By David Jenkins
Infrastructure planners worldwide are increasingly looking to include natural assets and green infrastructure in new and more sustainable asset solutions, but this can pose complexities for the financial balance sheet.
Integrating a waterway, mangrove swamp, or forest into an infrastructure solution can help deliver sustainable municipal services over the long term and can result in lower capital, maintenance, and operating costs than an engineered solution.
Using a natural asset instead of a grey or engineered asset to provide services can save money, as many natural assets offer a range of ecosystem services, increase in value rather than depreciate, and are self-replacing rather than needing renewal.
As natural assets have become part of the asset management approach, efforts are being made to quantify these ‘assets’ financial costs and benefits and give them a value on the green infrastructure balance sheet.
But how can these assets be valued and budgeted for in the asset management plan of the local government authority responsible for and operating the asset? And can the reduced lifecycle cost difference between green and grey options be included in the financial ledger?
There are currently no international accounting standards for the valuation of natural assets, which presents a challenge that can also lead to their being overlooked or undervalued.
The reality is that if organisations are not required to value assets, then it is difficult to justify spending money on them in a world where budgets are always constrained.
Where there are lifecycle costs associated with natural asset operations, maintenance, and renewal, these are not routinely calculated and compared with the cost of looking after grey infrastructure.
However, in the absence of international standards, natural and green assets can still be managed similarly to physical infrastructure assets, with the cost of protecting and maintaining being treated as an investment rather than an expense.
As with any asset, recurring funding should be allocated at the right level to ensure green/natural assets are appropriately managed, including renewal or replacement.
There is an understanding that valuation is an important part of an integrated approach combining natural and hard-engineered assets, and some of this work is being done in Canada.
For example, the Canadian not-for-profit organisation Natural Assets Initiative (NAI) examined the City of Grand Forks’ response to extreme riverine flooding in 2017 and 2018.
It established that the nearby Kettle River floodplain reduced flood damage to urban buildings during high-flow events by between C$500 and C$3500 per hectare.
Having quantified this benefit, the City could justify spending C$51.6 million on floodplain management, including property buy-back and restoration.
In another case study, the Town of Riverview wanted to identify key natural areas within a watershed that, if retained, would minimise engineered stormwater management costs associated with a new, significant development.
NAI worked with the Town’s asset management professionals and showed that for a 1-in-100-year storm event, the wetlands provided a stormwater and flood mitigation value of roughly C$1.4 million per annum for current climate conditions. Factoring in future climate conditions increased this value to C$2.7 million per annum, an insight that has prompted the regional government and the Town to re-assess their area protection plans.
Another NAI study examined six projects and the cost of replacing services provided by natural assets with engineered infrastructure.
It was found that natural assets could play an important role in reducing capital costs and maintenance and delivering more than C$400 million in benefits for six communities totalling 200,000 residents.
The first step was to identify the services provided by natural assets and formally integrate these into the strategic level of local government assets management policy.
According to NAI, the benefits of using natural assets included reduced flood risk, better water quality, more recreational space, better health outcomes and even higher property prices.
The conclusion was that it was fiscally responsible to include natural assets within the scope of assessment management policy, even though, in many cases, the natural assets needed to be integrated with engineered solutions as part of hybrid but comprehensive strategies.
The Intact Centre on Climate Adaptation (ICCA) at Canada’s University of Waterloo undertook more work on the valuation issue.
Their report, Nature on the Balance Sheet, also identifies several projects in Canada that have quantified the benefits of natural assets.
In one example, a seven-kilometre riverbank in Ontario delivered a savings of C$18 million annually from stormwater conveyance and drainage to nearby communities, compared to the cost of replacing it with an engineered solution.
In another example, the City of Hamilton spent C$15 million to restore a wetland, compared with an estimate of C$28 million for an engineered solution.
The wetland was expected to reduce the water flow rate and provide recreation and other services valued at C$44 million.
The ICCA also worked with NAI and KPMG on a financial framework for assessing the natural asset approach.
The Nature on the Balance Sheet report argues that while replacement cost was frequently used to assess the value of natural assets, other metrics were worth considering.
A “stated preference” approach, for example, is a methodology that captures what local governments expect a community would be willing to pay for the continued health of a service, such as the cost of maintaining forest cover to promote air quality.
The report features an apt quote from Mike Pedersen, the chair of the Business Development Bank of Canada and the Chair of the Nature Conservancy of Canada.
He says natural assets are vital to diversity and are ” front-line allies” in reducing the impacts of flooding and erosion and removing carbon emissions to slow climate change.
“The value of these services makes nature a sound economic driver,” says Pedersen.
“We need an accounting system that recognises this reality.”
