Opening the public sector accounting door for natural assets
Along with 33 other organizations, MNAI made a submission to a consultation process that could open the door for natural assets to be properly considered in public sector accounting.
Why does this matter? The Public Sector Accounting Handbook underpins all accounting by Canada’s public sector. Currently, the handbook does not allow natural resources to be counted as “real” assets. It states that “the costs, benefits and economic value of such items cannot be reasonably and verifiably quantified using existing methods.” The handbook suggests that natural assets do not have an inherent value and make no economic contribution. The evidence tells a very different story.
Along with our partners, we look forward to working with the Public Sector Accounting Board to change this situation. Read our submission here. Let us know if you have any questions. Together, we can make nature count.
Municipal Natural Asset Management 101
A growing number of communities are considering undertaking municipal natural asset management. It may look daunting at first, but it really isn’t much different than the standard asset management processes for which all local governments in Canada are responsible. This primer, developed to support the Federation of Canadian Municipalities, is a great place to start to learn basic steps that local governments can take. Let us know if you have questions.
2018 REFBC Land Awards – Municipal Natural Assets Initiative
Winner in the Land Use and Conservation category for 2018!
Smart Prosperity Institute, Brooke and Associates, David Suzuki Foundation, and the Town of Gibsons
Natural features and ecosystems (like marshes, forests, and shorelines) can deliver services (like stormwater absorption, water filtration, erosion control) to communities.
The Municipal Natural Assets Initiative helps communities to “count” these natural assets and assign a value that’s equivalent to the service a human-built asset would provide. By counting nature as an asset, municipalities can make a strong financial case for protection and conservation, while relying less on engineered assets.
And then there were 11
The next five community projects testing natural asset management across Canada are underway. The communities are: City of Courtenay and the District of Sparwood in British Columbia; the Western Regional Service Commission and Southeast Regional Service Commission in New Brunswick; and the City of Oshawa in Ontario.
In B.C., the city of Courtenay experienced flooding in the Lewis Park Commercial Area in 2009, 2010 and 2014. The frequency of flooding has been far greater than the provincial standard of 1:200 years and is expected to worsen with climate change.
The city will consider current and future roles of natural assets in the Courtenay River corridor in mitigating flood risks in the downtown core, including the costs and benefits of engineered alternatives. Courtenay practices advanced asset management principles and is already recognised as a leader in the field. The city’s 2017 budget included funds for flood mitigation planning, which will become part of an Integrated Stormwater Master Plan.
The District of Sparwood, located on B.C.’s Elk River, is home to 3,784 residents and relies on recreation, tourism and fisheries. The Official Community Plan emphasizes protecting, enhancing and using natural assets. The district wants to improve water quality in the Elk River by identifying natural assets (wetland, forest, riparian areas, etc.) that provide filtering and storage services, and managing these at an optimal level. Some areas of the river are regularly affected by large stormwater flows dumping sediment and other urban runoff into the river. The project will identify natural assets that can provide stormwater pre-treatment to help control erosion and the discharge of sediment and other effluents. It hopes to improve water quality and recreational fisheries.
In New Brunswick, the Southeast Regional Service Commission region is undertaking projects in Riverview and Riverside-Albert. The Village of Riverside-Albert (population ~350) is located approximately 60 km from the City of Moncton at the upper reaches of the Bay of Fundy. Water quality and supply in the village limits future economic development and growth and there are financial constraints to addressing this issue. The monitoring, management, and rehabilitation of natural assets that provide drinking water may allow the village to address water supply and quality at lower cost than engineered alternatives.
This project will determine the water supply value of the watershed providing the drinking water and develop natural asset–related strategies and actions that the village can take to improve water quality and supply at a reasonable cost. A particular focus will be on whether bogs and wetlands in the area can be restored to meet the village’s water quality and supply needs. This could support economic development in very practical ways.
The Western Valley Regional Service Commission region in New Brunswick has long experienced annual flooding, which under climate change has become an increasing hazard. The communities along the St. John watershed have experienced severe flooding, erosion, infrastructure damage and property loss. The project focuses on the Town of Florenceville-Bristol, a community of 1,604 people located mostly along the banks of the St. John River. The goal is to minimize erosion and reduce maintenance of culverts and roadside ditches in the Bristol Heights subdivision catchment areas. They will be considering natural assets that provide erosion control benefits including the forested and vegetated cover behind the subdivision.
In Ontario, the City of Oshawa is committed to developing an asset management policy that includes natural assets. Oshawa’s Strategic Plan identifies the need to manage and fund present and future assets, including parks and open spaces, to ensure safe and reliable infrastructure. The city wants to Increase the quality and resilience of the riparian area and stream banks along the Oshawa Creek south of Oshawa’s downtown core to minimise erosion from more frequent storm events. The project will incorporate naturalizing the areas along the creek, which is located within the subwatershed of the Oshawa Creek Watershed. The creek is affected by new developments north of the downtown core and is a prime conveyance of stormwater to Lake Ontario.
We’ll update you on progress as these projects continue.
