How insurers would benefit from nature-based financial reporting

Insurers interested in the risk profile of public sector entities — or that want to invest in the protection and management of nature and its services — might benefit from governments harnessing the services of nature for climate resilience purposes, says a new report.

Governments can reduce climate risk naturally and sustainably by tracking, valuing and protecting natural assets as part of their financial planning, says the report by the Intact Centre on Climate Adaptation at the University of Waterloo. And greener financial reporting can ensure better protection of insureds in affected regions.

Reducing climate risk is a top priority for Canadian property and casualty insurers, which responded to a record-breaking $8.5-billion worth of natural catastrophe damages in 2024.

“Natural assets provide us with services that we take for granted and that we think are free,” says Joanna Eyquem, managing director of climate-resilient infrastructure and lead author of Getting Nature into Financial Reporting. “And those services include things that are really crucial to protecting us from climate impacts, like flooding and extreme heat, for example, as well as purifying our water.”

For example, natural assets like marshes, wetlands, and rivers offer natural forms of stormwater management against floods. Forests store climate-change contributors like carbon and reduce temperatures to shelter communities from extreme heat.

But natural services are excluded from Canadian public sector financial statements, and are not adequately considered in public sector decision-making, despite the services they provide. 

“The problem is that because we don’t directly value those, or report on the value, we’re not actually monitoring the condition of those services,” says Eyquem. “So those services could decline, and we wouldn’t notice the criticality of losing that in terms of our climate resilience.

“It’s really about managing services to people and making sure that we’re not losing things that we actually need.” 

Government reporting on the financial value of natural assets would also assist insurers in their ability to insure green infrastructure, further safeguarding its value.

“One of the challenges at the moment is that [natural] assets are not financially valued,” says Eyquem. “That makes it challenging to insure those assets [correctly] if they don’t actually have a value attached to them.” 

Already, more than 150 local governments in Canada, including Toronto, Montreal, and Vancouver, are working towards identifying, assessing, valuing, and managing their natural assets. 

In fact, Canada is a leading country in natural asset management compared to other countries, says Eyquem.  

But natural asset disclosures in the country vary greatly, due to a lack of standards for financial reporting. And so, the guide outlines recommended natural asset disclosures to reduce this potential for variability.

Plus, the industry is good at engaging governments, so there may be opportunities for insurers to lead governments in developing or standardizing nature-based financial reporting.

Eyquem cites Swiss Re’s “underwriting nature” initiative as a way insurers can participate in protecting natural assets. Swiss Re has created a new type of insurance to protect coral reefs in Mexico.

“We devised an insurance solution that would ensure rapid disbursement of funds to enable trained community members to deal with reef damage following a severe storm,” Veronica Scotti, chairman of global partnerships at Swiss Re said at the time of the release. 

Coral reefs serve as a natural barrier to storms and beach erosion, protecting properties and communities from damage and harm. Compared to coastal development like seawalls and dikes, coral reefs occur naturally, making them much more effective; plus, they are virtually inexpensive. 

“By combining private capital with public resources in a trust to fund premiums, we can help governments in vulnerable regions plan ahead more consciously to protect important natural assets, crucial to both the planet and the economy, like the coral reefs,” Scotti said.

 

Feature image by iStock.com/imaginima