Since 1983, Canada has experienced more than 300 catastrophic weather events (extreme weather occurrences causing more than $30 million in insured losses; $25 million prior to 2022). Four decades ago, Canada averaged about two catastrophic events annually; by the mid-2020s, that figure climbed to roughly 15 per year. From 2009 through 2025, insured losses from climate-related disasters jumped to average nearly $3 billion annually versus $400 million to $700 million typically each year from 1983 to 2008.

As disturbing as these figures are, they do not capture the full extent of losses. For every $1 of insured losses, there are usually another $3 to $4 of uninsured costs. Nor do insurance figures convey the lives lost or the full extent of the economic, financial and health impacts of catastrophic weather. The former includes the tragic loss of 619 lives during British Columbia’s heat dome in 2021. The latter includes large gross domestic product and income losses and the much higher government spending that occurs. For example, total economic loss estimates and the large-scale government firefighting and emergency assistance for the widespread Canadian wildfires in 2023 exceed $10 billion.

These and other tragic impacts and escalating costs from extreme weather make greater resiliency through climate adaptation both essential and long overdue.

Yet three major political barriers prevent effective Canadian adaptation from being a key policy goal: lack of understanding, inadequate will and weak policy capacity. The problem of understanding is that adaptation is not seen as core economic and fiscal policy as well as crucial environmental and health policy. The problem of will reflects the longstanding, excessive focus of government on announcing policy versus genuine and practical action, and the dominance of other priorities in the political agenda. The problem of capacity is evident in the modest funding for, and limited in-house expertise of Ottawa and the provinces in, adaptation design and implementation.

Creating a national office for climate adaptation is a critical step toward addressing these deficiencies. A national office would help lessen problems from the lack of understanding and political will. It would provide much-needed analytical and advisory capacity to improve federal policy design and implementation.

1. Lack of political understanding

Climate adaptation and mitigation are both essential

Mitigation means preventing or reducing greenhouse gas emissions that drive climate change. This is an existential Canadian need now and, especially, over the medium to long term. Adaptation refers to protecting or lessening the impacts on people, business and infrastructure from climate change and extreme weather. Adaptation is vital to contain the rising costs and risks of climate change while giving Canada the opportunity to make substantive progress in mitigation.

Effective climate-change policy comprises adaptation and mitigation. It is a false narrative that there is choice between them. Mitigation depends upon adaptation to allow the time for its measures to succeed. Adaptation will not work if climate change is not mitigated. Success depends crucially on both.

Adaptation is a fundamental economic, fiscal and financial requirement

Federal adaptation funding and resources as well as program implementation have been a small fraction of those for mitigation. Leading experts point to the imbalance of “$1 spent on mitigation for every $0.05 spent on adaptation,” or approximately a 20:1 ratio. Adaptation has received too little federal and provincial attention apart from weather disasters. Even then, governments’ focus tends to ebb away quickly once the emergency phase ends.

Ottawa’s funding approach, and that of most provinces, demonstrates a clear lack of understanding that climate adaptation is fundamental economic and fiscal policy. In addition, populist leaders at both levels continue to make deeply flawed arguments such as there being a choice between economic growth and preserving natural assets (e.g., wetlands and forests) that are critical to adaptation and mitigation. They have created and sustained the mistaken view that Canadians cannot afford essential adaptation investments.

Yet the reality is the exact opposite. Wetlands lessen flood damage and risk. Forests sequester carbon and help regulate water flows. Ecosystems help reduce coastal communities’ impacts from storms and erosion. Urban green spaces reduce heat stress and improve public-health outcomes. Moreover, adaptation requires sustaining and enhancing natural (green) infrastructure and improving the resilience of built (grey) infrastructure. Canadian communities, businesses, households and governments depend heavily upon high-quality green and grey infrastructure for their economic, financial and health needs.

Extensive international and Canadian research shows that climate change and catastrophic weather reduce gross domestic product, productivity and incomes. This occurs through multiple channels. Supply is reduced from damage to utility, transportation and communication networks as well as harm to or destruction of commercial buildings and equipment. Extreme heat reduces workers’ cognitive and physical capacity, while heat stress and wildfire smoke increase absenteeism. Lesser income from these supply impacts reduces key sources of demand such as investment and consumption, further decreasing GDP.

