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Isabel Gordon is director of financial services for the District of West Vancouver. She was previously director of finance for the City of North Vancouver for 25 years. She spoke with MNAI about the municipal accounting profession’s evolving understanding of natural assets.
MNAI: How has the way you perceive natural assets evolved over the course of your career as an accountant and CFO?
Like many accountants, I didn’t start out thinking much about natural assets. On the face of it, forests and streams are fundamentally different from the way accountants think about assets.
However, a few years ago, I was approached by the David Suzuki Foundation to become a natural capital ambassador. I was skeptical, but once I started looking at the data, I realized that there was a strong case to be made for the importance of nature as an asset.
Then, Emanuel Machado and the Town of Gibsons started doing the work of inventorying, valuing and managing natural assets at a local government level. This created more evidence, and a practical direction for other municipalities to go. Their work was followed by the Municipal Natural Assets Initiative, in which the District of West Vancouver participated.
Now, I am starting to see very clear evidence that natural assets provide communities with vital services that have real value.
MNAI: What are the risks and opportunities to local governments in inventorying, valuing and managing nature as an asset?
The main risks to local governments are in not inventorying, valuing and managing nature as an asset.
First, if local governments have not inventoried or valued their natural areas, they simply have no sense of the extent to which they rely on them, or the extent of their exposure if the assets were to fail.
Second, the reality is that if you do not value the services from natural assets then you don’t protect them. In many urban areas there is pressure to develop, and this often means destroying natural assets unless we understand their value. And once nature is gone, it can be hard to get back.
Third are opportunity costs. If local governments do not manage nature assets to provide a stream of cost-effective and reliable services then they may be missing opportunities to save capital and operating costs — money that could be used on other priorities.
To state this in the positive, measuring and managing natural assets can be a way to deliver core services to taxpayers less expensively than through engineered means, and through an asset that will appreciate over time.
MNAI: What challenges do you foresee with municipal natural asset management?
The accounting profession is in the early days of coming to grips with natural assets and questions arise the second we start looking at them.
A key issue is control. Accountants think of assets as resources that are controlled by [the] entity whose accounting you’re doing. This is challenging at a local government level, because in many cases, a stream, river or forest is not wholly controlled by them and may be influenced by multiple other stakeholders, including private landowners, the province and other local governments.
Another issue is valuation. Some of the numbers that get used to value ecosystem services are not accounting numbers as they are not based on fair market value or a transaction.
Ultimately, the accounting profession will need to reconsider what an asset actually is for natural assets to be included fully in the accounting framework. Until this happens, complications will inevitably arise.
However, as we are already seeing in Gibsons, the District of West Vancouver and elsewhere this is by no means an argument for doing nothing; quite the contrary.
MNAI: What do you see as the path forward on accounting for municipal natural assets?
Fundamental shifts need to happen in the accounting sector for natural assets to be fully integrated into our frameworks. None of us can, or should, wait for this shift to happen of its own accord, however.
These shifts will happen precisely because local governments are starting to inventory, value and manage their natural assets. Their work is deepening our understanding and evidence base by the day and will drive larger change.
MNAI: What is your advice for other local governments?
Local governments should consider natural assets first when it comes to delivering services to citizens. Engineered assets are very expensive to maintain. By contrast, there are tremendous advantages when we simply get out of nature’s way or manage and protect it. Practically, this means I would encourage other local governments to start identifying, inventorying, valuing and managing their natural assets.
Once they get information on their natural assets, it becomes very hard to ignore.