2019; Watkiss and Ward, 2025). Where neither approach is sufficient, there remains scope to diversify the range of public financing sources and instruments. This is illustrated in the decision tree in Appendix A.

Climate justice considerations

Another significant consideration within the costs of adaptation are the distributional aspects, and the need for a “just resilience”. The CCC report to Scottish Government on climate adaptation and just transition in 2022 highlighted that fairness in adaptation is strongly linked to just transition concepts, and it is crucial to consider distributional effects to ensure effective and fair adaptation (CCC, 2022). Several characteristics that lead to increased vulnerability and reduced adaptive capacity to climate risk were identified, and include low-income groups, the very young and the elderly, and those in rural regions. The CCC recommended that policy to help address adverse distributional impacts should be routed in an understanding of the distributional effects of climate risks and opportunities.

While climate risks are unevenly distributed and demand equitable responses (European Environment Agency, 2025), they also involve costs. Such costs can be explored from several perspectives. A simplified set of approaches is shown in Table 4, ranging from most targeted to those most socialised, though in reality the approach may be context specific.

Table 4: Indicative approaches to guide who should pay for adaptation: Adapted from Paul Watkiss Associates.

The CCC recommended that policy to help address adverse distributional impacts should be rooted in an understanding of the distributional effects of climate risks and opportunities.

Early work underway globally is considering some of the principles behind the costs of adaptation. The Government of New Zealand (2025), set out some early principles in its National Adaptation Framework such as ensuring pre-and post-climate event costs are shared across society and over time, and that the public sector is used to incentivise private sector action, and to take market-based approaches that adjust over time. While beyond the scope of this report, it is noted that such considerations may have the potential to significantly vary relative distribution of costs.

Knowledge gaps and challenges

Evidence gaps in Scotland’s adaptation investment landscape

It is important to note here that adaptation investment, globally, is poorly understood, and many countries are, like Scotland, working to quantify their national adaptation investment needs. Scotland faces multiple knowledge gaps around climate adaptation investment. These include:

• No clear understanding of the total investment required across sectors, including whether this will involve millions or billions of pounds, or how this spending will be distributed with time.
• No detailed picture of what climate adaptation investment could deliver for different sectors.
• No specific, measurable, achievable, relevant and time-bound (SMART) adaptation objectives under SNAP3.
• No assessment of associated costs of not adapting, and/or expected residual damages.
• No budget allocation for each SNAP3 objective.

These knowledge gaps make it difficult to determine whether a financing gap exists or how large that gap might be in Scotland.

Broader knowledge gaps in Scotland and beyond include:

• Lack of robust estimates of the wider returns from adaptation investment, including avoided climate damages, economic benefits, and broader social and environmental gains that comprise the ‘triple dividend’ of adaptation.
• Limited research exploring opportunities for blended public-private funding partnerships to support climate change adaptation spending.

Further research on these broader topics is key to ensuring and prioritising just and equitable climate adaptation solutions in Scotland.

Box 1: Challenges and limitations

Estimating Scotland’s climate adaptation investment need is inherently challenging. This work provides an initial method, approach, and set of assumptions to estimate climate adaptation spending across sectors. It is intended as a first step that will require further development. The figures presented should therefore be treated as indicative, order of magnitude estimates rather than precise calculations. Readers and peers are encouraged to build on this analysis by adding new assumptions, incorporating additional sub-sectors or hazards, or testing alternative scenarios and risk-tolerance thresholds.

The key data limitations and challenges underlying these estimates include:

Baseline spending: Incomplete information on current adaptation expenditure across Scotland makes it difficult to establish a reliable baseline from which to measure progress or scale up investment.

Asset vulnerability: Comprehensive inventories of climate-vulnerable assets are lacking in most sectors, and there is limited understanding of how vulnerability will evolve as the climate changes.

Climate and socio-economic uncertainty: Projections of how Scotland’s climate will change over the coming decades remain uncertain, as does the evolution of the broader socio-economic and political landscape.

Risk tolerance: Without clearly defined government risk tolerance thresholds or adaptation objectives for each sector, it is difficult to establish an ‘end goal’ against which investment needs can be scaled.

Scope limitations: The analysis focuses on selected sub-sectors and key hazards; many relevant adaptation actions and climate risks across Scotland’s wider economy are not included.

Methodological assumptions: Estimates rely on assumptions regarding appropriate adaptation objectives for 2040 and whether spending continues at current levels or scales up in line with growing climate risks.

Study methods

Our approach

Scotland faces similar challenges in estimating climate adaptation investment need to those across Europe, and the fragmented data landscape means no single method could be applied consistently across all sectors. The study therefore adopted a pragmatic, multi-stage and multi-method approach:

1. estimating adaptation costs for each sector using the most appropriate costing method given available evidence;
2. feeding these into a macroeconomic model to explore the economic impacts of different financing routes;
3. mapping current governance arrangements to understand how adaptation is being paid for today; and,
4. exploring the potential to increase private sector participation.

Due to resource and data limitations, the three analyses were conducted separately, with differing underlying assumptions. The cost estimates, macroeconomic modelling, and funding analysis are therefore not directly comparable with one another. Each is intended as a broad exploratory assessment, and further integrated analysis would be needed to draw firm conclusions across all three components.

Throughout, developing robust estimates also required identifying which SNAP3 targets and objectives are relevant to each sector and considering wider socio-economic context beyond climate risk alone. The detailed steps are shown below.

Step 1: Adaptation costing

Adaptation objective setting

We adopted 14 of the 23 objectives set out in SNAP3 (Scottish Government, 2024a). The selected objectives covered four of the five broader SNAP3 outcome areas identified by the Scottish Government: Public Services (PS), Economy, Business & Industry (B), Nature Connects (NC), and Communities (C) (Scottish Government, 2024a). Objectives relevant to the fifth SNAP3 outcome area, Connected and Engaged Society (CE), were not included in the scope of this analysis. The specific sectors, objectives and corresponding outcome explored within our analysis area are summarised in Table 5.

Table 5: Climate change adaptation outcome area and objectives from SNAP3 that align with the five sectors considered in our work were selected and, where relevant, amended. Sectors not explored – due to resource constraints – are crossed through in the objectives below.

The sectors and sub-sectors included in our study are defined as follows:

Table 6 Sectors and sub-sectors explored within this analysis

Note that, due to resource constraints, a range of other key sectors – for example, energy, telecommunications, and health – have not been explored in this report. Furthermore, even within the sectors we have examined, we have not conducted full sectoral analyses. For example, within transport, adapting ferries, aviation, and canals was not included in the analysis due to resource constraints. Consequently, the results should be interpreted accordingly.

Context setting

To estimate the uplift or scaling factors for adaptation investment needs to 2040, we considered how wider socio‑economic conditions, such as population change, economic growth and sectoral investment trends, might evolve over time. These factors can be important. For example, estimating future flood defence needs can require assumptions about future population distribution, while economic growth and inflation trajectories influence both the cost of adaptation measures and the scale of potential economic losses.

In practice, this broader socioeconomic context was only relevant to a limited part of our analysis. Most estimates relied on sector specific data and updated risk information – such as SEPA’s revised flood risk mapping or current housing stock – rather than the national socioeconomic scenarios developed for CCRA3. As a result, although we originally intended to use the central CCRA3 socioeconomic scenarios to inform investment scaling, these were largely not required in the final workflow.

If needed for future updates, this contextual information can be revisited, but for the purposes of this assessment it played only a minor supporting role.

Apportioning adaptation spend

Following the MDB taxonomy introduced in Section 2.2, this study applied different cost attribution approaches across the five sectors depending on the type of adaptation investment and available evidence. The specific methods used for each sector are detailed below and further elaborated in the sector-specific analyses (Section 4).

Climate-Proofing (Incremental Costs)

For infrastructure investments where adaptation is integrated into planned programmes but not the primary objective, we estimated incremental costs above baseline investment, for example:

• Transport (trunk roads and motorways): We applied relevant climate-proofing uplifts from the literature to Scottish Government 2026/27 budget lines for road maintenance and renewal. These uplifts reflect the additional investment required to design infrastructure for future climate conditions rather than historical baselines. For example, upgraded drainage capacity to handle more intense rainfall, enhanced slope stabilisation for increased landslide risk, or heat-resistant surfacing materials. The baseline represents the investment that would proceed regardless of climate change; the uplift captures the incremental adaptation cost.

Mixed Objectives (Apportioned Costs)

For investments delivering multiple benefits including adaptation, we apportioned costs based on expert judgment in consultation with Paul Watkiss Associates, who have extensive experience applying the MDB taxonomy internationally. For example:

• Woodland creation: Forestry investment delivers multiple benefits including timber production, carbon sequestration (mitigation), biodiversity, recreation, and climate adaptation (ecosystem resilience, water regulation, reducing downstream flood risk). We reviewed stated objectives in Scottish Government forestry programmes and applied expert judgment from Paul Watkiss Associates, aligned with on-going UK level adaptation investment need research, to determine what proportion of woodland creation costs should be attributed to adaptation.
• Peatland restoration: Peatland restoration similarly delivers carbon sequestration, biodiversity recovery, water quality improvements, and adaptation benefits (enhanced water storage and flow regulation reducing flood peaks, maintaining ecosystem function under climate stress). We assessed the relative emphasis on these objectives in Scotland’s peatland restoration programmes and apportioned costs, accordingly. These apportionments were cross-checked through expert review with Paul Watkiss Associates.
• Nature restoration: We applied similar logic to wider nature restoration funding, examining whether investments prioritise climate resilience objectives (e.g., creating ecological corridors to enable species migration under climate change, restoring coastal habitats for natural flood defence) or primarily target biodiversity and ecosystem health goals, and attributed costs proportionally.

Different analysts might reasonably apply different attribution percentages to the same mixed-objective investments, as there is no objectively correct answer to how investment should be apportioned across multiple objectives, including the distinction between climate adaptation and mitigation. The percentages applied in this study are therefore documented transparently in the sector-specific analyses (Section 4) and supplementary data.

Targeted adaptation (pure adaptation)

For dedicated adaptation investments where climate risk reduction is the primary or sole objective, we counted total programme costs:

• Flood protection schemes: We examined historic budget allocations from Scottish Government expenditure data and uplifted these to current construction prices using appropriate indices. Estimates drew on SEPA’s updated flood risk mapping and UK-wide research on flood defence costs, scaled to Scotland’s exposure and asset base.
• Property-level flood resilience (PFR): We scaled recent UK research on PFR costs and uptake rates in proportion to Scotland’s residential and non-residential building stock at flood risk, using SEPA flood risk data to estimate the exposed population.
• Capacity building (communities): We engaged with Scottish Government policy teams to identify planned and potential future investment in community-level adaptation capacity, resilience planning, and climate literacy programmes where adaptation is the primary objective.

Sector-specific considerations

A pragmatic, multi method strategy was adopted that used the most appropriate costing approach for each sector, determined by data availability and evidence maturity. The core approaches drawn upon were:

• Drawing on existing sectoral analysis of initial adaptation investment estimates for specific plausible future scenarios (e.g., water and rail).
• Applying relevant climate proofing uplifts from the literature to relevant Scottish Government 2026/27 budget lines (Scottish Government 2026b), reflecting changing climate risks (e.g., trunk roads and motorways).
• For each plan or budget line, including the Scottish Government Draft Climate Change Plan (CCP) (2025) and the Scottish Government 2026/27 budget (Scottish Government, 2026b), the multiple objectives were examined to identify the proportion of investment directly related to adaptation (e.g., agriculture, woodland creation, peatland restoration, and nature restoration).
• Examining and uplifting historic budget allocations to current construction index prices (e.g., flood protection schemes).
• Drawing on wider UK research and scaling estimates in proportion to Scotland’s building stock or relevant assets (e.g., flood-protection schemes and property level flood resilience).
• Engaging with Scottish Government policy teams to discuss likely investment changes for spending with adaptation relevance (capacity building within communities).
• Applying value transfer methods by exploring how adaptation cost estimates compare when scaled to the Scottish context, drawing on Neumann et al. (2025) as an international benchmark for agriculture and transport infrastructure, and on UK Government (2025) analysis for flood protection schemes.
• Undertaking expert review to cross-check estimates against parallel analysis being undertaken for the Climate Change Committee’s Well Adapted UK report, due for publication in Spring 2026.

For further detail on methodological approach used, please see the sector-specific analyses, the appendices B and C (for additional information on Network Rail Scotland and Scottish Water’s analysis respectively), and supplementary data.

Step 2: Estimating macro-economic effects of spending

Macro-economic effects

Fully modelling the costs and benefits of adaptation, including all potential avoided damages, productivity improvements, health gains, and environmental co-benefits, is extremely resource intensive and was beyond the scope of this project. Instead, the Centre for Energy Policy at the University of Strathclyde used a Computable General Equilibrium (CGE) model of the Scottish economy to explore one deliberately narrow but important question: what are the direct economic effects of additional climate adaptation investment in Scotland, and what economic activity does this spending stimulate?

CGE models are widely used by governments and research institutions, including HM Treasury and the Scottish Government, to understand how changes in one part of the economy ripple through the rest. For this study, a model was used that represents the Scottish economy across 30 broad sectors and is built on Scottish Government Input-Output tables from 2019, chosen to reflect the structure of the economy before the disruptions of Covid-19 and the war in Ukraine. The model traces how adaptation spending affects prices, production, employment, and incomes across sectors, and how these effects in turn influence government revenues and public finances. It also accounts for how wages and employment interact. It allows for migration in and out of Scotland depending on relative economic conditions. Finally, it divides households into five income groups to understand how different parts of society might be affected.

