Nature Risk: A Personal Finance Perspective for Canadians
The Unexpected Problem: Nature Risk
Our home insurance renews at the end of January every year. In December, we received a document from our insurance broker informing us that the insurance company we had been using for the last several years was removing “overland water (flood) protection.” Fortunately, another insurance company was still willing to take on this risk, and the overall cost for 2025 was lower than what we would have been paying had we stayed with our previous insurer.
Many Canadians plan their finances with traditional risks in mind, such as job security, market fluctuations, retirement savings, and tariffs…, but overlook the growing impact of nature risk. This was a term I discovered while reflecting on our insurance situation. Our former insurer decided to simply get out of the business and no longer insure homes for this particular risk.
Nature risk is a broad category that includes things like climate change, biodiversity loss, ecosystem degradation, and resource depletion, all of which can have an impact on household finances. My brother and his wife live in Los Angeles, and although they did not have to evacuate, the wildfires that were consuming huge residential neighbourhoods did come within four miles (6.4 kilometres) of their home.
More broadly, one can see the consequences of nature risk:
- Rising home insurance premiums due to more frequent wildfires and floods, if not the denial of insurance coverage entirely.
- Higher food costs due to supply chain disruptions, disruptions in agriculture, and epidemics among animal populations.
- Potential job losses in industries affected by nature-related disruptions.
Governments and financial institutions are beginning to recognize and respond to nature risk, but what does this mean for everyday Canadians?
The Aggravation of the Problem
Housing Costs and Insurance Challenges
As I already described for my home, extreme weather events are increasing property damage, which, in turn, is making home insurance more expensive or even unavailable in some high-risk areas.
Areas prone to flooding or wildfires may see property values decline, reducing long-term wealth for homeowners. I grew up in Chilliwack, BC, where there are roads with names like Sumas Prairie or South Sumas. “Across the line” is a smallish town in Washington state called Sumas. That name may ring a bell if you recall the flooding of the Sumas Prairie region in November 2021. Originally an expansive shallow lake, it was drained in the 1920s to create agricultural land. The flood, caused by a so-called “atmospheric river,” amounted to a reclamation by Sumas Lake of its natural territory. Residents and farmers lost millions of dollars in drowned farm animals and flooded farms and residences. This led to a class-action lawsuit against the City of Abbotsford for negligence in flood management practices. Insurance companies that provided coverage to affected commercial property paid out $675 million.
Some have argued that the Sumas Prairie region should be left to return to nature, which would mean approximately a $1 billion buyout of landowners. However, this is less than half the cost of one of the potential flood prevention plans put forward by Abbotsford.
This situation has pushed at least some municipal governments to update zoning regulations and floodplain mapping, which may not yet reflect new realities. While this will protect against the risks of flooding and wildfires, it may also mean more land that was previously slated for development may be removed from such plans.
Energy and Household Expenses
There has been a lot of political commentary expended on the impact of Canada’s carbon (or emissions) pricing system on the increased costs of fossil fuel-based home heating. However, the rising global price of oil and gas has had a far greater impact, and indeed, those in lower-income categories have generally received greater amounts in the form of the carbon rebate than the extra they have had to spend on fuel. That doesn’t mean that the increased cost is not real; it’s just that the bulk of the cost comes from other sources.
Returning to my BC homeland, when I grew up, as far as I remember, no one had air conditioning. Now, there are heat domes that raise temperatures to unheard-of levels, which is beginning to make air conditioning methods of some sort or another a requirement. This is an extra expense in terms of both the product purchase and the utility cost.
Outages caused by extreme weather may require investments in emergency preparedness, such as backup generators or battery storage. It’s hard to believe, but the survivalists may be on to something.
The transition to energy-efficient homes and electric vehicles may provide long-term savings, but the required upfront costs can be expensive, especially if government subsidies are not available.
Investment and Retirement Planning Risks
Portfolios exposed to industries dependent on unsustainable resource extraction may face long-term risks of asset devaluation. This is no small matter with Canada, given how dependent our economy is on natural resources. Using XIC, the iShares Core S&P/TSX Capped Composite Index ETF as a proxy for the Canadian stock market, the Energy sector makes up 17% while the Basic Materials sector makes up another 11%. The Financial Services sector is the largest at nearly 33%, but there is no doubt that much of their commercial business involves arranging for the funding of these two sectors given their sizes in the economy.
