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Environment & Biodiversity - Physical Risk - Risk Management

Natural Asset Management, Risk and Opportunity

Monday, August 8, 2022

By Roy Brooke

For many local governments, the term “asset management” refers only to the management of built or engineered resources. In Canada, however, there is an emerging movement for local governments to expand the concept of asset management beyond buildings, pipes and bridges, to include nature and biodiversity for the valuable services they provide – so-called natural assets. This article explores what this means for risk managers.

Roy Brooke, Executive Director,
Municipal Natural Assets Initiative 
(MNAI)

Natural assets can include forests, river corridors, green spaces, coastal areas, and wetlands. When protected and managed effectively, these can deliver multiple cost-effective services to communities. Common examples of such services include infrastructure services such as stormwater management, flood risk reduction and provision of drinking water; as well as non-infrastructure services, or co-benefits, such as supporting public health and recreation, and contributing to goals around climate mitigation, adaptation and enhancing local biodiversity.

Despite natural assets delivering vital services, few local governments have policies or methods to understand, measure, account for, or manage them. Natural assets have historically been left out of asset management plans and not included with engineered assets such as water treatment plants.

The practice of Natural Asset Management (NAM) emerged in Canada in 2014, based on early efforts of the Town of Gibsons, British Columbia to integrate natural assets into standard asset management and financial planning.

Since then, NAM has been championed by groups like the Municipal Natural Assets Initiative (MNAI). A not-for-profit organization, MNAI has adapted systems and tools rooted

in standard asset management practices to incorporate NAM and acts as an advisor to the governments to help them implement these practices. As a result, steps are now being taken by over 100 local governments in Canada to better understand, manage and protect their natural assets. A national standard for aspects of NAM is also underway; education and curricula are being developed, and professional NAM guidance for engineers and geoscientists has been released by the regulator in British Columbia. 

Why NAM is Relevant Today

It’s Local: Most of humanity lives at the intersection of natural and urban areas, where urbanization leads to habitat loss and habitat fragmentation, negatively affecting biodiversity and ecological processes. Because these losses are tied to municipal land use planning and decisions, NAM can be very effective at this specific interface.

It’s Replicable: NAM is inherently replicable in Canada, and potentially beyond, because it is based on existing asset management systems that local governments must adopt.

It’s Operational: NAM helps to advance decision makers’ consideration of nature from policy and academic discussions to something they can apply to real-world operations. Instead of merely suggesting that nature is “worth” a certain amount, NAM places ecosystem benefits in service delivery terms that local governments must pay attention to, which moves nature from an afterthought to the core of local government priorities.

It’s Proactive: NAM is increasingly required to address risks to nature from climate change. This includes shorter-term financial risks and long-term risks based on the organisation’s impact and dependencies on nature.

NAM, Risk and Opportunity

At the start of MNAI’s work, natural asset management was often understood, and pursued, by local governments for the positive benefits it can offer to communities, notably as necessary services or benefits. However, a case is now emerging to understand NAM in terms of mitigating risks and negative impacts in a changing climate. There are a variety of elements that help explain this relationship.

Recent interest in proactively managing natural assets is driven in part by their ability to provide multiple co-benefits, making them ‘no-regrets’, low-cost options for things like disaster risk reduction. There is a lot of room to expand NAM in disaster risk reduction and development planning where ecosystems provide hazard protection, livelihood recovery and sustainability, and long-lasting development. NAM is also key to addressing systemic risk because it requires that planners and others work with the socio-ecological system as a whole.

Liability risk is another driver for local governments to adopt natural asset management. Many local governments do not know what core services they receive from nature, the value of those services, or whether their tax base could cover services by alternative means. This understanding becomes more important as climate change puts pressure on existing built infrastructure, which, in many cases, is already aging and in need of repair in Canada, the USA and beyond.