City of Courtenay, British Columbia
District of Sparwood, British Columbia
City of Oshawa, Ontario
Western Regional Service Commission, New Brunswick
Southeast Regional Service Commission, New Brunswick: Riverview, Riverside-Albert
Opening for natural assets in Canada’s accounting books
The Public Sector Accounting (PSA) Handbook underpins all accounting by Canada’s public sector. The handbook does not allow inherited natural resources to be counted as “real” assets, arguing that “the costs, benefits and economic value of such items cannot be reasonably and verifiably quantified using existing methods.”
We respectfully disagree. The handbook suggests that natural assets have no inherent value and do not make an economic contribution. Natural capital valuations and the growing experience of municipalities testing the value of their natural assets say otherwise. The handbook sends the wrong message and gives local governments limited incentive and no direction, from an accounting perspective, to inventory or value their natural areas.
Local governments are already creatively working around the handbook’s wording and interest is mounting for changes. The Public Sector Accounting Board is now consulting on two documents that could open the door for natural assets to be properly considered in public sector accounting.
This marks a real opportunity for change. MNAI is working with partners to provide input into the PSAB consultations by the November 28 deadline. Contact us if you want to be involved. General information on the consultations can be found here.
Interview with Isabel Gordon, director of financial services, District of West Vancouver
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.
Opportunity for a municipal natural assets project in a BC watershed: extended
In municipalities across Canada, infrastructure is aging, capital and operating costs are rising, and service delivery is strained by growing populations and shifting conditions. Solutions may be around us: there is growing evidence that natural assets provide, or could be restored to provide, services just like engineered assets, and often at lower costs.
However, most local governments lack policies and methods to measure the services provided by natural assets or the risks to services if the natural assets become degraded.
The Municipal Natural Assets Initiative (MNAI) offers a methodology and support for local governments to integrate natural assets into core asset management and financial processes using the same systems as for engineered assets.
MNAI is now offering a watershed-level program in B.C. focussed on the needs and capacities of smaller / rural local governments in a single geographic region.
We have extended the period for local governments to submit applications until after the BC municipal elections and will keep it open until a suitable candidate is identified.
More information and Request for Expressions of Interest.
Click here to learn more about the Municipal Natural Assets Initiative.
Please contact [email protected] for additional information and questions.
Lowering development cost charges through eco asset approach
By: Michelle Molnar
British Columbia’s coastal Town of Gibsons has demonstrated—again—that effectively managing municipal natural assets can pay huge dividends. The town was able to decrease the fees charged to developers to cover costs of municipal infrastructure to support their projects (development cost charges, or DCCs) because the natural assets that provide stormwater services to Upper Gibsons do so at lower costs than engineered alternatives. As a result, the DCCs for drainage services will be reduced 74 per cent with the updated DCC bylaw before council in September for a final vote.
Emanuel Machado, a member of MNAI’s board and the chief administrative officer for Gibsons, credits the strategy of managing municipal natural assets for reducing infrastructure costs for services such as storm water management. The streams and ponds in the town’s White Tower Park provide a natural catchment for storm water. By focusing on and expanding the park services, the town was able to avoid expensive engineered solutions.
While Gibsons has been a leader in testing this approach, it’s also being tried in communities across Canada. Five pilot communities used MNAI-developed methodology to assess the value of stormwater services provided by a local natural asset and how that value changed under various scenarios. All pilots demonstrated the significant value of natural assets and their services as well as the financial risk facing municipalities if those services are not identified and managed. In the face of changing climate and increasing development pressures, the value of natural assets increased further because of their resiliency to changing conditions, a condition less present in built infrastructure.
Cost savings are motivating factors for Canadian municipalities facing an estimated $123 billion infrastructure gap. The funding mechanism and savings are an appealing new way for municipalities to maintain and enhance their natural assets.
Results from the First National Cohort: Decision-Maker Summary
By Sara Jane O’Neill
Local governments across Canada are focusing on sustainable service delivery – delivering core municipal services in a socially, economically and environmentally responsible manner. Natural assets, such as wetlands, forests, and creeks, provide many of the same services to communities as engineered assets but are generally not accounted for and/or are undervalued in asset management practices. Any municipal asset management plan that does not include natural assets omits potentially significant dimensions of a community’s financial risk.
The Municipal Natural Assets Initiative (MNAI), convened in 2016, has developed a methodology and guidance documents to help local governments identify, value and manage natural assets within traditional financial and asset management planning frameworks. To test and refine the municipal natural asset management approach and methodology, five pilot communities were selected following a national request for proposals and interview process: The City of Nanaimo, BC, Town of Grand Forks, BC, District of West Vancouver, BC, Town of Oakville, ON, and the Region of Peel, ON.
While the results from each project are unique, they all assessed the value of stormwater services provided by a natural asset under various scenarios. Consequently, some common key messages have emerged:
Natural assets can provide equivalent stormwater management services
Overall, results show that natural assets can provide the same level of stormwater management services as their engineered counterparts. All communities found that their natural asset of interest was meeting at least the 100-year flood storage requirements under current standards. The Region of Peel also assessed water quality management services of their natural assets of interest and found that four of five ecosystem types exceeded provincial requirements for total suspended solid removal.