For this research, we assumed that climate change adaptation is a form of capital spending that does not create additional production capital for production sectors. Instead, it allows them to maintain the same production capacity, which would be at risk in the face of climate change.

Understanding the modelling approach: spending and cost recovery

To make the modelling approach clearer, it is helpful to think of adaptation in two phases:

Phase 1: Sectoral spending for climate adaptation measures
In Phase 1 the scope of the work is to model how the spending flows through the Scottish supply chains. We model how the sector makes additional purchases of goods and services to deliver adaptation measures (for example, construction materials, engineering services, flood defences, or restoration work). This spending initially flows through Scottish supply chains, creating economic activity in the sectors that deliver the work and in households that benefit from the associated wages and employment.

Phase 2: Cost recovery
Over time, the sectors and/or government need to recover the costs of adaptation. Each sector may have a different cost recovery approach, depending on its business models and economic structure. We modelled three stylised approaches to illustrate the broad channels through which different funding choices affect the economy:

(1) “Government pays, funded through income tax” (used for Communities, Rail and Trunk roads) may have the following implications:

• Income tax rates rise to cover adaptation costs.
• Household disposable incomes fall, especially for higher earners.
• Consumer spending is dampened across society.
• This approach is typically progressive, as those earning more pay a larger share.
• Government spending in other areas (health, education, etc.) is preserved.

(2) “Government pays, funded through government spending cuts” (used for Natural environment) may have the following implications:

• Public spending declines towards all sectors to cover adaptation costs.
• Public administration/defence, education, and tertiary sectors suffer most.
• This approach tends to be mixed.

(3) “Industry pays, funded through higher prices” (used for Agriculture and Water) may have the following implications:

• The adapting sector faces a cost they have to cover, which firms pass on to consumers through higher prices.
• Higher prices reduce export competitiveness (assuming similar price increases are not also happening abroad), which reduces demand for Scottish goods.
• This approach tends to be regressive, as lower-income households spend a relatively larger share of their budgets on essential goods and services.

Important caveats
All approaches are highly stylised and are used to illustrate the broad economic channels and trade-offs that different funding choices create. In reality, adaptation funding is likely to involve a blend of government and industry contributions, as well as other mechanisms such as borrowing, grants, or targeted levies. The scenarios presented here should be treated as illustrative, helping to understand the direction and scale of potential impacts rather than precise forecasts.

More detail on the methodological approach and more detailed analysis of selected sectors can be found in Appendix D.

Note: The macroeconomic modelling cannot be taken as an assessment of the costs and benefits of adaptation. While the modelling captures the direct economic stimulus of adaptation spending and the effects of cost recovery, it does not model residual damages. Neither does it quantify the full range of avoided climate damages, increased resilience, reduced disruption to businesses and households, improved business continuity, health gains, long-term productivity benefits, or environmental co-benefits that underpin the wider “triple dividend” of adaptation. The results should therefore be interpreted as a conservative and partial estimate, representing only one dimension of the economic effects – the demand-side impacts of the spending and its financing – rather than the full spectrum of costs and benefits of adaptation.

Steps 3 and 4: Estimating current and future private sector contributions

In each of the sectors represented in the report, there are existing models which are being used to cover the costs of adaptation today. To explore the current and future potential splits, the project documented the broad governance models of each sector today. We then carried out a qualitative evaluation of the potential use of blended finance, regulation and policy and innovative models. We note that these vary significantly based on the broad structure of the sector, and appetite for change.

Our focus has been on the theoretical potential to increase private sector contributions (noting that this may not be ultimately desirable). This is based on the need to prioritise public sector expenditure on those areas which cannot be met by private sector or households directly. The range of models explored includes:

• Innovative models using private finance to provide upfront capital
• Models which increase private sector funding for adaptation
• Provision of adaptation goods and services (which ultimately reduce costs for public and private sector activities

To identify potential innovations, we drew on the Paul Watkiss Associate database of innovative accelerators (England et al., 2023; United Nations Environment Programme, 2024), as well as recent wider work exploring financing options (Watkiss and England, 2025). Further supplemental models were identified through desk-based searches during this project. We undertook a rapid review and used expert judgement to extract innovative approaches that they felt were potentially relevant in a Scottish context.

Due to the limited resources available for the project, the review has inevitably been ‘light touch’ but serves as the basis for further exploration and discussion to inform the development of SNAP4, as well as the future business models of public bodies such as Scottish Water or Network Rail.

Prices

All prices in the report are presented in 2026/27 prices. For the period 2025/26 to 2026/27, a nominal growth rate of 2% per annum has been applied, consistent with the Bank of England’s long-run inflation target. See the supplementary data for further detail.

Sector-specific analysis

The results derived are detailed below. For each sector – agriculture, communities (flooding), transport, water and natural environment – we highlight (1) key risks and adaptation opportunities, (2) information regarding current investment in climate adaptation, (3) the estimates of adaptation investment need, (4) the wider (co)-benefits of such spend, (5) the current governance, and (6) funding and financing arrangements.

Agriculture

Key climate risks and adaptation opportunities

Agriculture in Scotland faces a complex and intensifying range of climate-driven pressures. More frequent extreme rainfall events are already causing excess waterlogging, which has been shown to be a greater current risk to wheat yields than heat or water stress (risk N6 in CCRA3). Hotter, drier summers are reducing the suitability of high-quality arable land due to drought risk. The 2018 drought illustrated how quickly these pressures cascade through supply chains, with reduced malt barley yields and distilleries halting production due to low river flows. Fluvial flooding on major river catchments such as the Tay and Tweed continue to damage agricultural land, and projections suggest the area of Scotland’s best-quality farmland at risk from flooding could rise by over 30% by the 2080s under a +2°C scenario. Warmer conditions are also driving increases in pests, pathogens and invasive species (CCRA3 risk N7), from potato blight and cyst nematodes to Bluetongue virus, posing escalating threats to crops, livestock and soil health (Sniffer, 2021). Together, these pressures are expected to push agricultural climate risk, as stated in the CCRA3, from medium to high in the coming decades (Sniffer, 2021).

Addressing these risks requires an integrated, forward-looking approach to land-use planning and farm management. Key priorities identified by CCRA3 (2021) include updated land capability assessments using UKCP18 data to guide decisions on where agricultural systems remain viable, alongside improved skills and knowledge exchange, crop diversification, and better soil and water management. Expanded pest and disease monitoring, stronger biosecurity, and wider uptake of integrated pest management are also highlighted, as is the need to align adaptation with net zero strategies to avoid introducing new vulnerabilities. Stronger research, improved coordination between government and land managers, and a more strategic cross-sector approach will be essential to safeguard Scotland’s long-term agricultural productivity as climate pressures intensify (Sniffer, 2021).

Current spending and context

It is not possible to outline how much capital the Scottish Government currently allocates specifically toward climate adaptation of agriculture. This is because climate adaptation investment is currently folded into budget lines with multiple other objectives such as emissions reductions, increased biodiversity and wider farm support. However, the Scottish Government 2026/27 Climate Taxonomy highlights that £221m worth of allocated budget within agriculture have a positive impact on adaptation. Similarly, to our knowledge, there is no available evidence on private sector investment for adaptation of agriculture within Scotland.

Adaptation investment need

Budget lines from the Scottish Government’s 2026/27 Climate Taxonomy with a positive impact on adaptation were used as the primary basis for estimating mixed-objective investment need for agriculture (Table 7). Spending was assumed to continue in nominal terms to 2040, with no uplift applied for increasing climate risk over the period. It should also be noted that some budget lines with positive adaptation impacts may not have been captured, for example, the Farm Advisory Service and Knowledge Transfer and Innovation Service sits under ‘Business Development’ in the Scottish Budget and has not been included, despite likely supporting adaptation through improved uptake of resilient practices.

It is important to note that these budget lines deliver multiple benefits alongside adaptation, including climate mitigation, soil health improvements, biodiversity gains, and wider farm business productivity. Disentangling the proportion of each line attributable specifically to adaptation is particularly challenging in agriculture, where weather and climate resilience – and therefore adaptation – are integral to sectoral success. For this reason, no specific proportion of any budget line was allocated to adaptation in isolation; instead, the whole budget line was included. Estimated costs should therefore be understood as representing a bundle of co-benefits of which adaptation is one component.

Table 7: Budget lines from the Scottish Government Climate Taxonomy 2026/27 that were included in adaptation investment need analysis for agriculture, and associated adaptation rating (Positive – High or Positive – Low) which represents the likely impact (and extent of impact) of the budget line on adaptation, e.g. ‘Positive – High’ is a positive impact that is likely to be highly beneficial.

Table 8 outlines our estimate of mixed objective investment need – including adaptation – for agriculture. This estimate ranges from £168m/yr for budget lines associated with a high positive impact on adaptation to £221m/yr where budget lines with a low positive impact on adaptation are also included.

We cannot give an estimate of adaptation investment need for agriculture in isolation. However, if the current level of spend is maintained out to 2040, total investment in budget lines associated with a positive impact on adaptation in agriculture would amount to between £2,347m – £3,091m, or equivalent to £167.6m – £221m per year over the period 2026–2040 (Table 8).

Table 8: Lower and upper estimates of the mixed-objective investment need (including climate adaptation) for agriculture, based on budget lines in the Climate Taxonomy 2026/27 with a positive impact on adaptation. Values are in 2026/27 prices.

These estimates were triangulated by scaling adaptation cost estimates from Neumann et al. (2025) to the Scottish context as an international benchmark. Neumann et al. (2025) estimated EU agricultural adaptation costs at approximately 0.04% – 0.06% of GDP per year under moderate to high emissions scenarios. Applying this range to Scotland’s GDP yields an indicative figure of £90m – 142m/yr (2026/27 prices). Scotland’s agricultural GVA (approximately £2.2bn, around 1% of GDP) is broadly comparable to the EU average (approximately 1.2% of EU GDP), supporting the plausibility of this transfer as a cross-check (Scottish Government, 2025c; Eurostat, 2026). However, this comparison should be treated with caution: the nature and projected intensification of climate hazards vary considerably across EU member states and diverges from Scotland’s risk profile in important respects. These figures were therefore used as an indicative benchmark to assess how our estimates compare at an international level, and are not included in our reported adaptation investment need figures.

We also conducted separate exploratory research to highlight the challenges and opportunities of using bottom-up analysis to cost climate change adaptation investment need for specific agriculture actions (see Case study 1).

Case study 1: Exploratory bottom-up analysis of agricultural adaptation actions

While budget tagging reveals how much is being spent, it does not indicate what this delivers for climate resilience or whether current levels are sufficient. As an exploratory supplement to the primary budget-line estimates, indicative cost estimates were developed for 33 adaptation actions identified in a Scottish Government RESAS report, to showcase how investment need estimates could iteratively improve to become asset- and action-based going forward. This analysis should be regarded as a proof-of-concept; further data collection and expert elicitation would be needed to improve future estimates and develop associated adaptation pathways.

Costs were sourced from academic and grey literature, with confidence ratings assigned to each source, and scaled to Scotland’s agricultural land area using land-use archetypes from the CCC’s Rural Land Use Types report (Thomson et al., 2025). Complete scaled cost estimates were produced for 19 of the 33 actions. Where data permitted, an exploratory cost-benefit analysis was undertaken for selected actions, including diversified crop rotations, examining potential impacts on yields, soil erosion, and fertiliser use.

The exploratory CBA for diversified crop rotations suggests potential monetised benefits totalling £856m–1.1bn between 2026 and 2040 for reduced soil erosion, increased crop yields and reduced fertiliser usage. Relative to an estimated total action cost of £3.5bn, this represents 25–31% of the potential investment directly benefiting agricultural productivity. Furthermore, other public good benefits not explored from diversified crop rotations could include other benefits such as increased biodiversity and improved water retention that were not explored here.

These figures assume each action is applied across all eligible land, which is an over estimation. Further information on the results, assumptions made, confidence ratings, and recommended further research steps are provided in Appendix E and the supplementary data.

Macroeconomic effects and wider impacts

Macro-economic impacts

We assumed the agriculture sector requires approximately £2.3bn of adaptation investment between 2026 and 2040, around £150m/yr (based on rounding down the analysis in Section 4.1.3). This spending is distributed across construction, the agriculture sector itself, all other manufacturing, and wholesale/retail (vehicles).

Without cost recovery (a modelling device to isolate the spending effect): The programme generates GDP and employment gains during the spending period, with around 80% concentrated in the sectors directly delivering the works – construction, all other manufacturing, wholesale/retail (vehicles), and agriculture itself. Positive spillovers reach consumer services as household incomes rise. Employment and GDP impacts track each other closely because the agriculture adaptation supply chain involves relatively capital-intensive activities such as specialised equipment and infrastructure. As with other sectors, these benefits fade after spending concludes.

