As millions of Canadians are struggling financially through the rising interest rate environment and high inflation, which is also impacting their lifetime savings, many are seeking financial returns in new places. Certain sectors such as energy and consumer discretionary are beating the broader market, offering positive returns, but these sectors might only offer short-term respite in a volatile market as they are strongly contingent on the price of oil as well as levels of inflation, both of which can return to long-run averages fairly quickly. Another asset class is on the horizon that might provide Canadians with the long-term stability and attractive returns they are looking for.
Natural assets or natural capital are such an asset, and have been gaining interest in recent years as a way to assign a monetary value to our natural habitat. There are varying methodologies across the globe on how to assign this monetary value to our ecosystems, but they all involve measuring the services derived from accessing and utilizing green spaces, and to establish a replacement cost of the stock of natural assets within these environments. This can include establishing a value to the green spaces within cities as well as valuing the major ecosystems in our country including grasslands, wetlands, forests, waterways and oceans.
Experts suggest that we can expect the adoption of a natural asset framework within national accounting standards in the next two years. Canada is already a world leader in environmental, social and governance (ESG) investing and has the opportunity to become a leader in implementing national accounting standards that effectively measure the value of our natural assets.
Initiatives to measure the value of natural assets are being pursued by several agencies and municipalities throughout the country. For instance, the city of West Vancouver has created a comprehensive overview of the value of its natural assets in terms of the services they provide, which totals over $3.2 billion of forests, foreshores, waterways, and parks. Another report measured the net value of conserving natural capital in the Grand River watershed, which finds that each hectare of conserved land provides almost $200 worth of accrued benefits to easing erosion, pollution, flooding, carbon sequestration and recreational usage. Estimates like these pave the way for future frameworks relating to financial reporting and tracking of these assets to incentivize the preservation and expansion of our natural asset base.
For city planning to be more responsible and viable for the future, they need to make greenfield projects costlier, increase investments into public infrastructure to improve city mobility, expand green spaces and preserve the natural areas that already exist within city limits.
Such frameworks can also create markets for private investments and capital flows, especially as Canada already has immense wealth in natural capital. According to the World Economic Forum, the transition to a nature-friendly economy can generate up to USD $10.1 trillion in business opportunity and 350 million jobs globally – of which Canada would be a significant beneficiary given our abundance of green spaces and public land.
Such investments also aid in mitigating extreme weather events by naturally preserving the green spaces already present in our cities and by decreasing the need for future grey infrastructure investments to protect from these extreme weather events. Natural risk mitigation like this will also slow the rising cost of insurance by preventing extreme weather events from damaging our existing infrastructure. Having forests and waterways intact within and around our cities decreases the potential damage from flooding, while also producing cooling spaces which can decrease air-conditioning costs. These are just some of the communal benefits from preserving our natural assets, let alone the beauty and enjoyment we can experience from having such green spaces close to home. It could also have an even bigger impact on our personal investments.
Natural assets may soon be listed on the New York Stock Exchange, through a novel form of corporation called “Natural Asset Companies” designated to hold the rights of services produced by natural or human-controlled lands. This would open the flood gates for capital flows into green investment projects and create a push for expedited adoption of natural accounting frameworks.
As markets can seem turbulent and unforgiving these days, keep an eye out for the establishment of natural capital markets for sustainable investments and strong returns.
Donald McCallum has a master’s degree in economics and is working in the non-profit sector and banking industry, with previous work experience at S&P Global in Washington D.C. and the United Nations Capital Development Fund in Brussels. He is a member of several Calgary, Alberta-based NGOs that focus on developing sustainable climate action.
Featured image credit: Unsplash/Stefan
