A Canadian think tank has come up with a guide on how local governments can integrate natural assets into their financial reporting.
The new guide, titled Getting Nature into Financial Reporting, was authored by the University of Waterloo’s Intact Centre on Climate Adaptation and involved input from over 120 experts through the country.
Report author Joanna Eyquem said the guide “clearly explains a suite of metrics that can be used to report on the state of nature and its services, from basic descriptive information to more sophisticated financial valuations.”
“There is a place to start for every community,” she said.
Recommended metrics in the guide include:
- Natural asset types and classes: Identification of ecosystems, like forests, wetlands and coastal dunes, on which the community depends for services.
- Natural asset extent: Detailed location data, spatial extent, and ownership distinctions between government-held and external assets.
- Natural asset condition: Assessment of the ecosystem composition, structure and function.
- Ecosystem services: Metrics outlining services provided (e.g. water storage), benefits to the community, and associated dependencies.
- Financial valuation: Assignment of monetary value to services provided, as well as replacement costs.
Natural assets are increasingly recognised as infrastructure that provides financially valuable services to Canadian communities. These services include absorbing and storing water to limit floods, reducing temperature to shelter communities from heat waves, and storing carbon to slow climate change.
The absence of natural assets from financial reporting often results in undocumented loss and degradation of their critical services.
Natural assets remain excluded from financial statements in Canada, however the report says that nature can and should be integrated into other sections of financial reports that accompany the financial statements to avoid costly “surprises” down the road.
Some local Canadian local governments are making efforts in this area, with over 150 communities working to identify, assess, value and better manage their natural assets.
Major cities including Toronto and Montreal have already included information about natural assets in their financial reports.
These disclosures are highly variable due to a lack of Canadian standards – a gap the new guide aims to fill.
Canadian accountants actively contributed to the report through the Chartered Professional Accountants of Canada, and the report has attracted the attention of the insurance industry.
The report launch was covered in industry magazine Canadian Underwriter, which noted that the insurance industry responded to a record breaking C$8.5 billion worth of natural catastrophe damages in 2024.
Canadian Underwriter pointed to the example of re-insurance giant Swiss Re, which has created a new type of insurance to protect coral reefs in Mexico.
The Swiss Re product was created in collaboration with the Nature Conservancy and regional governments in Mexico to help protect the Mesoamerican coral reef off the coast of Mexico’s Yucatan Peninsula.
Research had shown that there was a connection between a healthy coral reef and the region’s ability to sustain itself economically.
If the reef were to die as a result of pollution and storm damage, it would no longer be able to prevent beach erosion, which in turn, would threaten the region’s key source of income, tourism.
In a world first, Swiss Re devised an insurance solution that would ensure rapid disbursement of funds to enable trained community members to deal with reef damage following a severe storm.