With “industry pays” cost recovery (a stylised scenario): When farmers bear adaptation costs and pass them to consumers via higher food prices, the effects are regressive. By 2040, the lowest-income households face price increases of 0.09%, compared with 0.07% for the highest-income households, because food represents a much larger share of poor households’ budgets. Higher food prices erode real incomes and household consumption across all income groups, while reduced export competitiveness further dampens GDP and employment. Because agriculture is one of Scotland’s most labour-intensive sectors – employing 8.5 workers per £1m of output, well above the economy-wide average of 6.6 – the concentrated negative impacts trigger significant job losses that spill across the wider economy. Scotland’s labour mobility means workers leave rather than accept wage cuts, prolonging the employment losses.

Policy implications: An “industry pays” approach financed through higher food prices risks regressive impacts on low-income households and substantial employment losses. While adaptation spending itself stimulates construction and manufacturing, the method of cost recovery determines whether these gains are preserved or eroded, and which parts of society bear the burden.

Current governance, funding and financing arrangements

Agriculture is a market sector but is heavily supported by the public sector (Figure 6). See Appendix F for further information on how this support is planned to change.

A key challenge in the agriculture sector is disentangling the adaptation costs from the other objectives, as the sector involves a mix of activities. There are some dedicated adaptation activities, but other agri-environment objectives include actions to improve productivity, with private costs and benefits, but supported by public activities. Furthermore, it is also challenging to differentiate adaptation actions from wider activities to boost yields or achieve other objectives.

Therefore, rather than looking at activities, the study took an alternative approach which explored the relative income sources for farms. Scottish Government produces estimates on the annual income from farms, including their makeup (Scottish Government, 2025d) shown in Appendix F. These show that agricultural activity in Scotland is typically lossmaking, except for dairy and general cropping, and that agricultural support payments make up a significant share of all farm income. The survey excludes sectors which do not receive support, such as pigs, poultry and horticulture.

The results suggest that loss-making farms may struggle to invest in adaptation measures and that the majority of the ability to invest in adaptation is likely to come through support payment income. We assume that adaptation action is mainstreamed into general agricultural support.

To derive estimates of private sector contribution we started by assuming that for farm types where agriculture is not profitable, all agricultural adaptation is paid for by the public sector. For those sectors where agricultural income is profitable, we assume 50% co-investment, assuming farmers can contribute to those areas which support adaptation. For those sectors excluded for support payments, we assume adaptation costs are 100% private. These assumptions were then applied to output of holdings by farm type from the 2025 Scottish Agricultural Survey. The results suggests that 33% of investment in adaptation is likely to be from the private sector. However, given the overlap with many other objectives and activities (including flood management), the uncertainty on the types of interventions and how they vary by farm type, as well as the fact that many of the grant schemes require co-investment from farmers. the confidence in such apportionment is low.

Figure 6 Financing, funding, and delivery arrangements for adaptation in agriculture.

Innovation that could boost private sector participation

Agriculture is one of the sectors where there is the greatest amount of innovation. There are a range of opportunities to leverage private finance for agriculture adaptation – especially as part of the wider agricultural reform programme. In general, blended finance offers a significant opportunity to incentivise further opportunities for investment in adaptation. For example, it can mainstream adaptation into loan requirements for agricultural investment, or support investment in dedicated adaptation activities. In Scotland, elements of nature restoration on farmland could be financed through biodiversity credits. Blended public-private models such as the Scottish Government £1m Agritourism Investment Scheme – offering grants of up to £50,000 covering 40% of eligible capital costs – can support farm diversification and rural resilience (Savills, 2026).

These can also be complemented by other models which support investment, including from suppliers interested in value chain resilience, or using offtaker agreements.

There are also specific models for investment that target particular activities or parts of the supply chain. For example, use of Public Private Partnership (PPPs) for climate resilient seeds, or the use of digital platforms to provide weather and advisory services) to support farm activities. In addition, parametric insurance offers faster, more transparent cover for systemic risks including drought, flooding, frost and yield shortfalls. It pays out automatically when pre-agreed environmental thresholds are met, rather than requiring loss assessment (Descartes, 2026). Parameters must be carefully designed to avoid leaving farmers exposed to events that fall outside agreed trigger conditions.

Shared rural infrastructure offers a further avenue for cost-effective private investment. Co-operative models – for example, shared grain stores and drying equipment – spread capital costs across multiple businesses while building collective resilience to weather-related yield losses. Similarly, investment in commercial deer carcass processing infrastructure, including improved Approved Game Handling Establishments (AGHEs), could support the economic viability of deer management, which delivers biodiversity, habitat restoration, and natural flood risk management benefits alongside commercial returns. Where shared infrastructure generates both adaptation outcomes and commercial revenues across multiple beneficiaries, blended public-private financing is well suited and could be supported through existing rural development funding mechanisms (World Bank, 2019).

Finally, there are newer and more experimental models being developed, such as the use of Resilience Credits; summarised in Table 9. While conceptually similar to carbon credits, they are more challenging to operationalise due to the conceptual challenges of adaptation, such as avoided future losses and the local place-based context of adaptation and resilience.

Table 9: Examples of innovative models for private participation in agriculture, with cost recovery model. Source: Updated from Watkiss and England (2025).

Communities

Key climate risks and adaptation opportunities

Flooding is the largest climate-driven threats to communities and the built environment in Scotland, with exposure increasing across riverine, coastal and surface water systems (SEPA, 2025). Surface water flooding is the most widespread form of flooding as more frequent extreme rainfall events are overwhelming drainage networks and intensifying surface water flooding. Approximately 400,000 properties are currently at risk from a 1-in-200-year flood event (SEPA, 2025). Flooding already costs Scotland an estimated £500m every year – and that figure will likely grow (SEPA, 2025). Beyond physical damage, flood events trigger persistent mental health impacts, particularly where households face prolonged displacement or repeated flooding. In addition, the burden falls disproportionately on socially vulnerable coastal, urban and rural communities (Sayers et al., 2018; Song et al., 2025). As climate change and population growth converge, exposure is projected to extend into areas with no historical flooding experience.

Addressing these risks requires a coordinated, forward-looking approach to spatial planning, infrastructure design and community-level adaptation. Key priorities identified by CCRA3 (2021) include stricter controls on development in flood-exposed areas, greater enforcement of Sustainable Drainage Systems (SuDS), wider uptake of Property Flood Resilience (PFR) measures, and better integration of natural flood management alongside traditional defences. CCRA3 (2021) also highlight improved flood forecasting, public warning systems and more targeted investment in vulnerable communities, alongside updated planning policies that embed climate-ready design principles. As surface water flooding is projected to increase under all climate scenarios, a strategic approach combining planning, infrastructure, social policy and community engagement will be critical to safeguarding people and places (Sniffer, 2021).

Current spending and context

Flood protection schemes

The Scottish Government has maintained a long-term baseline of £42m/yr for flood protection schemes since at least 2015/16, supplemented by a one-off top-up of £150m. Together this totals £570m invested in flood resilience over 2016–2026 (Scottish Government, 2024a; Scottish Government, 2025e). Local authorities also contribute to the cost of building major flood schemes. In the national ‘cycle 1’ scheme, it is estimated that the Scottish Government pays for 80% of the costs and local authorities pay for the remaining 20% of the costs. If costs increase after a specific point in the process, local authorities must pay for those increases. Local authorities also pay for ongoing maintenance once the flood schemes have been built (Audit Scotland, 2025).

Of the 40 flood protection schemes in ‘cycle 1’ (2016–2021) originally deemed eligible for funding, eight were subsequently abandoned and one was separated into a dedicated taskforce, leaving 31 viable schemes. As of early 2026, 21 of these have been completed. One is currently under construction, and a further six schemes are expected to have main construction contracts in place by March 2026. Three remain eligible for funding. However, projected costs across the programme have escalated significantly. For example, the Hawick scheme rose from £37.4m to £78.6m, Musselburgh from £8.9m to £106m, and Dumfries Whitesands from £18.9m to £68.6m (Internal Scottish Government Data – collected from local authorities in November 2024).

On average this investment has protected approximately 600 additional homes per year from flooding between 2016–2026 (Scottish Government, 2025e). However, climate change is exposing an estimated additional 3,000 properties to flood risk each year (SEPA, 2025), meaning that even if the flood protection scheme cycle was fully delivered, it would struggle to keep pace with the scale of need.

Property flood resilience

Property flood resilience (PFR) measures are an important complement to wider flood protection schemes, with particular suitability for managing surface water flooding (Pettit et al., 2020). PFR measures include resistance measures that prevent water entry and resilience measures that reduce damage and speed recovery. Currently, only a small share of Scotland’s flood protection budget is directed towards PFR, despite its potential to provide cost-effective protection for properties exposed to frequent flooding. JBA Risk Management (2025) identifies 4,679 PFR-eligible properties in Scotland with a payback period of 3–5 years, drawn from a wider total of 116,073 properties considering Great Britain, England, Wales and Scotland. However, this represents only a fraction of the likely need – at least 81,000 homes have been identified as suitable for PFR more broadly (Petitt et al., 2020). This figure predates SEPA’s updated flood risk assessment and may therefore underestimate current exposure. This suggests that the near-term investment requirement for properties where PFR is highly cost-effective is relatively modest and well-defined. However, the investment need across the broader pool of suitable properties is considerably less certain, requiring further research.

Capacity building

Climate Action Hubs, Adaptation Scotland, and Climate Ready Regions are the three main Scottish Government programmes delivering systemic capacity building for adaptation beyond infrastructure interventions. These programmes are intended to support communities, businesses, and public bodies to understand and respond to a wide range of climate hazards including flooding, heat, drought, sea level rise, and storms. The Adaptation Scotland Programme works across a broad range of sectors beyond communities. A proportion of Climate Action Hubs activity relates to mitigation rather than adaptation. In both cases, full budget allocations have been retained as spending cannot be reliably disaggregated between adaptation, mitigation, and other functions.

Drainage partnership funding – representing important capacity building at the catchment level – is included within adaptation cost estimates for the water sector and is not included here to avoid double-counting.

Adaptation investment need

This analysis focuses on flood risk management to assess climate adaptation investment needs for communities, covering flood protection schemes, property flood resilience (PFR), natural flood risk management, and wider capacity building. Some flood adaptation measures, such as improved hydrological modelling and early warning systems, have not been costed here and would add to the overall investment need. Other hazards affecting communities – including coastal erosion, drought, heatwaves and wind – fall outside the scope of this analysis and could be explored in further work.

Flood risk management entails a wide range of activities. Our research sought to cover expenditure across four main spending lines: (a) flood protection schemes, (b) property flood resilience (PFR), (c) natural flood risk management (implicitly included in the natural environment budget), and (d) wider capacity building.

This was challenging for two reasons: firstly, it was difficult to establish how Scotland’s current budget is allocated across these spending lines. Secondly, there was an absence of quantified targets or risk-tolerance levels against which investment needs could be scaled. For example, if the Scottish Government were to commit to protecting all high flood risk social housing, it would be possible to identify the number of eligible properties and estimate protection costs accordingly, but without such targets, scaling investment needs requires assumptions that introduce additional uncertainty. As a result, multiple complementary methods were used to assess investment need, with the caveat that there may be a small degree of double-counting between individual estimates. Estimating potential avoided losses from flood risk investment was also particularly challenging in this sector.

Flood protection schemes

To estimate future investment requirements for flood protection schemes, we take two approaches:

• We uplift the historic baseline funding of £42m/yr, in place from at least 2015/16 (Audit Scotland, 2025), using the ONS construction price index. This yields an estimated £63m/yr and a total projected requirement of £882m for the period 2026 to 2040 (Table 5).
• We take DEFRA flood protection commitments of £7.9bn for England between 2025 and 2035 (UK Government, 2025) and scale to Scotland based on dwelling stock. This yields an equivalent figure of £79m/yr, or £1,102m over 2026–2040. This value-transfer approach rests on assumptions of comparable housing stock, property type, and flood risk exposure with the wider UK and should be treated with appropriate caution.

Both figures are presented in Table 10 to reflect the inherent uncertainty in projecting long-term flood protection expenditure. Together, these approaches indicate an adaptation investment need for communities via flood protection schemes of £885m – £1,102m over the period 2026–2040.

Table 10: Property flood protection scheme climate adaptation estimates 2026–2040, assuming uplift of Scotland’s historic £42m/yr guaranteed spend for the historic Scottish budget scaled, and 10% of wider UK pledge to be proportionate to Scottish dwellings.

This estimate is likely conservative, as it captures only Scottish Government central funding. Local authorities also contribute toward flood protection investment. For example, within ‘cycle 1’ local authorities contributed an estimated 20% of the investment need and the cost of maintenance (Audit Scotland, 2025).

Property flood resilience

Investment need for property flood resilience (PFR) was estimated by applying unit costs from JBA Risk Management (2025) to the 4,679 PFR-eligible properties in Scotland identified as having a payback period of approximately 3–5 years. This focus on properties with the strongest return on investment reduces the risk of double-counting with the wider flood protection budget, while reflecting the economic case for targeted intervention. Unit costs of approximately £2,250 per property for limited PFR measures (e.g., temporary flood barriers for doors, air brick covers, toilet bungs) and £11,000 for standard measures (e.g., permanent flood doors, extensive waterproofing / re-pointing of external walls) were applied accordingly.

By multiplying the average cost per property for limited measures (£2,250) and for standard measures (£11,000) by properties eligible with a short payback period (4,679 properties), calculations indicate an adaptation investment need for communities via property flood resilience measures of £10.5m – £51.5m over the period 2026–2040, equivalent to £0.75m/yr – £3.68m/yr (Table 11).