Increasing fiscal costs result from surging expenses for emergency assistance and infrastructure repairs and growing need to invest in resilient infrastructure. A 2026 study on proactively upgrading grey infrastructure assets to adapt to extreme rainfall and rising heat estimated that Canada could save up to $9 billion annually in net costs compared to not making these adaptation investments. The savings exceed $4 billion per year relative to a reactive approach, where upgrades are made only at the time of asset replacement.

For businesses, extreme weather means higher insurance premiums plus the costs of immediate repairs, long-term recovery and investment in more resilient offices, factories, warehouses and equipment. Individuals face income disruptions, time away from work and lower personal productivity. Households are confronted by fewer mortgage options in high-risk areas, plus repair and rebuilding costs not covered by insurance.

2. Inadequate political will

Too little long-term thinking and the absence of a systems approach

It is difficult for governments to think long-term when acute crises and large-scale shocks occur, especially when these create a polycrisis whereby multiple, inter-related crises and shocks occur simultaneously. From the pandemic and the surge in inflation and interest rates in the early 2020s to the ongoing geopolitical shocks (as of June 2026) from Russia’s invasion of Ukraine, major wars in the Middle East, and structural U.S. disruptions in trade, defence and Canada–U.S. relations, the polycrisis has led to near-term needs dominating government focus.

The polycrisis challenges have meant that long-term thinking and strategy to deal with climate risk – despite its chronic nature becoming devastatingly acute this decade – received far too little attention from Ottawa and the provinces apart from mainly short-term responses to catastrophic weather events.

This insufficient long-term thinking has been compounded by the absence of a systems approach. The lack of systems policymaking was and is evident in the priority of short-term economic (e.g., building housing in high-risk flood areas) and fiscal (e.g., delaying investments in resilient infrastructure) benefits at the expense of higher medium- and long-term costs. It also meant that serious harms to the environment and health of Canadians occurred from the failure to factor the adverse effects on these related systems into policy.

Policy and strategy announcements with very modest follow-through

Over the past 15 years, there have been numerous federal announcements of adaptation programs and initiatives, culminating in the 2023 National Adaptation Strategy. Despite the proliferation of these efforts from 2015 onwards, and various laudable objectives and selected notable content in the NAS, federal spending on adaptation during the Justin Trudeau years was a small fraction of the outlays on mitigation.

Under the Mark Carney government, mitigation remains the main climate-change policy focus, even though overall funding and policy support have fallen compared with the Trudeau era. While the National Adaptation Strategy remains in place, adaptation spending continues to be much lower than on mitigation, accounting for only a small share of climate-related expenditures from 2025 through June 2026. Ottawa’s emphasis has been on carbon capture and electrification to fight climate change and, more recently, a renewed goal of sustaining natural capital, which included citing nature assets’ role in adaptation. For their part, provincial funding and focus continue to be insufficient.

Looking at just local government needs alone, a 2020 analysis determined that municipal infrastructure and other local adaptation requirements were $5.3 billion annually, a figure that would be substantially higher in mid-2026 given inflation over the past six years and the increasing occurrence and impacts of catastrophic weather events. It bears emphasis that this figure does not include the spending and investment needed by firms, homeowners and senior levels of government to achieve more robust adaptation resilience.

3. Lack of policy capacity

Resilience in Ottawa’s nation-building strategy will be crucially dependent on building right the first time. As of June 2026, more than $25 billion in federal capital spending has been announced in defence, housing and other infrastructure. Important additional investments in these areas include multibillion-dollar commitments from the private sector.

Given the scale and pace of these investments, it is imperative that Canadian infrastructure and other economic assets be designed and constructed from the outset to better withstand extreme weather. Resilience needs to be embedded in the design and construction of military installations and other critical infrastructure such as transportation, energy, hospitals, water systems and emergency operations. Greater climate adaptation in new and existing housing is also vital for homeowners and communities alike.

Yet the federal capacity to make policy and to advise and assess these resilience needs is far too disparate, limited and uncoordinated.

Ottawa’s robust strengths in climate forecasting and weather analysis are clear. Significant specific knowledge about natural assets exists in the public sector, including Statistics Canada’s expertise from its Census of Environment efforts and selected staff in leading municipalities such as Calgary and Mississauga that have implemented unaudited disclosures of natural assets on their balance sheets. Canada Mortgage and Housing Corporation’s work in housing and climate change resiliency is a notable advantage.