An Example of NAM in Action

Doug Allin, former Chief Administrative Officer for the Canadian City of Grand Forks, encountered this reality early in his tenure as the City’s top official. Allin noted:

“Several core services including the provision of drinking water and emergency services relied on water from a porous aquifer. The good news was that one of our chief assets, the aquifer, had no capital costs and provided vital services for free. The bad news is that we had little data on the aquifer – perhaps less than on even minor engineered assets - and thus did not incorporate it into planning, engineering or financial decision making. We had no sense of the value of the services the aquifer provided, or the costs involved in replacing the services should the aquifer become degraded. We did know that the aquifer itself could not be replaced, and that replacing its services meant new treatment and filtration facilities, and a massive effort to permit and build these, should the aquifer degrade. This, in turn, meant that we had an undocumented liability risk, the contours of which we only vaguely understood. This fundamental insight started our natural assets management journey.”

Allin advises local governments to learn about the services they get from nature, and to preserve and protect these to the greatest possible extent, explaining that the alternative is unlikely to be cheap or palatable.

How NAM Supports Risk Identification

Risk identification is an essential starting point for local governments to understand risks related to losing, degrading, acquiring and protecting natural assets. This can be done as part of a natural asset inventory, which provides details about natural assets a local government relies upon, their condition, and the risks they face. These are the first steps in the assessment phase of asset management.

In 2021, MNAI developed inventories for multiple local governments across Canada to help them launch NAM efforts. Risk identification was a central component of each inventory. Specifically, MNAI worked with local governments to understand risks that the loss of natural asset functions could pose to built infrastructure, personal health and safety, and private property. The most relevant risk types typically identified were:

  • Physical risk: refers to property loss and damage, as well as casualty. It relates to both direct damage to assets and indirect damage to supply chains.
  • Service risk: the risk of an asset failure that directly affects service delivery.
  • Strategic risk: the risk of an event occurring that impacts the ability to achieve organizational goals.
  • Operations and maintenance risk: risks related to inadequate asset controls and oversight, which can lead to poor record-keeping and insufficient monitoring of asset.
  • Financial risk: risks related to the financial capacity of a local government to maintain municipal services and to provide for the health and well-being of inhabitants.

Evidence shows that there are links between all these types of risks; for example, risks to service delivery are always tied to financial risks.

Whatever the local context, a solid inventory of natural assets that includes risk identification, and a condition assessment, is a great starting point for local governments who want to plan with future climate risks in mind. Emma Bocking is an Environmental Specialist from the Halifax Regional Municipality in Atlantic Canada, where NAM practices have recently been initiated together with MNAI. “We are still at early days,” notes Bocking, “but the risk identification has helped provide staff direction on those natural assets it needs to pay most attention to.”

What does all this mean for risk managers? “If a local government invests even three hours, staff and Council can begin a discussion on the natural assets they own, rely on, and what they know and what they don’t” says Michelle Molnar, MNAI’s Technical Director. “Within a few hours, they can complete a basic risk identification, and within a few weeks, they can have an inventory developed. These do not provide all the answers, but they get local governments ready at the starting line to count nature as a critical aspect of risk management.”

The bottom line is that nature-related risks and opportunities are currently not well understood and often under-estimated by those managing assets. NAM is a tool that can help address this gap and help risk managers make better decisions.

 

About the Author and MNAI

Roy Brooke is Executive Director of the Municipal Natural Assets Initiative (MNAI). Roy has worked in Canada, Europe and Africa in urban sustainability, national politics, international development, and humanitarian affairs. He served as Director of Sustainability for the City of Victoria from 2011 to 2013 and between 2003 and 2011 he worked for the United Nations.

The Municipal Natural Assets Initiative (MNAI) is changing the way municipalities deliver everyday services, increasing the quality and resilience of infrastructure at lower costs and reduced risk. The MNAI team provides scientific, economic and municipal expertise to support and guide local governments in identifying, valuing and accounting for natural assets in their financial planning and asset management programs, and in developing leading-edge, sustainable and climate-resilient infrastructure.




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