Table 11: Property flood resilience climate adaptation investment need where payback time is likely approximately 5 years, using JBA Risk Management (2025) data

The economic case for investment is reinforced by JBA Risk Management (2025) analysis of Annual Average Losses (AAL), which indicates that delivering standard PFR measures across all 4,679 eligible properties could reduce AAL from £22.8m to £11.1m – a saving of £11.7m per year, suggesting the full cost of standard intervention would be recovered through avoided flood damages within approximately five years.

Capacity building activities

Capacity building investment need was estimated by reviewing expected funding pathways for three programmes, in consultation with Scottish Government policy teams. Climate Action Hubs are estimated at £6m/yr (£84m to 2039/40); Adaptation Scotland at £0.4m/yr (£6m to 2039/40); and Climate Ready Regions at £0.55m/yr rising to £0.9m/yr between 2026 and 2029, remaining at £0.9m/yr through to 2039/40 (£12m to 2039/40). Case study 2 highlights one of the Climate Ready regions funded initiatives. Furthermore, it should be noted that capacity building investment need spans risks beyond flooding – including storms, drought, wildfires, and heatwaves – and encompasses some capacity building for climate mitigation that could not be disentangled from adaptation spend. Together, our calculations indicate adaptation investment need for communities via capacity building amount to £102m between 2026–2040 (Table 12).

Table 12: Estimated climate adaptation investment need for capacity building activities within the communities’ sector between 2026–2040. Costs in 2026/27 prices.

These figures assume current spending levels, increasing nominally, are sufficient to meet future adaptation capacity building needs – an assumption that may warrant revisiting as Scotland’s adaptation requirements become better understood.

Case Study 2: University of Strathclyde Raingarden Parklet Case Study

The Raingarden Parklet, led by Hope in Place CIC and supported by Civic, is an innovative piece of green urban infrastructure designed, created, and built in Glasgow. It represents a new approach to sustainable urban drainage systems (SuDs). It aims to reduce peak run off during intense rainfall. while simultaneously creating social value through education, training, and pathways into green jobs.

The modular unit measures 4.5m × 1.5m × 1.2m and costs approximately £10,000 to design and manufacture. The University of Strathclyde secured £15,000 through Climate Ready Regions funding via Climate Ready Clyde, covering the parklet and a proportion of the £15,000 – £20,000 installation costs.

The final location outside the Andersonian Library was selected through stakeholder consultation against criteria including flood risk, footfall, and connection to local drainage infrastructure. It demonstrates what can be achieved in a single car parking space and offering a visible symbol of Glasgow’s shift towards greener, healthier streets.

Beyond flood resilience, the pilot delivers co-benefits across public realm enhancement, green skills and employment, and justice system reform. The parklet was constructed in HMP Barlinnie using recycled materials, with profits funding a training pathway towards a ‘Green Skills Factory’ at the new HMP Glasgow and the project fostering broader community-university collaboration. This has the potential to act as a catalyst for further investment in modular, scalable adaptation solutions that deliver integrated benefits for society, the environment, and the economy.

Example of a raingarden parklet. Image credit: Ben Raw.

Total adaptation investment need for communities through flood measures.

In total, the adaptation investment need estimate for communities – focusing predominantly on flood management – is £997.5m – £1,256m between 2026–2040, equivalent to £71.2m/yr – £89.7m/yr (Table 13).

Table 13: Estimated climate adaptation investment need for flood protection schemes, property flood resilience and capacity building between 2026 – 2040. 2026/27 prices.

Macroeconomic effects and wider impacts

Macroeconomic impacts

The communities sector adaptation package, covering regional hubs, property flood resilience and flood protection schemes, amounts to around £978m between 2026 and 2040, approximately £65m/yr. This is slightly lower than the figures quoted in section 4.2.3.4 because of rounding and the pricing being in different years.

Without cost recovery (a modelling device to isolate the spending effect): By 2040, Construction records an output gain of £38m and roughly 575 jobs, while architectural services and “all other services” add £9m in output and 120 jobs. Modest positive impacts appear in wholesale and retail trade, fabricated metals, manufacturing and primary sectors, reflecting supply-chain linkages. The overall effect is a modest but broadly positive local economic boost centred on construction, professional services and local services.

With “government pays” cost recovery (a stylised scenario): When the Scottish Government recovers costs through higher income tax, construction retains most of its gains, recording £35m in output and around 530 jobs. Architectural services and supply-chain activities such as fabricated metals and steel also remain positive. However, consumer-facing sectors reverse direction. Retail (excluding vehicles) shifts from a £1.7m gain and 36 jobs in the no-recovery case to a £2.8m loss and 59 fewer jobs once taxes rise. Similarly, “all other services” flips from an £8.6m gain and 114 jobs to a £15m loss and 187 fewer jobs. Financial services, travel, transport, manufacturing and energy sectors also turn negative as squeezed household incomes reduce demand. In simple terms, higher income taxes reduce disposable incomes, which reduces consumer spending, putting pressure on retail, hospitality and service jobs.

Policy implications: Even relatively modest adaptation programmes provide meaningful local benefits in construction and professional services. However, income-tax recovery dampens broader gains: it is more progressive than raising prices for essential goods, but it still reduces household budgets and activity in consumer-facing sectors. Policymakers need to weigh these short-term sectoral effects against the long-term flood protection and community resilience benefits.

Wider impacts

The economic case for adaptation investment in flood resilience for communities is strong. Defra estimates that every £1 spent on flood defences prevents around £8 in economic damage (UK Government, 2025). Furthermore, the expected annual cost of flooding impacts in Scotland is now approximately £260m/yr (Scottish Government, 2025e), with multi-hazard events, such as the associated flooding from 11 named storms between November 2015 and March 2016, negatively impacting the UK economy by 0.08% of GDP (Office for Budget Responsibility, 2024). Consequently, the potential avoided losses from sustained investment in flood protection schemes remain substantial. Note, further research is required to develop a full understanding of the wider co-benefits associated with investing in flood protection schemes, PFR and wider capacity building.

Current governance, funding and financing arrangements

Flood risk management is currently predominantly funded by the public sector as illustrated in Figure 7. This includes direct funding from Scottish government for schemes. Responsibilities are set out under the Flood Risk Management (Scotland) Act 2009. Most flood investment is provided by Scottish Government, who provide £42m/yr. However, this is provided at an intervention rate of 80%, with an additional 20% from local authorities from general ringfenced funding. Assuming this is spent, an additional £8.4m a year is provided by local authorities. Allocating the same percentage of private sector contribution (37%) as for transport, suggests that around £3.1m (37% of £8.4m) a year is contributed by households and businesses.

Some levels of PFR are funded by households, both domestically and through Flood Re’s Build Back Better scheme (a joint initiative between the UK insurance industry, see Innovation section, below), but this is relatively low. Details of the number of properties ceded to flood Re, or properties provided with PFR, are not publicly available. The Flood Re market study assumes around 500 – 550 residential properties a year going through (Borio and Kassian, 2023). This suggests around £540,000 a year in contributions, though both the Borio and Kassian (2023) study and Pettit et al. (2020) highlight most of these schemes are publicly funded or subsidised. Therefore, for the purposes of the study, we assume the total contribution to floods indirectly via Council Tax and Non-Domestic Rates to be roughly 7%.

Figure 7: Financing, funding, and delivery arrangements for adaptation in flood protection schemes and property flood resilience.

Innovation that could boost private sector participation

Opportunities to leverage private investment in adapting to changing flood risk in Scotland could include:

Scotland Bond Issuance programme: Scottish Government is in the process of putting in place the mechanisms to facilitate the issuance of bonds, having obtained a credit rating and appointing banks and legal advisors (Scottish Government, 2026a). This has been used in the UK to provide upfront financing for Flood and Coastal Erosion Risk Management, with UK Government reporting on use of proceeds. Similar mechanisms could be used to provide a significant boost to available capital investment.

The FloodRe ‘build back better’ scheme: For communities impacted by flooding, it is likely their properties will be eligible for the FloodRe ‘build back better’ scheme, a joint initiative between the UK insurance industry and the UK Government, which offers householders the chance to install property flood resilience measures up to the value of £10,000 when repairing their properties after a flood (FloodRe, 2023). No data is currently published on use, but uptake is thought to be low.

Scotland’s current resilience organisations: These span Regional and Local Resilience Partnerships, Community Resilience Committees, and Category 1 and 2 responders (Brett et al., 2026). They represent a cost-effective foundation for building adaptation capacity without requiring entirely new delivery structures. Embedding adaptation within local authority contingency planners, local resilience partnerships, and community councils offers a pragmatic route to scaling capacity building across Scotland’s communities and institutions. Private sector organisations, particularly utility and transport operators operating as Category 2 responders, are well positioned to potentially contribute co-funding and expertise to this capacity building as part of their existing statutory obligations and business continuity responsibilities.

There are multiple opportunities to increase both private sector funding and financing. Financing opportunities relate to the use of a range of debt financing instruments, such as green bonds, to support adaptation. There have also been examples where development banks have provided commercial funds to help local authorities address fiscal space constraints. In addition, there have been some examples in England where the use of PPPs has been used to unlock private sector financing for flood defences. In a similar vein, Land Value Capture and Tax Increment Financing provides an option to unlock future revenue streams through increases in land value or development through investment in flood defences. Parametric insurance has also been used to provide upfront protection for coral reefs which serve as flood defences as well as payouts for recovery.

There are also schemes which encourage private sector funding (summarised in Table 14), such as direct contributions to flood risk management schemes. Evidence from the National Audit Office suggests that around 9% of total contributions to flood defences in England came from businesses (National Audit Office, 2023) – but also from more local schemes, such as the use of climate resilience districts or water funds. There is also the potential for the use of tourism taxes and levies, as well as dedicated levies for climate resilience, such as those in Greece or Italy (Venice). There are also models which leverage revenue streams from co-investment such as in the Netherlands where revenues from wind turbines have been used to partially fund dikes.

Table 14: Examples of innovative models for private participation in flood protection, with cost recovery model. Source: Authors, updated from Watkiss and England, 2025.

Natural environment

Key climate risks and adaptation opportunities

Peatland

Scotland’s peatlands face serious and accelerating degradation from multiple climate pressures. Heavier rainfall increases erosion and carbon-rich sediment loss, while warmer, drier summers accelerate oxidation and peat loss – with degraded lowland peatlands already losing 1–2 cm of soil depth annually. Heightened wildfire risk adds further pressure, and many peatlands remain inadequately monitored, meaning the true extent of degradation may be underestimated. Climate risk is projected to rise from medium to high, with the potential for irreversible loss of peatland functions including carbon storage, biodiversity support and water regulation (Sniffer, 2021).

Reversing this degradation requires more comprehensive monitoring of peat condition, integrated land-use policies prioritising protection and restoration, and targeted guidance for land managers on re-wetting, water management and erosion prevention. Peatland adaptation must also align closely with mitigation strategies. For example, directing woodland expansion onto mineral soils rather than peat, and stress-testing net zero measures against future climate risks. Better research on climate impacts to carbon stores, more systematic soil carbon monitoring, and strategic cross-sector land-use planning across agriculture, forestry and coastal zones will be essential to safeguard water quality, flood regulation and the reliability of Scotland’s greenhouse gas projections as the climate shifts (Sniffer, 2021).

Forestry

Scotland’s forestry sector faces serious and interconnected climate threats (risks N6, N8 and N9 in CCRA3). Rising temperatures and increasing drought, particularly in central and eastern regions, are reducing growth rates, affecting timber quality and shifting species viability. Commercially important species such as Sitka spruce are losing ground to more drought-tolerant alternatives. Broadleaved species face severe stress from more frequent extreme weather. Warmer conditions are also accelerating the arrival and spread of pests, pathogens and invasive species, including Phytophthora ramorum, Dothistroma needle blight and bark beetles, compounded by increasing deer damage. Overall risk is projected to rise from medium to high under future warming, while potential opportunities from longer growing seasons and expanded species suitability remain largely unrealised due to adaptation barriers (Sniffer, 2021).

Building forestry resilience requires integrated action across several fronts. Strategic land-use planning must embed both adaptation and mitigation objectives, with clearer decisions about which forest types and locations remain viable as conditions change. Improved surveillance and biosecurity at ports of entry, better soil and water management, strengthened wildfire preparedness, and diversified woodland species and structures will all help spread risk and improve long-term productivity. Warmer temperatures do create opportunities for previously unsuitable species such as Douglas fir and fast-growing bioenergy trees, but realising these benefits requires deliberate research and field trials. Enhanced cross-sector coordination, better knowledge exchange with land managers, and targeted research into future-adapted management systems will be essential to maintain carbon storage, support Net Zero transitions, and preserve the ecological and economic value of Scotland’s woodlands as the climate shifts (Sniffer, 2021).

Nature restoration

There are also multiple adaptation opportunities within the nature restoration that align with wider biodiversity and carbon mitigation targets. Case study 3 outlines on-going research NatureScot is conducting to explore catchment scale nature restoration cost estimates.

Case study 3: Catchment scale nature restoration, NatureScot

Context

• NatureScot is working with SEPA, Scottish Water, FLS and Scottish Forestry to review and prioritise landscape / catchment scale nature restoration projects across Scotland (Scottish Biodiversity Strategy Action 2.1) and align this with SNAP3 objective NC2 on landscape scale approaches to climate adaptation and river basin management planning.