Yet far more capacity is present in the non-profit sector. Examples include the advanced economic analytical and modelling capabilities on climate change impacts in organizations such as the Canadian Climate Institute and the Smart Prosperity Institute. Robust technical abilities in adaptation analysis, practical implementation and related expertise reside in leading national entities like the Intact Centre on Climate Adaptation and the Climate Risk Institute. Various government-funded non-profit regional climate service entities – CLIMAtlantic, Ouranos (in Quebec), the Ontario Resource Centre for Climate Adaptation, ClimateWest in the Prairies, and the Pacific Climate Impacts Consortium in British Columbia and the Yukon – offer local and regional adaptation knowledge and capacity.

The problem is that not enough adaptation intelligence and know-how resides within the federal government – even though it designs national policy and plays a key liaison role with provincial and municipal governments in climate adaptation. Ottawa’s capabilities are neither sufficient nor are they set up to provide sustained analytical and information support, let alone coordination advice, for: the federal policy reset, especially the massive investments in defence, housing, infrastructure and major projects; and for initiatives across two or all three levels of government.

The latter problem is particularly acute for most municipalities, especially small and medium-size local governments, given their constraints in budgets, staff and systems. The adaptation challenge is accelerating faster and in more complex ways than municipalities can handle.

Beyond these absolute needs and problems, the very large disparity in resources, especially staffing versus other federal priorities, stands out. The modest budgets and other resources for federal adaptation policymaking and program design and implementation contrast starkly with the funding and staffing provided to defence, housing and infrastructure. The Major Projects Office and Defence Investment Agency, set up in mid-2025 and early 2026, respectively, illustrate the far greater priority and support federally for these areas.

It is hard to describe federal support in terms of funding and other institutional resources for adaptation other than as decidedly inadequate given the creation of these and other new agencies in the first year of the Carney era, the financing provided to them, and their respective mandates to operate as separate entities from government departments and to hire an array of private-sector expertise to build their “in-house” capacity. 

4. Why a national office helps address these challenges

A national office for climate adaptation would provide Canada with a much-needed policy focal point, bolster federal analytical and information capacity, and create a non-partisan adaptation champion within government. Its ability to hire experts from the non-profit and private sectors should be stressed. The Major Projects Office’s and the Defence Investment Agency’s successes in attracting non-public-sector expertise are notable. Indeed, the scale and scope of these two new entities relative to traditional federal departments merit highlighting even though we are not advocating for similar scope and powers for a national office’s role.

Canada’s adaptation policy needs to have a clear catalyst and robust assessment capacity. A national office for climate adaptation would be a central entity to help address the vast array of design implementation and other construction, equipment and systems requirements for effective climate resilience in defence, housing, infrastructure and major projects. These tasks include building grey infrastructure assets for resilience from the start of their design and construction. In green infrastructure, examples include understanding and applying the lessons from leading countries such as the United Kingdom and the Netherlands in integrating natural capital and ecosystem service information into public policy to boost resiliency and mitigation such as in new infrastructure, land use and housing development.

Lastly, in strongly advocating for a national office for climate adaptation, we want to avoid being overly prescriptive in its specifics. Such detail is beyond the scope of this article, including whether this entity would be a new agency or whether it would report to the Privy Council Office, the Prime Minister’s Office or the minister of the environment, climate change and nature. We also recommend solid links to Public Safety Canada and the Ministry of Finance given adaptation’s importance for both.

The crucial minimum aspects for a national office for climate adaptation are (1) its ability to hire private- and non-profit-sector expertise and (2) a mandate to examine, assess and provide information support on adaptation requirements across applicable federal, provincial and municipal activities.

Conclusion

Extreme weather and climate change continue to be escalating threats in Canada. Major prairie hailstorms; serious flooding in central Ontario, Montreal and the Prairies; and severe wildfires in Western Canada and the Northwest Territories have occurred already in 2026. With El Niño underway, the likelihood of climate extremes globally, rising costs and growing risks for Canada are clear.

In 2015, then Bank of England Governor Mark Carney presciently identified and described the tragedy of the horizon from the severe repercussions of climate change occurring well beyond the short-term focus of political and business cycles, and of technocratic authorities. In 2021, while UN special envoy on climate action and finance, he devoted a whole chapter to “Breaking the Tragedy of the Horizon” in his book Value(s).

