Catastrophic events across Canada this year including floods, hailstorms and wildfires have cost lives and imposed massive economic costs, with insured losses alone reaching over $8 billion.
Yet, despite the real and escalating costs of extreme weather events, government spending on climate adaptation at all levels continues to lag far behind what is needed.
Given the limits of public finances and the rapid escalation of climate change threats, one of the most cost-effective and impactful strategies for adaptation is the preservation and enhancement of natural assets such as wetlands, forests and grasslands.
As discussed at COP16, natural assets are not just beautiful, nice-to-have landscapes; they represent a form of infrastructure which provides essential and valuable services within our ecosystem. This includes absorbing and storing water to limit floods and droughts, sheltering communities from heat waves, and storing carbon which helps to slow the pace of climate change.
The Institute for Sustainable Finance estimated that Canada’s wetlands alone provide services valued at around $225 billion annually – roughly 8 per cent of Canadian GDP. Yet, accounting for these types of services is conspicuously inadequate in Canadian financial reporting.
The reason for that is quite simple.
Today’s accounting frameworks manage and assess “value.” However, the value of “natural resources and Crown lands” that have not been purchased are explicitly excluded from Canadian public sector financial statements, including the statements of all levels of government and Crown corporations.
“Accountants will save the world”
While often perceived as a dull and tedious process, accounting has played a fundamental role in advancing our societies. For example, the double-entry bookkeeping system, developed in 15th-century Italy, was vital for the rise of the 17th-century Dutch commercial empire – the Dutch Golden Age – including the creation of the world’s first stock exchange in Amsterdam in 1602.
In 2013, Peter Bakker, CEO of the World Business Council for Sustainable Development, coined the phrase “accountants will save the world.” What he was trying to underscore was that by incorporating costs such as nature degradation and carbon emissions into financial valuations, we can make better economic decisions and incentivize financial flows to help address climate change and the loss of nature.
Today, a path has been cleared towards rectifying the nature-related accounting gap globally. In October 2024, the International Public Sector Accounting Standards Board produced a draft international standard on “tangible natural resources.”
The proposed new standard establishes criteria for recognizing tangible natural resource assets in financial statements, along with related disclosure requirements.
These measures would propel public accounting beyond current practices which essentially only account for natural resource commodities traded as goods in markets.
In Canada, where over 80 per cent of land is publicly owned, the Public Sector Accounting Board’s strategy is to base its approach on international standards. This paves the way for similar new standards in Canada.
Natural data already being collected
Ahead of these formal standards, Statistics Canada’s census of environment team is compiling our national natural capital accounts, with data already available for urban greenness and salt marsh habitats. There is already a “national standard of Canada” for compiling inventories of natural assets, and leading cities like Calgary and Mississauga include unaudited natural asset disclosures in their financial reports.
However, fewer than five per cent of Canadian municipalities are currently working to identify, assess, value and manage their natural assets. A standardized framework is essential to help encourage the practice and ensure consistency and comparability.
A handful of institutions, such as the Caisse de dépôt et placement du Québec and Desjardins, are working to recognize nature-related risks and dependencies. Yet, they are the exceptions.
Among Canadian financial institutions and corporations overall, nature is still a long way from showing up in financial reports. Only ten of over 400 companies which have adopted the recommendations of the taskforce on nature-related financial disclosures are based in Canada.
The good news is that, once finalized and published, the International Public Sector Accounting Standards Board’s new standard will present a way that measuring the value of nature can be integral in public bookkeeping.
Accounting for the value of natural assets will lead to better protection and restoration of nature overall, which is good news for everyone’s wellbeing.
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