Water Risk Assessment and GIS Go Hand in Hand
Climate risk is one of the primary concerns that the Federal Reserve cited in its annual financial stability report – an issue that is especially important for agricultural lenders.
A recent climate stress test by Rabobank found that “water stress is likely to have a high impact” on its global portfolio and that “water stress must be included more structurally in the bank’s risk management and underlying methodologies.”
Water risk assessments must be conducted before lending to investing in a farming operation or property. Unknown water risk can be a hidden time bomb that may cause borrowers to default on loans due to water issues such as scarcity and stress.
GIS technology is an appealing tool for assessing water risk because of its easily-digestible nature, ability to incorporate granular data sets, and interactive layers.
AQUAOSO outlines four key steps to a water risk assessment:
This post explains how water risk assessment and GIS data go hand in hand and why truthful, un-siloed, transparent datasets are key to mitigating water risk.
Identifying and Understanding Water Risk with GIS
Access to water analytics can help financial institutions identify and understand water risk. Static data sets may not be robust enough to provide the real-time, granular insights that ag lenders and investors require to fully understand the risk that water issues impose upon their portfolios.
GIS, which stands for “geographic information system”, is a way of analyzing data, presented in a geographic format that supports many layers of complex data and even 3D imagery. This serves to help pinpoint complex patterns and insights in an easy-to-visualize form.
For example, in agriculture, GIS technology can be used to track granular data such as moisture levels in a particular field as well as groundwater or snowpack data. This helps create a single source of truth or a system of record that all stakeholders can turn to when assessing the water risk of a given parcel of land or the viability of a crop.
Lenders, investors, and other agriculture professionals can find common ground about water risk and understand the data in the context of their businesses. This, in the end, reduces water risk throughout the supply chain. This can start from a financial institution and its need to lessen risk in its loan and/or investment portfolios.
Additionally, ag professionals can more easily see the impact that climate-related events like wildfires and droughts could have on their crops or lending portfolio. Identifying and understanding these trends is a major part of the water risk assessment process. With ESG reporting requirements closing in quickly, this process will become vital.
While some of this research can be done using static maps and datasets, conducting a water risk assessment with GIS can save time and money. GIS turns complex data fields into a visual representation. Because it relies on a familiar map-based medium, it’s interactive, intuitive, and searchable.
Monitoring Water Risk With GIS
Conducting a water risk assessment with GIS can provide insights into the water security of a particular piece of land.
Without GIS, this is hard to do because water risk can be a moving target. According to the World Wildlife Fund, “Water scarcity normally arises due to a complex interaction of social, economic and environmental factors. It is seldom the product solely of a lack of precipitation.”
This is why monitoring water risk on an ongoing basis is so important.
Once a particular dataset has been incorporated into a GIS system, it must be consistently monitored over time. GIS systems are usually easy to update – especially if they’re used alongside smart sensors and IoT technology – making it doable and digestible to add new data points and track and monitor data over a longer timescale.
Many ag lenders and investors are taking an active role in land and water management because investing in sustainable agricultural initiatives – and making sure that growers have the resources they need to follow through with sustainable projects – leads to improved longevity and risk resilience, and ultimately, a more consistent ROI.
GIS tools can help to facilitate this relationship, by providing a shared resource that both lenders and growers can use to monitor the water security of farmland on a parcel-by-parcel basis.
How GIS Contributes To Risk Mitigation
Stakeholders at all levels can use GIS to mitigate water risk. The more clearly ag professionals identify and monitor water risk, the easier it will be to address it. This step can include investing in more efficient irrigation methods to conserve water and reduce a farm’s dependence on groundwater, or the exploration of smart water markets where excess water can be bought and sold in order to mitigate water shortages.
GIS can help ensure that money is invested in the areas where it will be most useful for conservation purposes and for shoring up the agricultural sector in periods of drought or extreme weather conditions. For example, The Nature Conservancy uses GIS to identify “the long-term viability of ecosystems, the cost and feasibility of the action, and what is likely to happen in a future climate facing other threats.”
Ultimately, successful water risk mitigation requires collaboration at many levels, from effective legislation to private sector investment to more resilient farming practices. GIS is a medium for this collaboration,
At every level, open and transparent data can lead to better decision-making strategies and help to address any risk factors before approving a new loan or investment.
Read more about GIS and water risk in AQUAOSO’s GIS in Agriculture Guide.
The Bottom Line
Water risk is a major concern for ag lenders and other ag professionals, but performing a water risk assessment can be a tedious and time-consuming process. With GIS tools, complex datasets can be turned into intuitive, interactive maps that incorporate multiple layers of information, from general water trends to parcel-specific insights.
GIS technology can be used throughout the risk assessment process, from identifying and understanding water risk, through to ongoing monitoring and risk mitigation.
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