The reality with climate adaptation in Canada today is that the tragedy is no longer on the horizon. The tragedy is unfolding now and will be far worse unless an effective national office for climate adaptation is created and soon.

James K. Stewart is an economist, a senior fellow at the C.D. Howe Institute, and a member of the Advisory Committee for the Intact Centre on Climate Adaptation.

Hugh O’Reilly sits on a number of boards including the Rick Hansen Foundation, is a member of the Advisory Committee for the Intact Centre on Climate Adaptation and is the former CEO of a Canadian public sector pension plan. 

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While these measures are important, they address only part of the problem. Canada still faces mounting costs and escalating risks from extreme weather, and these steps alone fall far short of what is needed.

Ottawa’s nature strategy is the latest in a series of federal policies that must be turned into concrete programs and actions to address Canada’s vulnerability to extreme weather. Despite the National Adaptation Strategy laid out in 2023, the Trudeau government implemented too little to help Canada adapt to a changing climate. Adaptation has also received insufficient focus under the Carney government beyond what is included in its nature strategy. It has received even less attention across the provinces.

Adaptation is more than protecting natural assets and encouraging greater investment in sustaining natural capital. These measures have undeniable value, but in the absence of robust federal and provincial action, Canada remains exposed to significant risks and escalating costs. Extreme weather can cause loss of life, emergency relocations, widespread property damage and destruction, and lasting health impacts. These economic, financial and health burdens are rising as extreme weather events become more frequent and severe.

Canada can ill afford these increasing losses. Adaptation needs to be a foundational pillar of Canada’s nation-building and economic resilience strategy. This will require much stronger government capacity and sharper policy focus to design and implement effective adaptation programs and practical applications. Meaningful reforms to public-sector budgeting and accounting practices are also essential.

Climate adaptation’s inadequate role in Canada’s policy reset

To understand climate risk policy, it’s helpful to distinguish between mitigation and adaptation. Mitigation means preventing or reducing greenhouse gas emissions that drive climate change. Adaptation refers to protecting or lessening the impacts of climate change and extreme weather on people, communities, businesses and infrastructure.

In practice, mitigation continues to get far more attention and resources than adaptation. Under the Carney government, it remains the main climate focus, even though overall mitigation funding and policy support have fallen compared with the Trudeau era. Since spring 2025, Ottawa’s emphasis has been on carbon capture and electrification, and now on sustaining natural capital, as the primary tools to fight climate change.

In contrast, adaptation spending is much lower, accounting for only a small share of climate-related expenditures in 2025 and early 2026. Despite the compelling merits of more funding and extensive information available to support implementation, adaptation efforts by Ottawa and the provinces remain a fraction of what is needed.

Embedding adaptation as a core pillar of nation-building is essential to support long‑term economic resilience in the face of a changing climate and challenging economic times.

– Kathryn Bakos and James K. Stewart

Inadequate adaptation poses critical risks to the Carney government’s wide-ranging strategy shift on the economy and climate. Improved federal policy, investment and spending in crucial areas such as defence, infrastructure and trade are long overdue and have considerable merit. Yet adaptation has not featured in flagship legislation (e.g., Bill C-5, the One Canadian Economy Act), or in key fiscal policies (e.g., the November 2025 budget and the February 2026 Defence Industrial Strategy).

Without more funding and focus on adaptation, Ottawa and the provinces risk making the impacts of extreme weather even worse. Weak adaptation capabilities and implementation also make it harder to coordinate federal and provincial government programs to boost resilience, attract private investment and improve regulations without harming the environment.

Large and increasing economic and financial costs

Extensive international and Canadian research shows that climate change and catastrophic weather reduce output, or gross domestic product, as well as productivity. Extreme weather events create negative supply-and-demand shocks through multiple interconnected channels. These begin with decreasing an economy’s supply capacity with its existing stock of labour, capital and land. Extreme weather (e.g., floods, wildfires, hail, wind) damages utilities and transportation and communications systems, interrupts and reduces business operations, disrupts product distribution channels, and impedes supply chains.

Extreme weather events also diminish the available supply of capital, land and labour, further constraining output. Weather disasters damage or destroy structures and equipment, reducing both the quantity and quality of facilities, and can accelerate asset depreciation. Events such as major floods and wildfires decrease the labour supply by reducing work hours or preventing work altogether through evacuations, community disruption, increased caregiving demands, and prolonged dislocations to transportation and communications.

