Beyond infrastructure such as roads and buildings, government accounting should also include natural assets, says the author of a new study from the University of Waterloo’s Intact Centre on Climate Adaptation.
“Things like our schools and our roads are managed rigorously and are reported on and valued financially, but we don’t do the same thing to our natural assets,” said Joanna Eyquem, author of the new guide and the centre’s managing director, climate-resilient infrastructure.
In the past, natural assets were not given the same standing asmanmade assets. The new guide looks to provide a roadmap to more inclusive accounting practices.
The goal is to help local governments assess the likes of wetlands, forests, rivers and natural ecosystems. Those natural features offer services such as storing water to protect from flooding or sheltering communities from extreme heat.
These services and natural assets do not get reported on financial statements, noted Eyquem.
“Basically, it’s a guide that helps people do the work to ensure we understand those services, manage them effectively and report on them publicly,” she explained of the new guide, adding that failing to account for those resources means that there’s no clear record when they disappear.
“It’s not transparent, and it doesn’t show up anywhere. And then, when we realize it, it’s too late.”
Say, for example, a flood occurred after the removal of a natural buffer such as a wetland that prevented flooding in the past. If there had been an accounting of that feature’s value beforehand, perhaps its role could have been recognized before rather than after the fact.
“By recognizing the role and financial value, we will be more careful and manage those more responsibly,” Eyquem suggested.
The guide was developed in partnership with and supported by the Standards Council of Canada, KPMG LLP and the Natural Assets Initiative, with input from more than 120 experts across the country, said Eyquem.
“Canada is leading in incorporating natural assets into financial management globally at the local government level, said Eyquem.”
Forty-one countries worldwide are doing national natural capital accounting at the federal level, but as you drill down lower, you will see that not many local governments are doing this work, she noted.
“This new guide was developed with and for local governments, with input from finance and accounting experts,” said report contributor Bailey Church, lead for Public Sector Accounting Advisory at KPMG LLP.
“It clearly explains a suite of metrics that can be used to report on the state of nature and the services it provides, from basic descriptive information to more sophisticated financial valuations. There is a place to start for every community,” she noted in a release.
The guide offers various metrics, including natural asset types and classes, such as the identification of ecosystems like forests, wetlands and coastal dunes on which the community depends for services.
“The aim of the guide is really to get people on the path and to demonstrate that it’s not just a larger government, that there’s a point of entry for everybody. And actually, this work isn’t that costly to get done,” said Eyquem.
Some local governments have already started working on the reporting of natural assets, and Eyquem also explained that conservation authorities have been very supportive.
Just now, Eyquem and her team are trying to get the International Public Sector Accounting Standards Board to change their standards to include these values in financial statements.
“Currently, we can only put the disclosures in the qualitative information. That’s like an auditor. But if PSAB were to adopt this international standard, we could put those values in the statement once it’s finalized,” said Eyquem.
