Sandra Odendahl
Director, Corporate Environmental Affairs
Royal Bank of Canada
Reflections on Water Risk:Reflections on Water Risk:
Assessing Water Risk in FinancingAssessing Water Risk in Financing
RBC’s Environmental StrategyObjectivesRBC’s Environmental StrategyObjectives
RBC’s environmental strategy is based on our environmental aspects, our stakeholders and our priority issues. Its objectives are to:
– Manage risksrisks
– Drive returnsreturns
– Protect and enhance reputationreputation
The strategy is led by Corporate Environmental Affairs and activated through the RBC Environmental BlueprintRBC Environmental Blueprint…
Climate Change Forests/Biodiversity Water
Why Does a Bank Care About Water?Why Does a Bank Care About Water?
1. Risk Management
2. Corporate Responsibility
3. Business Opportunities
Risk Management Approach in LendingRisk Management Approach in Lending
Sector Assessment•What sectors are sensitive to
Water-related Risks?
Company Assessment
•Risks that could result in increased costs, business interruption or curtailed
growth
Transaction Review
Regional
Water Info
1.Understanding Regional Water Issues
Water isn’t equally distributed
1. Regional Water Issues
Water scarcity in different countries1. Regional Water Issues
Water scarcity in different countries
Region Country WaterUse
km3/yr
Renew.Water
km3/year
Use as a % of renewable
supply
Africa Congo Algeria
0.366.07
832 14
0.0443.40
North America
CanadaUSA Mexico
44.72477
78.22
33003069
457
1.3615.5417.12
South America
BrazilUruguay
59.33.15
8233139
0.722.27
Asia ChinaThailandIsrael
549.7682.75
2.05
2830410
2
19.4320.18
120.60
National averages do not indicate sub-regional water stresses
Reference: The Pacific Institute “Total Renewable Freshwater Supply, by Country (2006 Update)” http://www.worldwater.org/data.html
2. Understanding Water Risks in Sectors2. Understanding Water Risks in Sectors
1. Water Infrastructure
– Dams, water utilities
2. Major Users of water
– Agriculture, food and beverage, hydro power generation, steel, etc
3. Suppliers of equipment, materials and services to Water users
4. Water quality sensitive sectors
– Sectors requiring specific input water quality (mineral water bottlers, semi-conductors manufacturers),
– Sectors with large pollution loads in effluent
5. Sectors with water sensitive supply chain or customers
– Eg: Food and beverage requires irrigated agriculture, aluminum requires hydroelectric power
– Demand for swimming pools, washing machines, boats may “dry up” in water scarce situation
Combine Regional and Sector analysis
Example: Sector and Region AssessmentWater Scarcity Risks For Business, RBC Report, October 2008Example: Sector and Region AssessmentWater Scarcity Risks For Business, RBC Report, October 2008
Sector Canada Southeast US
Southwest US
Central Plains US
Power Generation
Hydroelectric, nuclear, coal, natural gas, wind
Potential fresh water shortages in AB, SK and PEI
Coal, natural gas, nuclear.
No significant concerns
Natural gas, hydroelectric, coal
Water shortages in Ca (utilities in general)
Primarily coal.
No significant concerns
Agriculture Potential water shortages in AB and SK
Irrigation for citrus crops in FL could be impacted by aquifer depletion
Irrigation may be curtailed in California - demands on the Colorado R.
Depletion of Ogallala Aquifer threatens agriculture production
etc
3. Understanding Water Risks in Companies3. Understanding Water Risks in Companies
Water Risk
Drivers•Supply scarcity
•Poor water quality
•Flooding
•Access concerns
Water Risks
•Physical
•Political
•Regulatory
•Reputation
$ Impact
s1. Business
Interruption
2. Increased costs
3. Limits to growth
3. Water Risks in Companies
What Are the Risks to our Clients?3. Water Risks in Companies
What Are the Risks to our Clients?• Physical Risk
– Unanticipated water shortages or flooding
– Unanticipated contamination of intake water
• Political Risk
– Expropriation of privately owned utility
– Revocation of water rights or contracts
– Changes to taxation
• Regulatory Risk
– Water withdrawal caps
– Changes to water permit availability and cost
– Changes to effluent standards
– Effluent discharge permit availability
– Changes to water tariffs
• Reputational Risk
– Community opposition to industrial water taking
What Is the Risk to a Bank?What Is the Risk to a Bank?
Client’s Risks
Bank’s Risk
Water Risks in Credit Risk AssessmentWater Risks in Credit Risk Assessment
For Corporate Borrowers in Medium and High Environmental Risk Sectors
1. Overall environmental management framework and abilities
2. Material environmental liabilities
3. Anticipated significant new legislation governing ….water….
4. How relationships are managed with nearby communities, including aboriginal
5. Do borrower’s processes rely heavily on water or operate in water scarce regions
Results combined with other assessments including broader environmental risk, quality of
management, financial analysis, legal review, etc
Beyond Credit RiskWhere else can we make a difference?Beyond Credit RiskWhere else can we make a difference?
Business Opportunities
– Public sector finance
– Infrastructure PPPs
– Business retrofits
– Water technology firms
Corporate Responsibility
– Fund academic research
– Fund awareness and outreach
– Fund innovation contests
– Support public policy re water
Operational Footprint
– Gray-water reuse in new buildings
– Low flow toilets
– Waterless urinals
– Automatic taps
www.rbc.com/environment
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