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The production and supply repercussions from extreme weather shocks range from major temporary disruptions to devastating harms. The floods in Quebec and Nova Scotia, and the wildfires in Lytton and Jasper, show how communities can be thrown into chaos.

Even when work does not completely stop, extreme heat reduces the effectiveness of workers and their hours worked. Heat stress lowers cognitive and physical capacity, decreasing labour productivity materially starting at temperatures above 25°C. Labour productivity falls more sharply if temperatures rise further, especially at 33°C to 35°C and above. Temperature extremes also boost absenteeism.

Climate disasters also exert a serious toll on the demand side of the economy. They reduce business and household incomes from interruptions to normal activity, damage to physical capital, reduction in labour supply and lower output. In turn, they cause decreased spending by firms and consumers, further reducing GDP.

Longer-term economic and health burdens

While the rebuilding phase after weather emergencies can temporarily – and misleadingly – increase GDP, reconstruction and replacement of damaged infrastructure require funding and resources that could otherwise have been used to maintain operations or expand productive capacity.

Extreme weather also has long-term effects that can persistently reduce productivity. The difficulty of rebuilding can create delays that reduce output for years. Smaller firms are particularly vulnerable. U.S. data show that 40% of small businesses affected by extreme weather do not reopen, and another 25% close within a year of the catastrophe.

Further, extreme weather events place enormous strain on Canada’s healthcare system. As health deteriorates, more people visit hospitals and costs go up. Society’s most vulnerable individuals are disproportionately affected: the elderly, people with pre-existing conditions, pregnant women and those experiencing homelessness. Climate-related disasters are also linked to worsening mental health from the loss of homes, prolonged relocations and financial stresses from costs not covered by insurance.

Escalating fiscal and financial burdens

Governments face rising costs of emergency assistance and infrastructure repairs from extreme weather events, as well as the growing need to invest in resilient infrastructure. However, public-sector budgets distort the substantial net financial and economic benefits of adaptation spending and investment. While budgets capture immediate costs, they fail to reflect much larger future savings. They also overlook key benefits such as more reliable services, fewer delays and reduced productivity losses.

Businesses and households are also facing growing financial pressures from extreme weather. Rising insurance premiums are a huge factor, but they are just the start. Companies must cover costs for immediate repairs, long-term recovery, and investing in more resilient offices, factories, warehouses, and equipment. Households can struggle with limited mortgage options in high-risk areas and out-of-pocket expenses for repairs and rebuilding. These pressures are compounded by time away from home or work, income disruptions and reduced personal productivity.

Extreme weather and insurance losses on the rise

Since 1983, Canada has experienced more than 300 catastrophic weather events – defined as events causing more than $30 million in insured losses ($25 million prior to 2022). In the 1980s, Canada averaged about two catastrophic events per year; today, that figure has climbed to roughly 15 annually.

Adjusted for inflation, annual losses from extreme weather typically ranged from $400 million to $700 million between 1983 and 2008. Over the past 17 years, insured losses from climate-related disasters jumped to average nearly $3 billion annually, with every year but one surpassing $1 billion.

Although total insured losses in 2025 were $2.4 billion, the broader trend of escalating insured losses from extreme weather events is evident – and is accelerating year over year, as shown in the graph below.

Across Canada, the true financial burden of extreme weather extends far beyond insured losses. Uninsured losses, those not covered by insurance, are estimated at roughly three times the amount insurers pay out, reflecting the costs borne by households, businesses and communities.

A select review of major Canadian floods, wildfires and extreme heat events over the past 13 years shows their increasing frequency, severity and rising economic, financial and health costs. Catastrophic weather events have destroyed homes and infrastructure, displaced residents, disrupted transportation and energy networks, and generated billions in economic losses, demonstrating how climate disasters threaten lives, livelihoods and productivity.

Climate adaptation: A core policy need

Despite the urgent need to reduce greenhouse gas emissions – the primary driver of climate change and extreme weather – fossil fuels are expected to remain a central part of the global economy for the foreseeable future, according to analyses by the International Energy Agency (IEA) and the United Nations Environment Programme. Meanwhile, global climate-related losses are rising as shown by catastrophe loss trends over recent decades and are expected to escalate further alongside ongoing fossil fuel use.