Preliminary cost estimates

NatureScot have started to estimate the costs of restoring catchments across Scotland and work is underway to refine these. Early in financial year 2026/27 they hope to have indicative costs for catchment scale restoration across Scotland, likely to be in the region of £5bn. Through 2026/27 they will develop a costed pipeline of projects out to 2045, refining the cost estimates at project scale to inform an Investment Plan for delivery.

Current methods use GIS analysis and cost assumptions based on existing projects. During 2026/27, the projects themselves will estimate costs to inform a more accurate cost estimate.

Key challenges and opportunities for climate adaptation at a catchment scale:

• Lack of evidence on the costs of natural flood management
• Lack of evidence to support quantification of benefits and to inform a business case
• Lack of long-term commitments to the funding streams that currently pay for restoration and insufficient funding for the scale of the challenge
• Immature nature finance market which is not yet delivering private investment at the scale required. 

Current spending and context

Current Scottish Government spending includes specific investment in nature based climate solutions. For 2026/27, the Scottish Budget allocates £28m for peatland restoration, supporting the restoration of over 10,000 hectares of degraded peatland. A further £37m is committed to woodland creation, aimed at delivering more than 12,000 hectares of new woodland (Scottish Government, 2026b). In addition, £26m is allocated through the Climate Taxonomy for nature restoration activities, supporting wider ecological recovery and contributing to long-term climate adaptation and resilience objectives (Scottish Government, 2026c).

Adaptation investment need

Cost estimates for the natural environment draw on the Scottish Government’s draft Climate Change Plan (CCP) and Scottish Budget Climate Taxonomy (2026/27), with expert-elicited proportions assigned to reflect the share of costs attributable to adaptation. These proportions, 25% for peatland restoration, 6.25% for woodland creation, and 20% for wider nature restoration, were derived by examining the mixed objectives of each budget line and assigning a share to adaptation relative to co-benefits such as carbon mitigation, biodiversity gain, and flood alleviation. For peatland restoration, for example, carbon mitigation is the primary objective of the CCP spend, with flood reduction and biodiversity functioning as secondary objectives; the adaptation proportion reflects this hierarchy. These proportions were cross-checked through expert review with Paul Watkiss Associates, drawing on comparable apportionment approaches used in parallel Climate Change Committee analysis for England (Watkiss et al., 2026a). No uplift for increasing climate risk was applied to these estimates up to 2040. It should be noted that other relevant actions – including wildfire management and enhanced monitoring of peatland and woodland restoration – have not been costed here and would add to the overall investment need.

Peatland

Scotland’s draft CCP projects peatland restoration ramping up from approximately 15,400 ha/yr in 2026 to just over 22,500 ha/yr from 2030 onwards, totalling 319,489 ha by 2040, contributing toward the wider Scottish Government target of 400,000 ha of peatland restoration by 2040. Total peatland restoration costs were estimated using the draft CCP central estimate of £2,894/ha (capital and resource combined), assuming a mix of peat types restored across 2026 – 2040, with capital costs derived from Glenk et al. (2025) using 2022 grant data uplifted to current prices using ONS GDP deflators. Applied to the CCP’s restoration target, this yields a total cost of £925m (£66m/yr) in 2025/26 prices for 2026–2040. A 25% adaptation apportionment was applied on the basis that, while the off-site adaptation benefits of peatland restoration represent a relatively modest share of overall benefits, there are also meaningful on-site benefits to the peatlands themselves. The UK National Adaptation Plan similarly cites climate resilience as one of four core benefits of restoration (Watkiss et al., 2026a).

We estimate climate adaptation investment need for peatland restoration at £236m to 2040, equivalent to £16.8m/yr. It is important to note that peatland restoration costs are subject to considerable uncertainty, varying significantly by peat type, depth, location, site accessibility, and contracting arrangements. Okumah et al. (2019) report a median restoration cost of £1,009/ha, with a range of £3,707 between minimum and maximum estimates. Glenk et al. (2025) report costs ranging from £191/ha at the 5th percentile to £4,483/ha at the 95th percentile. This wide cost distribution means peatland restoration estimates should be treated with particular caution. Further research to better constrain unit costs would meaningfully improve the robustness of future investment needs assessments.

Woodland creation

Scotland’s draft CCP projects woodland creation ramping up from 12000 ha/yr in 2026 to 18,000 ha/yr from 2029 onwards, totalling 258,000 ha between 2026–2040. For woodland the study used the central estimates of total costs provided by the Scottish Government. These estimates include the total capital, maintenance and administration costs between Scottish Government and businesses at a total of £1,799m to 2040.

Apportioning a share of this expenditure to climate adaptation is not straightforward. The primary objective of woodland creation is carbon mitigation, and woodlands can in some cases increase certain climate risks. For example, this can be through disease spread, fallen trees from storms, and increased vegetation growth affecting critical infrastructure (e.g., Bebber et al., 2025; Network Rail Scotland, 2024). Identifying the adaptation-specific component therefore required an evidence-based approach.

To apportion a share of expenditure, we drew on the Economic and Natural Capital Assessment (ENCA) database to compare the economic value of flood control benefits delivered by woodland creation and peatland restoration, expressed in £/ha/yr. Flood control was the only comparable adaptation benefit available to us in consistent monetary terms across both habitat types. The evidence indicates that flood control benefits from woodland creation are approximately four times lower than those from peatland restoration per hectare (Broadmeadow et al., 2023; Morris and Camino, 2011). Having assigned a 25% adaptation apportionment to peatland restoration on this basis, we therefore applied a proportionally scaled figure of 6.25% to woodland creation. This apportionment was cross-checked through expert review with Paul Watkiss Associates.

We recognise that this approach captures only one dimension of adaptation value – flood control – and that other potential adaptation benefits of woodland creation, such as shade provision, slope stabilisation, and reduced surface runoff, are not reflected in the apportionment. This figure should therefore be treated as a conservative estimate and is identified as a priority area for further research and methodological development.

We estimate climate adaptation investment need for woodland creation at £8.2m per year or £115m between 2026–2040.

Nature restoration

Finally, there is an additional budget line in the Scottish Budget 2026/27 (Scottish Government, 2026b) relating to nature restoration. The Climate Taxonomy identifies a nature restoration budget line of £26m/year, relating to policy development and implementation to manage and restore Scotland’s biodiversity and landscapes. This also includes provision of the Nature Restoration Fund and continued commitment to the Central Scotland Green Network (Scottish Government, 2026c), at a consistent level of funding. By assessing the multiple objectives of nature restoration, we assume 20% of these benefits are related to adaptation. We estimate climate adaptation investment need for nature restoration at £5.2m/yr for a total of £73m between 2026–2040.

Total adaptation investment need for natural environment

We estimate climate adaptation investment need for peatland restoration, woodland creation and nature restoration at £16.8m/yr, £8.2m/yr and £5.3m/yr respectively, totalling £30.2m/yr, or approximately £423.8m between 2026–2040 (Table 15).

Table 15: Estimated climate adaptation investment need for peatland restoration, woodland creation and nature restoration between 2026–2040. These costs represent a proportion of the total spend from the Climate Change Plan or the Scottish Budget that is related to adaptation for woodland creation (6.25%), peatland restoration (25%) and nature restoration (20%) accordingly. In 2026/27 prices.

Macroeconomic effects and wider impacts

Macroeconomic impacts

For natural environment, we’ve modelled the total spending outlined in the Climate Change Plan and nature restoration budget (as opposed to the adaptation portion of £423.8m – see Section 4.3.3.4). This totals just over £3bn between 2026–2040, around £200m/yr.

Without cost recovery (a modelling device to isolate the spending effect): The programme generates substantial gains in “other primary” activities – forestry and land-use sectors – where output rises by around £92m and employment by roughly 1,050 jobs by 2040. Agriculture adds £1m in output and 14 jobs. Construction gains £11m in output and 170 jobs, while “all other services” contributes around £29m and 380 jobs. The overall effect is a broad-based but especially land-focused expansion, reflecting the labour-intensive and locally embedded nature of restoration activities.

With “government pays” via expenditure cuts in all areas (a stylised scenario): When costs are recovered through public spending cuts, widespread reversals occur, particularly in service sectors. “All other services” shifts from a gain of £29m and nearly 380 jobs to a loss of roughly £102m and around 1,300 jobs. Education moves from a gain of £2.8m and 60 jobs to a loss of nearly £25m and over 520 jobs. Public administration records a decline of about £43m and nearly 480 jobs. Retail, financial services and transport flip from modest gains to losses. Even the core land-use sectors are affected: “Other primary” moves from a gain of around £92m to a small loss, and construction swings from a gain of £11m and 170 jobs to a loss of around £14m and 200 jobs. Manufacturing gains are largely erased. The aggregate effect under income-tax funding is contractionary by 2040, meaning that while restoration work still channels activity into land-use sectors, the broader economic impact turns negative once cost recovery is factored in.

Policy implications: Land-based adaptation can boost rural employment and supply chains significantly, but spending-cut recovery creates widespread service-sector losses that outweigh the direct stimulus. This highlights an acute trade-off between using spending cut and preserving activity in consumption-dependent and public-service sectors. The results exclude long-term ecosystem, carbon sequestration, flood risk reduction and recreation benefits, which are particularly important for Scotland’s climate and biodiversity goals.

Wider impacts

Woodland creation and peatland restoration generate multiple co-benefits beyond direct climate adaptation. These include carbon storage, biodiversity gain, water quality improvement, air quality, temperature regulation, flood regulation, recreation, and physical health. Resource constraints prevented a comprehensive review of all co-benefits; however, we have estimated the value of a selected range, assuming that the peatland restoration and woodland creation targets for 2026 –2040 set out in the draft CCP (see section 4.3.3) are successfully completed, to current climate resilience standards, and established by 2050.

Should the 319,488 ha of peatland targeted under the draft CCP be successfully restored between 2026 and 2040, this could generate approximately £267m/yr in flood control and storm buffering benefits, £191m/yr in water quality benefits, and £199m/yr in biodiversity benefits (Table 16).

Should the 258,000 ha of woodland targeted for creation between 2026 and 2040 be successfully established to climate-resilient standards, a range of co-benefits could be realised by 2050, once the woodland has had time to develop. These include flood storage (£29m/yr–£54m/yr), recreation and health benefits (£383m/yr), biodiversity benefits (£46m/yr), and avoided mental health costs (£48m/yr) (Table 16).

These figures carry considerable uncertainty, reflecting both the pace of establishment and the assumptions underpinning each co-benefit category. They nonetheless demonstrate that the economic case for woodland creation as a climate adaptation investment strengthens substantially when co-benefits are considered. It also demonstrates that the investment need estimates presented above likely understate the full economic value of this expenditure.

Table 16 Estimated value of a range of co-benefits (£m/yr) for 258,000ha of established woodland, and 319,488ha of established peatland restoration in 2026/27 prices.

Current governance, funding and financing arrangements

Peatland restoration

To deliver the Scottish Government targets for peatland restoration, Scottish Government funds five delivery partners to undertake peatland restoration to meet these targets: NatureScot, Loch Lomond and Trossachs National Park Authority, Cairngorms National Park Authority, Forestry and Land Scotland and Scottish Water seen in Figure 8 (Scottish Government 2023a). There have been some elements to crowd fund in private sector finance but for now this investment is presumed to be purely public. Beyond public funding, there has been minimal investment in peatland restoration from private sources to date, including through voluntary carbon markets (Scottish Government, 2023a).

Figure 8: Financing, funding, and delivery arrangements for adaptation in peatland restoration. Adapted from Paul Watkiss Associates.

Woodland creation

The governance landscape for woodland creation is complicated, summarised in Figure 9. It is overseen and delivered by two executive agencies – Scottish Forestry and Forest and Land Scotland. Scottish Forestry is the government agency responsible for forestry policy, regulation and grant schemes. Forestry and Land Scotland are the operational land-management agency for the forest estate. However, much planting occurs on private land and for commercial purposes. Investment in new woodland creation is supported by grants through the Forestry Grant Scheme. This supports the creation of new woodland, as well as management of existing woodlands and investments in forest infrastructure such as protection.

An evaluation of the previous phase of the Forestry Grant Scheme for Scotland highlighted that the grants are unlikely to cover the total cost of the investment (Scottish Forestry, 2025). This means there will be residual costs associated with long term management and felling that will need to be met by the private sector. However, there is no data on the proportion of this investment. Given this, we have not been able to generate reliable investments in the split of public and private sector investment in adaptation. The governance arrangements for nature restoration more broadly have not been mapped in detail due to the limited resources for the study.

Figure 9: Financing, funding, and delivery arrangements for adaptation in woodland creation.

Innovation that could boost private sector participation

While nature and ecosystems have broadly public characteristics, there are a range of mechanisms (see Table 17) that can support private sector involvement in adaptation and provision of ecosystem services.

The first cluster relate to the benefits derived from ecosystems. These include dedicated payment for ecosystem services schemes, but also carbon and biodiversity credits, or for loss reduction, noting that these are co-benefits and that the locations of planting need to coincide with those needed for risk reduction, and that in such schemes the revenues are too small and benefits arise (Watkiss and Hunt, 2024; England et al., 2025). The Scottish Government, NatureScot and SEPA are supporting CreditNature, selected through the CivTech innovation accelerator, to develop a voluntary biodiversity credit market for Scotland. This will be guided by the British Standards Institute’s Nature Investment Standards programme and the Scottish Government’s Natural Capital Markets Framework (Scottish Government, 2023b; Scottish Government, 2024b; NatureScot, 2026). Similarly, in England, the introduction of Biodiversity net gain is also supporting the development of a market and is beginning to unlock new investment in ecosystem restoration (e.g. Avon Needs Trees).