Investment opportunities that seek to work harmoniously with nature are growing, but these issues are not just economically significant; they are also politically controversial.
Food Prices and Supply Chain Risks
As readers are almost certainly aware, bee populations have been dramatically affected by unfavourable changes to the climate and a parasitic mite that attacks and feeds on bees. This is a significant risk to Canada’s agriculture sector, impacting crop yields, making food more expensive, and ultimately affecting our household finances.
Supply chain disruptions, including those caused by extreme weather, can mean higher costs for imported goods. Referring back to the flooding on the Sumas Prairie, for a period, the Port of Vancouver was essentially cut off from the rest of the country, and grocery stores were unable to receive fresh produce and dairy.
Health and Emergency Preparedness Costs
Rising temperatures contribute to more heat-related illnesses, requiring investments in cooling solutions. A heat wave in June last year (2024) was responsible for the deaths of at least 14 people in Montreal, according to Montreal’s public health department, and back in 2018, heat was the attributed cause for the deaths of 66 elderly Montrealers. In this case, retirement planning may mean more than having a large RRSP; rather, it can also be about making sure you live in a building that can protect seniors from the heat.
Vector-borne diseases are expanding in Canada as our climate changes. Lyme Disease, which is now found from Nova Scotia to Alberta, is one example. There are also mosquito-borne illnesses, such as West Nile Virus and Eastern Equine Encephalitis, which are spreading in Canada because of warmer temperatures. Even if we don’t pay for many of our health care costs directly, increasing hospitalization will inevitably mean higher costs for Canadians in the form of taxation, lower productivity of the workforce due to time off for recovery or even long-term disability, or spending money on preventative measures.
More frequent natural disasters mean greater personal costs for emergency preparedness. Included among these things are shingles and siding that are more resistant to damage from hail and wind.
A Shift in Perspective
While nature risk is a challenge, planning can mitigate its effects.
Households can take steps to protect their assets and align their finances with a future shaped by environmental change.
Canadians can also engage in policy discussions to advocate for solutions that reduce nature-related risks while ensuring economic stability.
Practical Steps for Personal Financial Resilience
Housing and Insurance Adaptation
Some of these ideas may be “no-brainers,” but you should research home insurance coverage regularly and assess any climate-related exclusions.
Seriously consider any climate-resilient home improvements. These could include fire-resistant roofing, sump pumps, backup power sources, damage-resistant siding, etc. In other words, in addition to the utility of a renovation or the aesthetic improvements, consider renovations or upgrades that will mitigate the varieties of climate risk your home might be susceptible to in your area.
If you do not own a home, evaluate location risks before considering the purchase of a specific property using updated risk maps. So far, I have been mostly referring to nature risks related to fire, floods, climate, and disease, but I will add a new one as an example. Having lived through the 1995 earthquake that devastated large parts of Kobe, Japan, and the surrounding area, I am somewhat sensitive to the risk of earthquakes. An earthquake risk tool permits me to search for the earthquake risk based on the first half of your postal code. I’m in a part of London where the postal code begins with N5X. I was pleased to see that this tool says we are in a very low-risk area. However, my previous home in Chilliwack, BC, is rated very high, which is not unexpected.
Energy Efficiency and Household Cost Management
Take advantage of federal and provincial energy efficiency incentives. These programs change from time to time, so they require some vigilance, but there are usually some options available periodically. For example, in British Columbia, there is a website, Better Homes BC, that provides information on rebates for building or renovating homes in ways that lead to long-term reductions in energy use and reductions in emissions.
Transition to lower-carbon home heating options where possible. Again, rebates or other government supports for this sort of thing come and go, but if your furnace needs to be replaced, it might be worth your while to consider something like a heat pump at this stage, if not sooner.
Improve home insulation and energy efficiency to reduce long-term heating and cooling costs. This will depend on your particular needs, but any business that provides insulation installation, for example, will know if there are incentives to reduce the installation cost beyond the general reduction in nature risk.