Given this reality, climate adaptation is essential to actively manage these risks. According to the Canadian Climate Institute, every dollar invested in adaptation in Canada can generate up to $15 in value – approximately $5 in direct avoided losses (repair and replacement costs) and up to $10 in broader economic benefits, including reduced supply chain disruption and sustained labour productivity.

A 2026 study on proactively upgrading public infrastructure assets to adapt to extreme rainfall and rising heat estimated that Canada could save $9 billion annually in net costs compared to not making these adaptation investments. The savings are $4 billion per year relative to a reactive approach, where upgrades are made only at the time of asset replacement.

What Canada should be doing differently

1. Embed adaptation in nation-building and transformational projects
Major projects and infrastructure development are cornerstones of Ottawa’s nation-building strategy. But success critically depends on building right the first time – designing Canadian infrastructure and economic assets to withstand the escalating risks of extreme weather.

Adaptation policies and programs are foundational to Canada’s economic success, resilience and nation-building. Embedding climate resilience into transportation, energy, hospitals, water systems and emergency operations supports public safety and security, growth and incomes. Aligning adaptation investments with Canada’s defence commitments is vital, including upgrading and protecting critical military infrastructure to safeguard it against extreme weather disruptions.

2. Significantly increase government capacity in adaptation
Effective climate adaptation depends on strong, coordinated institutional capacity across both the public and private sectors. The public sector, in particular, needs enhanced capabilities to assess climate risk and design policy that guides investment capital wisely. Greater government expertise is essential to better inform stakeholders and integrate resilience into decision-making across ministries. It is also critical to prevent fragmented and reactive adaptation efforts.

Establishing a National Adaptation Office (NAO), led by a national adaptation director, would enhance leadership and improve coordination and accountability across all levels of government. Incorporating aspects of the Major Projects Office and Defence Investment Agency, an NAO would attract expertise from the non-profit and private sectors. The director of such an office would serve as a clear focal point with authority to provide guidance, deliver analysis and advance national adaptation priorities.

3. Improve fiscal support for adaptation
Investing in resilient infrastructure, strengthening energy grids, and protecting workers can lower future costs from emergencies, repairs and health impacts. Communities and households can be made more resilient through limiting development in high-risk areas, climate-smart construction, and retrofitting existing stock to maintain housing stability.

Fiscal policy can also strengthen public–private collaboration. Ottawa’s nature strategy goal of attracting private and non-profit investment in nature is commendable. Much more can be done to align government budgets with private investment, and encouraging risk-sharing is key. Incentivizing adaptation in business planning will help embed resilience throughout the economy.

4. Adopt natural asset valuation and better accounting
Natural ecosystems – including wetlands, forests and grasslands – provide essential adaptation services such as mitigating floods, moderating heat and aiding water management. The National Infrastructure Council’s 2025 report emphasized their robust economic, fiscal and health benefits. Their role is critical in delivering more resilient infrastructure through nature-based solutions as highlighted in Ottawa’s nature strategy.

For example, upstream wetlands reduce flood damage in urban areas by up to 38%, while expanded tree canopies in cities can reduce heat by as much as 5°C. Swamps and marshes in one watershed alone in Ontario provide stormwater management services that would cost more than $1.7 billion to replace with built infrastructure.

Yet federal, provincial, territorial and most municipal accounts overlook natural assets, facilitating their degradation and overuse. This increases climate risk and boosts disaster and replacement costs for households, businesses and governments. Public-sector financial reporting needs to align with new international standards for climate risk and natural asset accounting.

Canada must act

Looking ahead, greater investment in climate adaptation and long‑overdue government strategy for climate-risk management are vital requirements for Canada’s economic success.

Canada must go much further than its new nature strategy to avoid the tragedy of the horizon, as then Bank of England Governor Mark Carney warned in 2015. Climate risks unfold over much longer timeframes than those typically considered by financial markets, policymakers and businesses. By the time the full impacts of these risks are visible, it may already be too late to avoid severe consequences.

Embedding adaptation as a core pillar of nation-building is essential to support long‑term economic resilience in the face of a changing climate and challenging economic times.

Correction: The figures cited in reference to the 2026 study on proactively upgrading public infrastructure assets were revised slightly following updates by the study’s authors at the Canadian Climate Institute. 