There are some examples of private and corporate investment. Philanthropic investment has included around £50m over three years for rewilding across privately managed Scottish estates (BBC, 2019). Diageo has committed up to £5m over five years to restore up to 3,000 hectares of degraded peatland by 2030 – illustrating how businesses with supply chain dependencies on healthy ecosystems can become adaptation co-funders (Diageo, 2026). However, these are likely to be relatively modest and opportunistic.

A second cluster relates to investment based on sustainability outcomes, whereby the terms of financing are preferential based on the impact. This includes payment for ecosystem services, sustainability linked loans, as well as direct investments in nature-positive businesses and redeemable equity. There have been efforts by the Scottish National Investment Bank to provide concessional credit lines to support. For example, the SNIB recently provided a £50m cornerstone investment to the Gresham House Forestry Fund, 60% of which will be invested in Scotland, and which includes commitment to climate resilience (Scottish National Investment Bank, 2026).

Finally, there are also a cluster of insurance-based innovations. For example, in Colombia, the City of Bogota has extended previous work by The Nature Conservancy (TNC) on Water Funds. This provides a proactive fund where beneficiaries pay into funds which support proactive risk reduction as well as offering parametric insurance for response and recovery. In Mexico, the Quintana Roo coral reef scheme sees local businesses and tourists paying in alongside government to support reef protection and receive parametric insurance. In addition, the NATURANCE and PIISA Horizon Europe projects examining how disaster risk financing can be combined with nature-based solutions to develop scalable insurance products (Climate-ADAPT, 2026).

Table 17: Examples of innovative models for private participation in natural environment, with cost recovery model. Source: Authors, updated from Watkiss and England, 2025.

Transport

Key climate risks and adaptation opportunities

Road networks

Scotland’s road network faces a complex and intensifying set of climate-driven pressures threatening long-term reliability, safety and connectivity. More intense rainfall is accelerating surface water flooding, overwhelming drainage systems and causing recurring closures on trunk and local roads alike. In upland and rural areas, where single-access routes are common, even short-lived disruptions can isolate communities and disrupt supply chains. Saturated soils and steep topography are heightening landslide risk, most visible along routes such as the A83 at the Rest and Be Thankful, where repeated slope failures have led to long detours and escalating maintenance costs. Extreme temperatures add further stress, damaging pavements and bridges in summer while winter storms bring wind hazards, fallen debris and ice-related disruption (Sniffer, 2021).

Strengthening resilience will require a more strategic, forward-looking approach to maintenance, planning and design. Key priorities include identifying road corridors most vulnerable to flooding and slope failure, scaling up green-blue infrastructure and Sustainable Drainage Systems, improving drainage capacity, and applying soft-engineering approaches such as vegetation management to stabilise slopes. Better condition monitoring, data sharing and early-warning systems for rainfall, wind and landslide risk can support more proactive hazard management. For new infrastructure, mainstreaming climate adaptation into design standards will be essential to avoid costly retrofits, while stronger resilience indicators and more consistent climate risk assessment across local road authorities will be critical to closing Scotland’s current adaptation gap (Sniffer, 2021).

Rail networks

Scotland’s rail network, spanning over 1,700 miles and 360 stations across diverse and challenging terrain, is already experiencing the impacts of a changing climate, with risks projected to intensify over the coming decades (Network Rail Scotland, 2024). Observed changes include warmer average temperatures, altered rainfall patterns, and an increase in the frequency and severity of extreme weather events.

More intense and prolonged rainfall increases the likelihood of surface water and river flooding, as well as saturated ground conditions, contributing to earthwork instability. Embankments and cuttings, many of which are Victorian era assets, are becoming increasingly vulnerable to failure, leading to disruption, safety risk and higher maintenance demand. Storms and high winds continue to cause disruption through fallen trees, debris and damage to exposed assets, while coastal routes face longer term risks from erosion, sea level rise and increased wave action (Network Rail Scotland, 2024).

Higher temperatures are an emerging and growing risk, with hotter and more frequent heat events increasing the incidence of rail buckling, overhead line sag and emergency speed restrictions, affecting network performance and reliability (Network Rail Scotland, 2024).

Wind, flooding and snow are consistently the most disruptive and costly weather hazards on the Scottish network, with weather related disruption incurring significant Schedule 8 compensation costs (payments made to train operators following unplanned disruption) over the past decade (Network Rail, 2024). Around 90% of Network Rail assets are as they were when installed before the year 2000 and were not designed to contend with the more aggressive weather conditions now being experienced or forecast for the future under climate change (Network Rail, 2024).

Network Rail Scotland’s key adaptation priorities include delivering revised climate change risk assessments to identify future vulnerable locations, developing a long-term adaptation strategy using an adaptation pathways approach, and enhancing monitoring and assurance of resilience actions across the network (Network Rail Scotland, 2024).

In addition to spending on infrastructure, there may be some spending being undertaken on rolling stock companies (ROSCOs), but this is not available and therefore excluded from estimates of adaptation investment need.

Current spending and context

Specific information on the cost of climate proofing trunk roads and motorways within Scotland is currently not available. However, the Scottish Budget 2026/27 allocates approximately £82m to adaptation and resilience for trunk roads and motorways (Scottish Government, 2026c). This budget line covers trunk road adaptation schemes to improve network resilience to climate change and severe weather, casualty reduction measures, and Traffic Scotland operational commitments.

Furthermore, Network Rail Scotland has already spent £103.1m of primary resilience interventions to date in control period 7 2024–2029 (CP7). The largest shares have been directed at earthworks (£59.8m) and drainage (£27.7m), reflecting the priority placed on managing slope instability and flood risk across the network.

Adaptation investment need

Transport adaptation investment need was assessed across two sub-sectors: trunk roads and motorways, and rail. Other transport modes, including ferries, canals, aviation, and active travel, have not been included in this analysis and would add to the overall investment need.

Road networks

There is limited information regarding future investment need for climate adaptation on the road network. Strategic Transport Projects Review 2 (STPR2) estimates indicate a capital cost banding of £1bn – £2.5bn over the life of the review from 2022–2042 (Jacobs & AECOM, 2022), reflecting the anticipated scale of investment required to adapt the trunk road and motorway network to climate change. However, this figure was explicitly indicative rather than a precise cost estimate, based primarily on adaptation to flooding at highly exposed locations and not accounting for the full range of relevant climate hazards, including landslides, high winds, scour, and high temperatures. Transport Scotland anticipated that a dedicated Trunk Roads Climate Change Adaptation Plan would establish more robust costs in due course and does not consider the STPR2 figures sufficiently reliable for planning purposes.

To estimate adaptation investment need for trunk roads and motorways, we explored current Scottish Government budget lines with a neutral or positive adaptation influence were identified from the Scottish Budget 2026/27 and associated Climate Taxonomy (Scottish Government, 2026b; 2026c). The Transport Portfolio contains 15 budget lines associated with the Trunk Road Network, of which four, relating to network depreciation and PPP payments, were excluded as not relevant to climate adaptation, leaving 11 budget lines for analysis (Table 18).

Table 18: Budget lines from the Scottish Government Climate Taxonomy 2026/27 that we included in adaptation investment need analysis via exploring the additional ‘climate proofing’ spend or the whole budget.

Two approaches were applied to these budget lines. For ten of the eleven lines, a climate-proofing uplift was applied to estimate the additional investment required to maintain network resilience under a changing climate. Uplift factors of 2.5% and 10%, representing the lower and upper bounds of the additional cost of climate-proofing infrastructure, were drawn from scaling factors in the Asian Development Bank (2014) and World Bank (2019). Crucially, the uplift itself – that is, the difference between the original and uplifted budget – represents the estimated additional spend attributable to climate-proofing, rather than the total uplifted budget. For the adaptation and resilience budget line, the full budget allocation was retained, as this line is wholly directed at adaptation activity.

Applying the climate proofing approach and budget lines outlined in Table 17, the estimated adaptation investment needed for trunk roads and motorways is between £101.2m–£158.06m/yr, amounting to approximately £1,417.52m–£2,212.82m over the period 2026–2040 (Table 19).

Table 19: Climate change adaptation investment need for trunk roads and motorways between 2026-2040. Presented in 2026/27 prices.

Local road networks, maintained by local authorities rather than Transport Scotland, are not captured in this analysis. These represent an additional and likely material cost that is expected to grow as climate risk intensifies but fell beyond the scope of the present study. Several methodological limitations are also worth noting. Some budget line descriptions overlap, introducing a degree of potential double-counting (see supplementary data for more detail). The 2.5% and 10% uplift range is derived from international infrastructure literature and may not fully capture the specific risk profile of Scotland’s trunk road network. Applying a larger uplift – as some international studies have suggested may be appropriate for higher emissions scenarios – would yield considerably higher estimates, suggesting the figures presented here may be conservative.

These estimates were triangulated by scaling adaptation cost estimates from Neumann et al. (2025) to the Scottish context as an international benchmark. Neumann et al. (2025) estimated EU transport adaptation costs at approximately 0.04%–0.06% of GDP per year under moderate to high emissions scenarios. Applying this range to Scotland’s GDP yields an indicative figure of £90m – £142m/yr (2026/27 prices), which is broadly consistent with the trunk roads and motorways estimate presented above. However, this comparison should be treated with caution: the nature and projected intensification of climate hazards vary considerably across EU member states and diverges from Scotland’s risk profile in important respects. Furthermore, Neumann et al. (2025) does not provide a breakdown between road and rail spending, limiting the precision of this transfer. These figures were therefore used as an indicative benchmark to assess how our estimates compare at an international level, and are not included in our reported adaptation investment need figures.

Transport Scotland is also actively working to better understand the scale of investment needed for adapting trunk roads to be resilient to climate change. For example, they are developing the Vulnerable Locations Operational Group (VLOG) prioritisation tool to identify climate-vulnerable locations across the trunk road network and better constrain the costs of necessary upgrades and renewals (see case study 4). Consequently, the indicative adaptation investment estimates outlined in this report are expected to be further refined as this ongoing analysis matures.

Case Study 4: Vulnerable Locations Operational Group (VLOG) prioritisation tool

The Vulnerable Locations Operational Group (VLOG) prioritisation tool, developed by Transport Scotland, identifies which parts of Scotland’s trunk road network are most vulnerable to climate change and where investment is most needed. By bringing together asset information to assess exposure, sensitivity, and adaptive capacity, the tool provides a consistent, evidence-based approach to understanding climate risks and prioritising funding across the wide range of geotechnical and geometric challenges throughout Scotland’s network.

The tool uses a scoring and ranking system that evaluates locations against a range of factors including whole-life asset costs, effectiveness of risk reduction, environmental benefits, social impacts, and economic consequences of route disruption. This allows different locations and interventions to be compared fairly and transparently, with quality checks, peer review, and alignment with existing appraisal and business case processes built in to ensure decisions can be reviewed and approved through established governance structures.

Over time, the VLOG tool will help Transport Scotland baseline and monitor how climate-related risks evolve as projects progress and conditions change. For adaptation planning specifically, understanding which locations are most vulnerable and what interventions deliver the greatest risk reduction is essential for ensuring investment is targeted where it will have most impact – moving beyond reactive maintenance towards proactive, planned adaptation. Critically, the tool will enable more asset-based adaptation investment need estimates, moving beyond the indicative budget-line approach used in this report towards a robust, location-specific evidence base for future climate resilience planning across Scotland’s trunk road network.

Image: Example of VLOG prioritisation tool dashboard outlining climate-vulnerable sites.

Rail networks

Interpretation of Network Rail Scotland Investment estimates

The rail investment figures presented here represent indicative, scenario‑based estimates developed by Network Rail Scotland to explore the potential scale of climate adaptation investment required to maintain current levels of service and safety under future climate conditions.

The upper end of the range reflects a plausible future pathway that includes what are currently hypothetical transformational capital interventions at particularly vulnerable locations, which may or may not be required depending on how climate risks evolve over time, and how Network Rail chooses to sequence interventions that are required based on its adaptation pathways programme.

As with other sectors, the absence of agreed levels of service and climate risk‑tolerance targets means these figures are best understood as order‑of‑magnitude planning assumptions, intended to inform strategic discussion rather than define investment requirements.

Investment need estimates

Investment need estimates for the Scottish rail network were drawn directly from high-level analysis Network Rail Scotland’s internal climate adaptation assessment. This draws on climate-based modelling, expert judgement, and current spending patterns to project costs across two categories of spend: (a) operations, support, maintenance and renewals (OSMR), which covers the ongoing costs of maintaining a climate-resilient network; and (b) major capital interventions (MCI), which covers larger-scale infrastructure investment at vulnerable locations. Full details of the underlying methods, assumptions, and calculations are provided in Appendix B.