Under both climate change and intensified development scenarios, the value of natural assets increased
The City of Nanaimo, the Town of Grand Forks and the Region of Peel all assessed the value of their natural assets under climate change scenarios. All found that the value of their natural assets increased under climate change scenarios because they are more resilient and adaptable than other infrastructure solutions. The Town of Oakville assessed their natural asset under an intensified development scenario with the same result – the value of the natural asset increased because it can adapt to changing levels of development pressures.
All pilot communities found that the pilot results provide grounds for investigating the value of other natural assets
The work done by the communities in these pilot projects demonstrates the value and importance of natural assets for sustainable municipal service delivery, but there is more work to be done. Based on the initial findings, each community has expressed a stronger commitment to continue assessing the value and services provided by other natural assets.
To further refine the municipal natural asset management methodology, a second round of projects is already underway with the City of Courtenay, BC, the District of Sparwood, BC, the Town of Oshawa, ON, the Southeast Regional Service Commission, NB, and the Western Valley Regional Service Commission, NB. Two further initiatives, which include expanded materials on core infrastructure asset management and group training for lower capacity small/rural municipalities within one region or watershed are underway, one in British Columbia and one in the Greater Toronto area’s Greenbelt region. Finally, to continue to expand the municipal natural asset management methodology, the MNAI team is developing a methodology for assessing coastal specific services.
Want to learn more about municipal natural assets? The full results from each pilot project can be found here and the shareable Decision-Maker Summary can be found here.
Natural asset management is proving its value in the field
By: Michelle Molnar, Technical Director
While Canada focuses on efforts to reduce climate change, there’s growing recognition that we can’t meet our climate change goals without finding ways to adapt. A natural assets management approach has the advantage of addressing both mitigation and adaptation, taking us to the next level of policy solutions.
Natural assets tend to be more flexible, cost-effective and easier to adaptively manage than built infrastructure under intensifying climate conditions. They offer a wide variety of benefits, including health benefits to society and ecosystems.
Five Canadian communities are ahead of the curve in testing a natural asset management approach. The Municipal Natural Assets Initiative has come up with a way to identify, value and manage natural assets within financial and asset management planning and worked with these communities to test, refine and scale up the process. Gibsons, B.C., was the first community to incorporate natural assets into core municipal decision-making and laid the groundwork for these projects. The approach fills gaps for local governments that have left natural assets off the books.
British Columbia pilots included Nanaimo, Grand Forks and the District of West Vancouver. Ontario brought in the Region of Peel and the Town of Oakville. Models looked at stormwater management, and each community selected a natural asset with guidance from the MNAI team. All pilots found:
- Natural assets provided stormwater management services equivalent to engineered alternatives.
- The value of natural assets increased considerably due to their resiliency and adaptability under climate change and intensified development scenarios.
- The full value of the natural assets is likely much higher since economic valuations did not include lifetime operations and maintenance costs or the value of services beyond stormwater management.
The Nanaimo project focused on a reclaimed wetland and floodplain known as Buttertubs Marsh Conservation Area. The marsh was found to provide stormwater storage and flood-regulation benefits comparable to engineered infrastructure. The marsh’s storage benefit, valued at more than $4.5 million, increased to between about $6.5 and $8.2 million under climate change scenarios.
The City of Grand Forks, which made headlines recently for devastating floods, considered flood-mitigation and related benefits provided by the Kettle River floodplain. The floodplain was found to provide between $500 and $3,500 per hectare in reducing flood damage to the city’s downtown buildings during high river flow events. Findings will help guide a study to recognize the floodplain’s larger watershed role and will be incorporated into the updated Official Community Plan.
The District of West Vancouver focused on a covered creek proposed for daylighting (uncovering a buried stream). The district found the capital costs of restoring the creek are similar to the cost of upgrading the culvert to meet stormwater requirements. They are now able to identify candidate streams for daylighting.
The Region of Peel considered Fletcher’s Creek and East Credit River subwatersheds. Palustrine, isolated and riverine watersheds, as well as forests and green spaces, were the focus. A 100-year storm event and future climate change scenario were tested. The value of the stormwater services provided by natural assets in the subwatersheds was estimated at $704 million under current climate and $764 under future climate change conditions, indicating that natural assets have an essential role in the face of worsening climate change.
The Town of Oakville, which is losing green space to development, considered the Maplehurst remnant channel in relation to natural asset conversions. The town found it would require between $1.2 and $1.4 million to replace a 240-plus-metre channel with engineered infrastructure. Investigating remnant channels and including natural assets in policy has become a town focus.
Although each of the projects had unique constraints and it’s unclear how initial findings will translate into management changes, they demonstrate that the value of natural services can be equivalent to that of engineered alternatives, an important finding in the face of climate change and strained municipal budgets. Five new pilots will further guide municipalities seeking resiliency and adaptation solutions to climate change.