Kathryn Bakos is a biologist, the managing director of finance and resilience at the University of Waterloo’s Intact Centre on Climate Adaptation, and chair of the Ontario Biodiversity Council.

James K. Stewart is an economist, a senior fellow at the C.D. Howe Institute, and a member of the Advisory Committee for the Intact Centre on Climate Adaptation.

The post It’s time to address Canada’s major shortfalls in climate adaptation appeared first on Corporate Knights.

Natural assets (such as rivers, wetlands and forests) are neither traded nor routinely valued, yet they provide critical services like helping manage worsening floods, droughts and heat waves, as well as storing carbon to slow climate change. These services are financially valuable. For example, an Institute for Sustainable Finance report estimates that Canadian wetlands alone provide services worth approximately $225 billion annually, equivalent to around 8% of Canada’s gross domestic product.

However, over-consumption of open access, seemingly “free” services from natural assets can lead to continued and undocumented degradation of such assets, as comprehensively discussed by the Dasgupta Review in the U.K. and encapsulated in concepts like the “tragedy of the commons” and negative externalities.

Recognition of natural assets in public-sector financial statements is long overdue. A 2021 Intelligence Memo explored the urgent need to report on natural assets. That same year, senior executives and leaders from nearly 70 organizations signed a joint letter urging Canada’s Public Sector Accounting Board (PSAB) to work toward “getting nature on the balance sheet” of public sector entities. Today, the path to formally recognizing natural assets has become clearer.

This involves adopting internationally aligned standards to account explicitly for the value of natural assets. The International Public Sector Accounting Standards Board (IPSASB) has made significant progress on its multi-year natural resources project and is expected to publish a draft international standard this fall to propose criteria for recognizing “natural resource assets” in financial statements and requirements for note disclosures.

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Additionally, IPSASB has updated its international standard for the measurement of the financial value of assets, introducing “current operational value” as a method for quantifying the “service potential” of natural assets. This method can include the ecosystem services provided by natural assets.

In Canada, where 80% of the land is publicly owned, PSAB has indicated its intent to follow IPSASB’s guidance, making the adoption of a similar standard for Canada likely. This would allow the inclusion of natural assets that meet certain criteria in public-sector financial statements, rectifying their current exclusion.

Momentum is building in Canada ahead of official standards to provide the data necessary to more effectively measure the financial value of natural assets. Nationally, the Census of Environment – led by Statistics Canada – is actively compiling Canada’s natural capital accounts, with geospatial datasets already available for urban greenness and salt-marsh habitat. In 2023, specifications for natural asset inventories were published as a national standard of Canada.

At the local level, more than 150 local governments are already inventorying, assessing, valuing and managing their natural assets. Cities like Calgary and Mississauga and are making quantitative, albeit unaudited, disclosures related to natural assets in their financial statements. Yet these encouraging local-government approaches lack uniformity and encompass less than 5% of the total number of Canadian municipalities. National standards are essential to achieve consistency and broad-based adoption in the financial reporting of natural assets.

Important policy considerations will arise when (not if) Canada adopts public-sector accounting standards for natural assets that ensure transparent, consistent and routine reporting on their value.

Public sector recognition of natural assets will inevitably affect the private sector, particularly public–private interactions, such as land development, which often degrade and diminish the financial value of these assets. The valuation of natural assets may also affect how private sector entities consider managing “nature-related transition risks” – actions to protect or restore negative environmental impacts.

The work of the International Sustainability Standards Board, building on the Taskforce on Nature-Related Financial Disclosures, will be pivotal in setting sustainability standards that address nature-related risks from a financial materiality perspective. Accordingly, this work will need to consider the value of natural assets as they are formally recognized.

Also, it is essential to shape accounting policy for numerous lands with treaty rights through ongoing engagement with and learning from Indigenous Peoples.

The IPSASB is to be congratulated on its leadership in this crucial domain of valuing natural assets and ecosystem services. We eagerly await updates to Canada’s public-sector accounting standards.

Joanna Eyquem is managing director of climate-resilient infrastructure at the Intact Centre on Climate Adaptation. Peter van Dijk and James K. Stewart are senior fellows at the C.D. Howe Institute.

This piece originally appeared as a C.D. Howe Institute Intelligence Memo. It has been edited to conform with Corporate Knights style.

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