Total potential adaptation investment requirements for the Scottish rail network are estimated at between £113m–£338.1m/yr, amounting to £1,581.8m–£4,733.6m when operations, support, maintenance and renewals (OSMR) and major capital interventions (MCI) are included over the period 2026–2040 (all figures in 2026/27 prices) (Table 20). This spend would cover increased operational and maintenance activity in response to more frequent severe weather. Such activity includes additional seasonal treatment trains, emergency speed restrictions, and reactive repairs following weather-induced failures, targeted renewals to address accelerated asset degradation across drainage, earthworks, and track. At the upper end, it includes hypothetical transformational capital schemes at locations where incremental intervention alone cannot sustain current service levels, such as infrastructure re-alignment in response to coastal erosion.

The wide range between lower and upper bounds, particularly for MCI, reflects the inherent difficulty of projecting major capital requirements over long time horizons. Network Rail Scotland note that ongoing work under their Adaptation Pathways Programme is expected to narrow these ranges as vulnerable locations become better characterised. These figures represent one plausible investment scenario focused on continued service delivery; alternative investment scenarios could reasonably be explored.

Table 20: Estimated climate change adaptation investment need for Network Rail Scotland, 2026–2040, based on CP7 remaining spend, CP8 and CP9 allocations under a continued service scenario, and pro-rated 2039/40 spend. All figures uplifted to 2026/27 prices (assuming 2% nominal growth per annum) from 2023/24 base prices provided by Network Rail Scotland.

Case Study 5: Extreme rainfall and landslides at the Falls of Cruachan

The Oban branch of the West Highland Line plays a vital role connecting rural communities around Oban with the rest of Scotland, running alongside the A85 trunk road through mountainous terrain with limited diversionary routes when disruption occurs. The Northwest Highlands are the wettest area of Great Britain. Parts of the railway line – particularly near the Falls of Cruachan – are highly susceptible to landslides due to prolonged heavy rainfall, steep topography, and proximity to unstable slopes. In December 2022, approximately 100 tonnes of material moved down Ben Cruachan’s slopes onto the railway and A85, caused by a blocked culvert overtopped during adverse weather.

Temporary repairs to reopen the railway, including slope stabilisation, signalling repairs, and new track, cost approximately £0.5m. A more permanent fix is now underway at a cost of £3m, encompassing drainage renewal, soil nailing, erosion protection, and lightweight catch fences. Control period 7* plans also include approximately £5m for ongoing vegetation removal and maintenance of the line’s stone signals, which date to 1882 and are approaching life expiry.

Further investment will be required in later years to provide a longer-term solution as increasing frequency of adverse weather events heightens landslide risk. Network Rail Scotland’s current view is that resilience work will combine low-to-medium capacity catch fences with modern instrumented barrier technology along the four-mile length. This is at an estimated cost of circa. £5m in CP8, alongside continued improvement of drainage asset maintenance to better manage water movement during heavy rainfall events. Longer-term options under consideration through Network Rail Scotland’s climate change adaptation pathways programme include a combination of nature-based solutions, such as enhanced vegetation management to stabilise slopes, alongside engineered interventions, reflecting a broader shift towards integrated, pathway-based approaches to managing climate risk on vulnerable parts of the network.

*A control period is Network Rail’s fixed five-year funding and planning cycle that sets budgets and outputs for the railway (e.g., CP7 1 April 2024 – 31 Mar 2029).

Image: Landslide over railway at Falls of Cruachan.

Macroeconomic effects and wider impacts

Macro-economic impacts

Trunk roads and motorways

For macroeconomic modelling we assume trunk roads and motorways require the adaptation investment between 2026–2040 of approximately £90m/yr. These have differing pricing years compared to section 4.4.3.1. This spending flows primarily to construction and wholesale/retail (vehicles), with significant additional activity in public administration, architectural services and a wide range of supply-chain sectors.

Without cost recovery (a modelling device to isolate the spending effect): By 2040, construction gains £12.7m in output and 191 jobs, while wholesale/retail (vehicles) adds £29m in output and 516 jobs. Supply-chain effects spread to fabricated metals, manufacturing, energy and primary sectors, and household consumption spillovers boost retail, financial and travel services. No major sector is worse off during the construction period; the programme delivers broad-based increases in output and employment across the economy.

With “government pays” cost recovery (a stylised scenario): When costs are recovered through higher income tax, the core delivery sectors retain net gains. Construction still adds £3.6m in output and 43 jobs, wholesale/retail (vehicles) retains £26.6m in output and 472 jobs, and public administration adds £5.5m and 55 jobs – because they remain central to the works. However, many consumer-facing sectors flip to losses. Retail (excluding vehicles) loses £3.7m in output and 88 jobs, while “all other services” records a loss of £24.3m and 385 jobs. Manufacturing and primary sectors similarly shift from gains to losses as higher income tax squeezes household spending and raises labour costs, reducing demand and competitiveness.

Policy implications: Without cost recovery, roads adaptation delivers a strong temporary stimulus across the economy. With income-tax funding, construction and vehicle-related sectors still gain, but many consumer and trade-exposed sectors lose activity and jobs. Policymakers must balance fiscal sustainability against these short-term economic effects and against the long-term resilience benefits of climate-ready road infrastructure.

Rail Network

Using the lower estimate for investment in operations, support, maintenance and renewals (OSMR) and major capital interventions (MCI), rail network climate adaptation requires approximately £100m/yr of investment from 2026–2040. The spending flows primarily to wholesale/retail (vehicles) for rolling stock maintenance and replacement, construction for network reinforcement, and public administration for programme management.

Without cost recovery (a modelling device to isolate the spending effect): The programme creates a demand stimulus that peaks at 0.5% GDP growth (around £100m) and 1,500 FTE jobs by 2040. The sectors delivering the works experience the largest gains, with positive spillovers to consumer services as higher household incomes boost spending. Prices rise only modestly as workers migrate to Scotland to meet labour demand, easing wage pressures. All sectors benefit or remain unaffected during the investment period, though these impacts fade roughly 15 years after spending ends.

With “government pays” cost recovery (a stylised scenario): When the Scottish Government recovers costs through higher income tax, the GDP and employment gains are largely eroded and turn temporarily negative in many sectors. Higher income tax reduces household disposable incomes, particularly for higher earners, dampening the consumption that drove much of the initial stimulus. At the same time, employers partly absorb the tax rise through wage bargaining, raising their production costs and pushing prices higher for longer, which weakens Scotland’s export competitiveness. The core delivery sectors – wholesale/retail (vehicles), construction, and public administration – retain smaller gains because they remain central to the works, but consumer-facing services such as “all other services” experience significant job and output losses.

Policy implications: Income-tax funding can protect long-term rail resilience, but it imposes short- to medium-term costs in terms of growth, employment and real incomes, particularly for higher-income households. Policymakers need to weigh these costs against the avoided disruption and economic losses from climate-damaged rail infrastructure.

Current governance, funding and financing arrangements

Road networks

Delivery arrangements for road infrastructure investment are shown in Figure 10, the majority of which is funded through the public sector. Transport Scotland pays for investment on the trunk road network and contracts a range of companies to ensure Scottish trunk roads are safe, efficient and well management (Transport Scotland n.d). This includes both maintenance contracts (provided by Amey and Bear Scotland), but also a range of Design, Build, Finance and Operations (DBFO) contracts. Local roads are managed by local authorities, who pay for investment in the local road network. Scottish Government (including Transport Scotland) spent £3bn on transport in 2023/24. Local Authorities spent £1.17bn in 2023/24 (Transport Scotland, 2025).

While all adaptation costs for the trunk road network are met from government, local costs are met by local government from a mix of sources. Local Government spent £27bn in 2024/25 from four sources of income. Excluding service income (which is ringfenced for uses such as early learning and childcare but not transport) the remaining £16bn came from Scottish Government grant (63%), council tax (18%) and non-domestic rates (19%) (Scottish Government, 2026d). Assuming that adaptation costs are evenly apportioned across funding sources, applying these shares to the relative share of the total investment, we estimate that private sector contributes around 10% of the costs of adaptation, split evenly between households and businesses.

Figure 10: Financing, funding, and delivery arrangements for adaptation in road networks.

Rail networks

The rail sector is a complicated set of governance arrangements (summarised in Figure 11), since rail infrastructure, services and rolling stock are managed by separate organisations. Network Rail manages railway infrastructure. It generates a range of income from access charges, commercial income and an electricity for traction programme. The majority of rail services in Scotland are publicly provided by ScotRail through Scottish Rail Holdings Ltd (SRH Limited), an arm’s length company owned and controlled by Scottish Government (Transport Scotland, n.d), though other franchise operators (e.g. Avanti) run services serving the wider UK.

Whilst the study has not generated estimates of required adaptation spend for rolling stock, this is also important. Rolling stock is privately owned and leased from Rolling Stock Operating Companies (ROSCOs), who have invested over £20bn in rolling stock since 1995 (Mather, 2025). Payments are made from the train operating companies to ROSCOs for the lease of the stock – in 2024/25 these totalled about £2.7bn in the UK (Office of Road and Rail, 2025). Scotland intends to also continue securing financing for the stock, and a lease model (Scotrail, 2026).

Figure 11: Financing, funding, and delivery arrangements for adaptation in the Scottish rail sector.

There are already significant efforts ongoing to consolidate the sector. The UK Government is bringing franchises into public ownership as contracts expire, it is consolidating track management and rail services under Great British Rail to provide overall coordination of track and timetable franchising under one guiding arm. All franchises are expected to be due back in public ownership by the end of 2027. Under this model, Scottish ministers will set a rail strategy for Scotland and fund GBR to provide Infrastructure in Scotland (Department for Transport, 2025), while ScotRail will continue to deliver services. The government expects the leasing of rolling stock from ROSCOs to continue where such investments offer value for money (Mather, K., 2025). Figure 11 represents the funding arrangements following this transition.

To provide an initial view on the split of funding for adaptation, the study used the aggregate income and expenditure for the UK Rail Sector for Scotland (ORR, 2025). This breaks down the relative total income from different sources for the overall sector, and the expenditure, excluding internal money flows. This shows that in 2024/25, government funding made up 66% of all rail sector income, with the remainder coming from passenger income (29.6%) and the remainder coming from industry (1.8%) and freight industry (2.8%). However, looking over time, there has been significant variation in this split, with 50% of income at one point coming from private income. At present, it is assumed Network Rail does not apportion or ringfence income, meaning that adaptation costs are assumed to be split between public and private sector in the same proportions.

Innovation that could boost private sector participation

For transport, road user charging, including city centre congestion charging and expanded parking zones, could generate revenues to help fund climate-resilient infrastructure upgrades. Toll financing on major road networks or adaptation projects offers a further avenue, with potential for private operators to contribute to or co-finance expensive resilience interventions in exchange for revenue streams from infrastructure users. Similarly, there is the potential to mainstream adaptation costs into rail ticket prices. This could be to fund maintenance but can also be blended into PPPs to provide support to capital investment.

There is also the potential to leverage wider infrastructure investment. SSEN Transmission’s commitment of over £200m to Highland roads and bridges demonstrates how major private infrastructure developers can contribute meaningfully to transport resilience as a condition of their wider operations (SSE, 2026).

Finally, there are a typical spread of debt financing models which could be used, such as the use of green bonds or sustainability linked loans. There also more innovative investment approaches such as Collective Investment Vehicles (CIVs), which enable diversification of risk and attract private capital for adaptation investments. One prominent example is the Urban Resilience Fund. Managed by Meridiam and supported by the Rockefeller Foundation, this is a €500m investment fund, split between Africa and OECD countries, and includes a €20m catalytic capital fund for project preparation. Other examples are given in Table 21.

Table 21: Examples of innovative models for private participation in Transport, with cost recovery model. Source: Authors, updated from Watkiss and England, 2025.

Water

Key climate risks and adaptation opportunities

Scotland’s water supply systems face increasing climate-driven pressures. Rising temperatures, shifting rainfall patterns and growing demand are placing new stresses on water resources (Sniffer, 2021). Projections indicate that under +2°C and +4°C scenarios, several regions could experience supply-demand deficits by mid-century (Scottish Water, 2024). Reservoirs in Scotland are increasingly vulnerable to extreme rainfall, high inflows and warmer temperatures, which can erode embankment integrity and reduce water quality. While current adaptation measures keep public water supply risk in the low category, more than half of Scotland’s population could be at risk of water scarcity by 2050 during very dry periods (Scottish Government, 2023c). River flooding currently affects 279 Scottish Water assets during frequent storm conditions, with a further 11 Scottish Water assets projected to face increased fluvial exposure beyond 2050. Surface water flood risk is also set to grow, with 8 Scottish Water assets at increased risk by 2050, rising to 171 by 2080 (Scottish Water, 2024).

The wastewater system faces similar pressures, with more intense rainfall driving sewer overflows, inundating treatment works and raising pollution risk (Sniffer, 2021). River flooding already affects 720 of Scottish Water’s wastewater assets during frequent storm conditions, with a further 194 projected to face increased fluvial exposure beyond 2050 (Scottish Water, 2024). Surface water flood risk is set to escalate further, from 65 wastewater assets at increased risk by 2050 to 463 by 2080 (Scottish Water, 2024).

