Nature in the balance: but still not on the balance sheet

WATERLOO, Ontario, Oct. 05, 2022 (GLOBE NEWSWIRE) -- New paper calling for recognition of the financial value provided by natural assets, co-authored by the University of Waterloo's Intact Centre on Climate Adaptation, KPMG and the Municipal Natural Assets Initiative, argues for a revamp of accounting rules to safeguard natural resilience.

The services that nature provides to Canadians are not routinely valued in investment decisions, asset management or financial reporting. As a result, economic decisions continue to lead to the degradation of natural assets, such as rivers, wetlands, and forests. To tackle the dual crises of climate change and biodiversity loss, the United Nations is urging G20 countries (like Canada) to triple their investment in nature-based solutions by 2030.

“Wetlands, forests, saltmarshes and grasslands aren’t only vital to biodiversity,” agrees Mike Pedersen, Chair of Business Development Bank of Canada (BDC), Corporate Director, and Chair, Nature Conservancy of Canada. “They are our front-line allies in reducing the impacts of flooding and erosion, extreme heat and drought, as well as removing carbon emissions to slow down climate change. The value of these services makes nature a sound economic driver - we need an accounting system that recognises this reality.”

COP27 is a key opportunity for Canada to scale-up commitment to working with nature to reduce climate risks. “This is an opportunity not to be missed,” stresses Joanna Eyquem, managing director of Climate Resilient Infrastructure at the University of Waterloo’s Intact Centre. “A National Adaptation Strategy that does not attach value to the critical services nature provides would be fundamentally flawed.”

The good news, as documented in the report, is that over 90 local governments across Canada are taking matters into their own hands. These communities are already identifying and valuing natural assets that provide services to their citizens, such as the role of wetlands soaking up stormwater and maintaining good water quality, and the role of trees offering shade to reduce urban heat and maintaining good air quality. The glitch is that due to Canada’s accounting rules, the values identified by economists cannot presently be reflected in financial reports. Both the Canadian Public Sector Accounting Board, and the International Public Sector Accounting Standards Board (IPSASB) have projects underway to look at ways to address this shortcoming.

“For accountants, leaving out natural assets means we are completely missing a large proportion of benefits, as well as potential liabilities,” highlights co-author, Bailey Church, lead for Public Sector Accounting Advisory at KPMG Canada. “It is effectively a huge, systematic oversight.”

The report points to three pathways that can be taken now to mainstream recognition of the role and financial value of services nature provides:

• Allow for the inclusion of natural assets in public sector financial statements, as currently being considered by the Canadian Public Sector Accounting Board who set standards for public sector accounting.
• Establish national guidelines and standards for identifying and valuing natural assets in Canada.
• Engage Canadian financial institutions and organizations in setting frameworks and metrics that account for the value of nature, guide private sector investments to protection and restoration opportunities, and enable the return on investment in nature to be measured.
  

Internationally, countries - including the United Kingdom, South Africa, and recently the United States - have taken steps to value nature in their national accounting systems. With motivated local governments and a wealth of natural assets, this report shows that Canada can still be an agenda setter, rather than an agenda taker, in this space.

“Canada’s local governments are showing how understanding the value of services from nature can steer action on-the-ground to manage natural assets effectively,” explained co-author Roy Brooke, Executive Director of Municipal Natural Assets Initiative. “Ultimately, it’s the action that counts, not just assigning a value.”

Currently, nature is effectively assigned a financial value of zero, with little incentive for effective management. This report argues that this must change if Canada is serious about investing in nature, the basis of our economy.

Contact details:
Ryon Jones
Media relations manager
University of Waterloo
226-339-0894 | @uwaterloonews| uwaterloo.ca/news

Joanna Eyquem
Managing Director, Climate Resilient Infrastructure, Intact Centre on Climate Adaptation
University of Waterloo
514-268-0873 | [email protected]

Bailey Church
National Leader, Public Sector Accounting Advisory
KPMG Canada
613-212-3698| [email protected]

Roy Brooke
Executive Director
Municipal Natural Assets Initiative
250-896-3023 | [email protected]