Investment and Retirement Adjustments
If the nature risk involving climate continues to develop, the questions challenging the use of fossil fuels will continue to grow more urgent. As climate patterns change, resulting in droughts and wildfires, then water-intensive agriculture and forestry practices may also need to change. This is the risk management side of long-term investing. We want to grow and diversify our investments, but we also want to avoid investment sectors that are in danger of falling out of favour due to their risks.
These concerns invite us to invest in sustainable investment options aligning with ESG (Environmental, Social, and Governance) or SRI (Socially Responsible Investing) criteria. Some fund companies are also regularly active in shareholder meetings, encouraging companies in which these sustainable funds invest to alter their behaviour as a risk mitigation strategy.
A standard approach to risk management in investing is to hold a diversified portfolio. This will help to limit the impact of nature-related financial shocks as much as any other risk that might show up.
Food Security and Cost Mitigation
Local farmers markets and, if you have a backyard, a garden may be ways to reduce reliance on vulnerable food supply chains.
Reduce food waste through meal planning and preservation techniques. Canadians create over 50 million tonnes of food waste each year, 60% of which would be avoidable. This food waste contributes to about 9.8 million tonnes of CO2 equivalent emissions, meaning this is an issue with significant environmental impact.
To encourage local farming, you may wish to explore community-supported agriculture (CSA) programs to support local farmers and increase food resilience. One source for finding such farms or distributors can be found at the Canadian Organic Growers’ website.
Health and Emergency Preparedness
This may be a matter of budgeting for health-related climate risks, including cooling solutions and air quality protection. Homes in Canada have to address both tremendous heat and deadly cold, so ways that can make your home resilient at either extreme while limiting energy usage are the goal.
Ensure access to emergency savings and insurance for unexpected climate-related disasters. Managing risk, often paired with insurance planning, is a basic component of financial planning. Having some portion of your money set aside for unanticipated incidents is crucial. Indeed, after COVID-19, some financial planners argued that the traditional three-to-six months of living expenses fell short, and the “nature risk” posed by pandemics argues for a full year’s worth of readily available cash savings.
Just as an emergency fund is a basic part of a financial plan, so should an emergency kit tailored to the specific risks in the region be created. Can you evacuate to a safer location if your area is at risk of floods, wildfires, or extended power outages? What would you take with you? Public Health Canada has some helpful suggestions.
Engaging with Policy for a Better Future
While personal financial planning is crucial, broader systemic changes are needed to manage nature risk effectively. Canadians can support policies at all levels of government that:
Improve Climate-Resilient Infrastructure
- Support municipal and provincial investment in flood defenses, wildfire prevention, and sustainable urban planning.
- Advocate for stronger building codes to ensure homes and infrastructure can withstand extreme weather.
Expand Green Energy and Home Efficiency Programs
- Encourage federal and provincial governments to enhance and extend energy retrofitting programs.
- Support initiatives that make energy-efficient home upgrades affordable for low- and middle-income households.
Promote Sustainable Agriculture & Food Security
- Advocate for policies that support regenerative farming practices and biodiversity conservation.
- Encourage government investment in food supply chain resilience to prevent extreme price fluctuations. This will typically involve enhancements to transportation networks and incentives for business owners to engage in different forms of gardening and farming (e.g., hydroponic farming). This could also include improvements to interprovincial trade flow agreements, a very topical issue these days.
Ensure Financial System Preparedness for Nature Risk
- Support reporting on nature-related financial risks by banks and investment funds.
- Encourage pension funds and financial institutions to integrate biodiversity and ecosystem risk into their investment decision-making.
Enhance Climate & Nature Risk Disclosure Requirements
- Push for government policies that require companies to disclose their exposure to nature-related financial risks.
- Support initiatives such as the Taskforce on Nature-related Financial Disclosures (TNFD), ensuring transparency in financial markets.
Nature risk, including climate change, is not just an environmental issue. Nature risk affects every Canadian household regardless of where we live. By taking steps to adjust our personal finances and advocating for policies that address systemic risks, we can build greater financial resilience while contributing to a more sustainable and stable future.
This is the 279th blog post for Russ Writes, first published on 2025-02-10
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