Reducing these risks requires maintaining and strengthening Scotland’s proactive approach to water management through long-term, evidence-based investment. Future resilience will depend on integrating climate projections into reservoir inspection regimes, infrastructure planning and risk assessments, ensuring systems are designed for higher peak flows and more volatile conditions. Demand-side measures, including leakage control, metering and behavioural change, will be increasingly critical, as CCRA3 shows that only scenarios incorporating additional adaptation result in sustained supply-demand surpluses. For wastewater, targeted investment in flood-exposed sites, expansion of green-blue infrastructure, and upgrades integrating SUDs and nature-based solutions will be essential. A more systematic approach aligning water resource planning with climate risk modelling, alongside strategic catchment-wide thinking, will be critical to ensuring Scotland’s water systems remain robust and secure as climate pressures intensify (Sniffer, 2021).

Private water supplies (Lawson and Davies, 2025) serve approximately 3.5% of Scotland’s population, mostly in more remote rural areas. Risk to private supplies is less well understood, but they are likely to be particularly vulnerable to water scarcity events (DWQR, 2024). Requirements and effective measures to support climate resilient private water supplies are far less understood than public water systems, even though private water supplies are more vulnerable. At a supply-level, private water supply owners are responsible for investment to upgrade the system – and they are responsible for reporting issues such as water availability to their local authority. Private water supply owners may be eligible for a Scottish Government grant of up to £800 to improve their existing private water supply (mygov.scot, 2025), though this initiative is not focused on climate resilience. For example, a switch from surface to bore supply is considered to offer climate resilience (Rivington et al., 2020).

Climate adaptation in the water sector can also overlap with initiatives in the natural environment, particularly nature-based solutions aiming to slow run-off and increase water quality like the Loch Katrine programme (see case study 6).

Case Study 6: Loch Katrine Catchment Management, Scottish Water

Loch Katrine, located within the Loch Lomond and Trossachs National Park, is the primary source of drinking water for Glasgow. Climate modelling of key water quality parameters, under 2050 and 2080 scenarios, projects a deterioration in raw water quality beyond the treatment capacity of existing works, driven by the warmer, drier summers and more intense rainfall events associated with climate change. Without intervention, this trajectory would necessitate significant capital upgrades to Glasgow’s water treatment infrastructure.

Scottish Water, in partnership with long-term tenant Forestry and Land Scotland (FLS), has developed a 10-year Land Management Plan (LMP) for the 9,500-hectare Loch Katrine catchment, approved by Scottish Forestry in 2024 (Forestry and Land Scotland, 2023). Scottish Water will invest £11m across multiple investment periods in two core programmes: (1) 4,600 hectares of native woodland creation, largely through rewilding and natural regeneration, expanding woodland from the loch shores into higher elevations; (2) up to 2,000 hectares of peatland restoration and management – through rewetting, reprofiling, and encouraging sphagnum moss to restore the peatland’s capacity to retain water and slow surface runoff.

Peatland restoration receives co-funding through Peatland ACTION, the Scottish Government’s national programme backed by a £250m commitment to restore 250,000 hectares of peatland by 2030.

Image: Loch Katrine. Taken from Scottish Water: Loch Katrine Woodland Creation and Peatland Restoration – Scottish Water.

By stabilising soils and locking carbon into the landscape rather than allowing it to run off into the water environment, the catchment management measures aim to halt the modelled deterioration in raw water quality. Healthy woodland and functioning peatland slow surface runoff, reduce the volume of organic matter reaching the loch, and improve the resilience of the catchment to both drought and extreme rainfall. In doing so, the LMP is expected to offset the need for significant capital investment in treatment process upgrades that would otherwise be required, making it a proactive, nature-based alternative to reactive infrastructure expenditure. Beyond the water quality rationale, the LMP is projected to deliver over 700,000 tonnes of CO₂e sequestered over 60 years and a 40% improvement in biodiversity across the site (Scottish Water, 2026d).

Loch Katrine illustrates how proactive catchment management can function as a cost-effective climate adaptation strategy, deferring capital infrastructure costs while delivering carbon, biodiversity, and water quality co-benefits.

Current spending and context

We do not have specific information on Scottish Water’s current climate adaptation investment. However, several ongoing programmes demonstrate adaptation relevant investment. For example, Scottish Water is developing a major demand reduction programme in response to projected summer water shortages, including an estimated 260Ml/d deficit by 2050 under a 1-in-150-year drought scenario. A £1.8m domestic smart monitoring trial launched in Dundee in 2025 (2,300 monitors) is testing whether providing households with real time usage data can reduce consumption, with results expected in 2028 (Scottish Water, 2026b). This builds on a successful pilot with 3,000 business users in Inverness and Orkney and underpins a planned £60m national rollout of smart meters for 130,000 business customers (Scottish Water, 2026a). The rollout aims to achieve an 80Ml/d reduction by 2039 through reduced customer side leakage, improved network leakage detection, and behaviour change. These initiatives help reduce pressure on water resources during hotter, drier summers and strengthen overall system resilience.

Adaptation investment need

Investment need estimates were drawn from Scottish Water’s Strategic Review (SR)27 of Charges Business Plan (2027/28–2032/33) and associated technical appendix, combined with their longer-term indicative adaptation investment estimate of £2 – 5bn to 2050 (Scottish Water, 2026a; Scottish Water, 2026c). The portion of the longer-term estimate falling within the 2033–2040 research window was incorporated alongside the SR27 allocation. Note that 2026/27 is not included as these data were not available. Full details of these underlying methods, assumptions, and calculations can be found in Appendix C.

Total climate change adaptation investment requirements for Scottish Water over 2027– 2040 are estimated at between £82.1m – £189.7m per year, equivalent to £1,067.3m –£2,465.9m in 2026/27 prices (Table 22). We do not include 2026/27 as this information is not available. For SR27 (2027/28 – 2032/33), the lower estimate is £357.9m and upper estimate is £471.3m. This SR27 investment spans operational resilience (including standby generators at 52 sites to guard against storm-related power outages); asset resilience measures to address drought pressure on water supply and sewer flood risk from increasingly extreme rainfall; and catchment-scale transformation through pioneer catchment pilots and drainage partnerships. The upper estimate for SR27 also includes retained risks such as water quality and the water environment (Scottish Water, 2026a). Scottish Water has developed a long-term indicative adaptation investment estimate of £2 – 5bn to 2050. Deducting the SR27 allocation, the remaining estimate of required investment is distributed equally across annual periods from 2033/34 to 2049/50, with the portion falling within the research window (2033/34–2039/40) incorporated here.

The widening range between lower and upper adaptation estimates in later periods reflects the inherent uncertainty in projecting long-term adaptation investment need as climate risks intensify. It should also be noted that there is potential for some double counting with peatland-related climate adaptation grants for Scottish Water catchments possibly also included elsewhere in this analysis.

Table 22: Climate change adaptation investment need estimate for Scottish Water 2027– 2040 using the information from the draft SR27 business plan (including the technical annex on adaptation). All figures uplifted to 2026/27 prices (assuming 2% nominal growth per annum) from 2024/25 base prices provided by Scottish Water.

Macroeconomic effects and wider impacts

Macro-economic stimulus

For macroeconomic modelling, we assumed there is £1bn adaptation investment between 2026 and 2040, approximately £67m/yr. The spending flows primarily to construction for infrastructure upgrades, with additional demand for engineering services, fabricated materials manufacturing and equipment suppliers. Note, this modelling was developed by Centre for Energy Policy at the University of Strathclyde, Scottish Water have not provided these figures.

Without cost recovery (a modelling device to isolate the spending effect): By 2040, construction gains £36m in output and 536 jobs, while architectural services add £1.8m and 27 jobs. Fabricated metals, manufacturing and wholesale/retail (vehicles) see modest supply-chain gains. The water/sewerage sector itself records a small direct gain of £1.1m and 5 jobs, and “all other services” benefits from household income spillovers, adding £10.5m and 140 jobs. The overall effect is a modest but broadly positive stimulus centred on construction and engineering supply chains.

With “industry pays” cost recovery (a stylised scenario): When Scottish Water recovers costs through higher water charges, the water/sewerage sector experiences the largest proportional loss across all scenarios examined. It shifts from a gain of £1.1m and 5 jobs to a loss of £37.5m and 156 jobs. Construction retains a reduced gain of £22m and 332 jobs because it remains central to delivering the infrastructure works, but most other sectors flip to negative impacts. “All other services” loses £24m and 345 jobs, while retail (excluding vehicles), financial services, education, manufacturing and electricity all record output and employment losses. In the CGE model, higher water charges raise business costs economy-wide, reducing competitiveness, while also acting as a regressive consumption tax on households since water is an essential service that low-income households cannot avoid.

Policy implications: An “industry pays” approach via water charges concentrates severe impacts on the water/sewerage sector itself and raises costs across all businesses and households, with regressive effects. Alternative or blended funding approaches merit serious consideration to avoid undermining both the sector and the broader economy, while recognising that these results exclude the substantial avoided benefits in terms of water security, public health and climate resilience.

Wider impacts

The economic case for adaptation investment in the water sector is strong. Evidence reviewed as part of the third UK Climate Change Risk Assessment (CCRA3) finds high benefit-to-cost ratios (BCRs) across a range of water sector measures (Watkiss, 2022). Water efficiency measures deliver the highest returns, with an average BCR of just over 10:1. So every £1 invested in water efficiency measures returns over £10 in net economic benefits. Upland peatland restoration shows similarly high but more variable returns, reflecting the site-specific nature of these investments. This is directly relevant to catchment management approaches such as the Loch Katrine Land Management Plan outlined in Case Study 6. Furthermore, flood preparedness and protection average a BCR of around 5:1, while making new infrastructure resilient averages 4:1 (Watkiss, 2022). Beyond these direct economic returns, adaptation investments frequently generate important co benefits. As well as reducing potential losses from climate change, they often deliver direct economic gains and social or environmental benefits. It is important to note that these BCRs are indicative. Actual returns are highly site and context specific, and uncertainty around the future scale of climate change means quantification of benefits remains challenging.

Current governance, funding and financing arrangements

Water provision in Scotland is in public ownership, Scottish Water is a public corporation providing potable water to 97% of households and businesses in Scotland and wastewater services to 93% (Scottish Government, 2026e). The Scottish Water business plan indicates that around 90% of all the cost of providing water and wastewater services is met by customer charges, with the remainder (£170m a year) met by Scottish Government (Scottish Water, 2025a).

Scottish Water’s regulated business supplies water and wastewater services to households and is also the wholesaler to the water retail market for businesses in Scotland. For the financial year 2024/25, around 73% of the total income was from households, with the remainder from wholesale businesses (Scottish Water, 2025b). See Table 23 for recent regulated business revenue.

Table 23: Scottish Water regulated business revenue. Decreases shown in brackets. Source: Scottish Water (2025b)

Beyond its core regulated business, Business Stream, Scottish Water’s retail subsidiary, competes as a licensed provider in both the Scottish and English markets, holding around a 20% share of the English market. It operates under a Governance Code agreed with the Water Industry Commission for Scotland and has its own independent board and management team. Non-regulated commercial activities, including renewable energy and innovative water technologies, are undertaken separately through Scottish Water Horizons (Scottish Water, 2025b).

The organisation has previously used Private Finance Initiative (PFI) models to finance infrastructure investment. However, these have run their course and over the next SR period, all but one of the PFI contracts will return to public ownership. The intention in the business plan is to keep all lending the same, and for additional investments in the network to be covered by user charges.

For the purposes of this study, we assume that the majority of the costs of adaptation are paid through Scottish Households and businesses, since the relative surplus from the other activities are relatively low (Business stream group had an £18m surplus before tax). The arrangements are set out Figure 12.

Going forward, Scottish Water expects the nominal borrowing from Scottish Government to stay the same, and the increased expenditure to be funded through households and businesses. The current business plan projects the proportion of expenditure to rise from 90% to 94% (Scottish Water, 2026c).

Figure 12: Financing, funding, and delivery arrangements for water and wastewater adaptation investment in Scotland.

Innovation that could boost private sector participation

In the water sector, options to boost private sector participation are more constrained given that Scottish Water operates as a publicly owned utility and the majority of investment is already funded through consumer bills.

There are also a spectrum of options relating to private financing (Table 24). The first is a basket of financing arrangements (Sustainability linked finance, Collective Investment Vehicles) that can be used but require long-term commitments to repayment or creation of revenue streams. However, in reality, their potential is likely to be limited since borrowing terms from Scottish Government are likely to be highly attractive, and future investment may also be linked to the plans for a new Scottish government bond. Full privatisation, while theoretically a financing option, is not considered a realistic or desirable pathway in the Scottish context.

There are also models which support private financing of specific assets, such as Public private partnerships (PPPs). However, while PPPs have previously been used to finance investment in Scottish Water infrastructure, the current direction of travel, bringing such infrastructure into public use, suggests limited appetite in practice.

Finally, there are alternatives which enhance contributions from businesses and consumers due to water-related benefits. In relation to billing, there are also alternative options for enhancing cost recovery through water tariffs. Many households in Scotland do not have water meters and are charged for installation, so such a programme could incentivise use and more accurately reflect usage. There is also the potential to enhance contributions from large businesses and landowners. For example, in Scotland, Diageo are already investing in upstream peatland restoration for flood management at their distillery. These may be able to be extended to cover akin to water funds which co-invest to improve efficiency and costs. It also noted that the hydrogen and digital sectors are also likely to increase water demand, and so may offer further potential. Developing clearer frameworks for how such investments are valued and attributed across multiple beneficiaries would help unlock this potential at greater scale.

Table 24: Examples of innovative models for private participation in water with cost recovery model. Source: authors, updated from Watkiss and England (2025).