Would estimating the value of our forests or our rivers in the same way as other financial assets make it possible to better fight against climate change? Joanna Eyquem, Director of Climate Change Adaptation Programs at the University of Waterloo, answers us.
What are natural assets and why include them in the financial statements of cities and the public sector?
Natural assets are rivers, wetlands, forests, lakes, dunes or fields. In fact, all kinds of habitats that provide us with essential ecosystem services. We purposely use the term “active” because it is also used for the building. We talk about “built assets” or even “grey infrastructure”. If we treated our natural assets as we take care of our gray assets, we could preserve and maintain the services that natural assets provide to our fellow citizens.
For example, by retaining water naturally, a wetland protects inhabitants against flooding. This service has a value that can be calculated using different methods. What gray infrastructure would have been needed to fulfill the same function as the wetland? And if there were no wetlands or infrastructure to protect people, what would have been the costs of flood damage? We often have economic arguments for doing development, but if we have nothing in the municipalities’ financial statements on natural assets and they are not taken into consideration, we make decisions that are not economically viable.
Why are natural assets not accounted for in financial statements?
Because the accounting rules prohibit doing so. The good news is that just over 90 municipalities in Canada as well as the governments of some countries are drawing up inventories of natural assets and beginning to assess them. In fact, registering nature as a financial value is not an end in itself. What we want is for these accounting rules to be standardized because we believe this is one of the keys to dealing with climate change. If local governments value their natural assets, the value of these will increase. Conversely, if these assets are not protected and deteriorate, it decreases. Estimating their value is therefore also a way of facilitating investment. Banks and private financial institutions are now ready to invest in natural capital.
Isn’t it problematic that private companies such as banks, some of which are known to finance fossil industries, invest in natural assets?
In the current context of a double crisis — that of climate change and that of biodiversity loss — the United Nations is urging the G20 countries (including Canada) to triple their investments in natural solutions by 2030. We need the private sector to engage more and more in “positive nature actions”, as we say in English. Many industry players wonder what indicators we can use to measure this type of action.
What we see is that we need more investment in nature and in natural infrastructure, in the same way that we are already investing in gray infrastructure, for example in energy efficient buildings . It’s like investing in our schools. These are assets that have value if we take care of them, not if we let them degrade. This does not mean, however, that private investors will buy our schools.
A first version of this text was published on Unpointfive.ca on November 7, 2022.
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