Banks Use Surface Water Data to Improve Credit Risk Analysis

Banks can leverage surface water data to assess risks and opportunities in sectors like agriculture, energy, real estate, and manufacturing. By integrating this data into credit analysis, they can mitigate water-related risks, promote sustainability, and support more resilient financial practices.

As climate change increasingly impacts industries worldwide, banks use surface water data into their lending decisions. Surface water—rivers, lakes, and reservoirs—plays a critical role in sectors such as agriculture, energy, and real estate. By leveraging surface water data, banks can better assess risks, adjust lending practices, and identify new business opportunities. This ensures borrowers and the bank remain resilient in water-related challenges.

In regions where water availability is crucial for economic stability, surface water data can enhance creditworthiness assessments and provide insights to structure loans that support sustainability.

1. Agriculture: Mitigating Water Scarcity and Yield Risks

Agriculture consumes nearly 70% of the world’s freshwater, making surface water data essential for evaluating risks related to water scarcity, droughts, and irrigation needs. Understanding water availability helps banks protect agricultural loans by linking them to water security.

France: Vineyards in Bordeaux

In France’s Bordeaux and Provence wine regions, vineyards face increasing drought risks due to lower water levels in the Gironde River, a key source for irrigation. Surface water data helps French banks assess the risk to vineyards, allowing them to offer lower interest rates to those investing in water-efficient technologies. Banks can also restructure loans for vineyards whose yields have been impacted by water shortages.

India: Agriculture in Punjab

Punjab, known as the “breadbasket of India,” relies heavily on water from the Sutlej River for rice and wheat irrigation. However, a report from the Indian Ministry of Water Resources reveals that surface and groundwater levels have declined by over 50% in recent decades. Banks can use this data to adjust loan terms, encouraging farmers to invest in water-saving technologies by offering lower interest rates or linking repayment plans to crop yields.

2. Energy Sector: Supporting Water-Dependent Power Generation

Energy production—particularly hydroelectric and thermal power plants—depends heavily on surface water availability. Fluctuations in water levels directly affect energy output, which impacts the ability of companies to repay loans.

Nepal: Hydropower Dependence

Hydropower provides more than 90% of Nepal’s electricity, making it highly vulnerable to changing water flows due to shifting monsoon patterns and glacial melt. Surface water data from rivers like the Karnali allows banks to predict energy output and assess the creditworthiness of hydropower projects. By understanding water flow trends, banks can offer better terms to energy companies that invest in sustainable water management systems.

Brazil: Hydropower Risk Management

In Brazil, where 60% of electricity comes from hydroelectric power, droughts have caused drastic reductions in reservoir levels. In 2021, these water shortages led to significant reductions in power generation, which weakened the financial stability of energy companies. Banks use surface water data to monitor reservoir levels and diversify their investments into alternative energy sources like wind and solar, reducing the risks of water dependency.

3. Real Estate: Assessing Flood and Water Access Risks

The value of real estate is closely tied to environmental factors such as flood risks and water availability. Surface water data allows banks to evaluate these risks and adjust loan terms based on water-related vulnerabilities.

France: Seine River Flood Risk

Properties along the Seine River in Paris are becoming increasingly vulnerable to floods. The 2016 floods alone caused €1 billion in damages. By using historical flood data from the Seine and Loire rivers, French banks can assess the risk of property investments in flood-prone areas and adjust loan-to-value ratios accordingly.

Senegal: Coastal Development Risks

In Senegal, cities like Saint-Louis and Dakar are facing rising sea levels that threaten coastal properties. According to a 2019 study, Senegal could lose up to 3% of its GDP annually due to climate-related flooding. Banks can integrate surface water and sea-level data to assess real estate risks in coastal areas, offering special loan terms to developments that prioritize climate-resilient construction.

India: Water-Scarce Real Estate in Bangalore

Bangalore, a major tech hub, faces severe water shortages, affecting both existing property values and new developments. Banks can use surface water data from local reservoirs and lakes to assess the sustainability of water-dependent real estate projects, offering loans with conditions tied to the installation of rainwater harvesting systems or water-saving infrastructure.

4. Water-Intensive Industries: Managing Manufacturing Risks

Industries such as textiles, food processing, and heavy manufacturing depend on large amounts of water. Water scarcity or contamination can disrupt production and increase costs, affecting a company’s ability to repay loans. Banks can monitor surface water availability to better assess these risks.

India: Tamil Nadu’s Textile Industry

In Tamil Nadu, the textile industry heavily relies on water from the Cauvery River for dyeing and processing fabrics. Recent water shortages have severely disrupted operations. Banks in India are increasingly offering sustainability-linked loans to textile manufacturers investing in water-saving technologies, helping to mitigate risks while promoting environmental sustainability.

France: Food Processing in Brittany

The food processing industry in Brittany depends on water from rivers like the Vilaine. Declining water levels have increased operational costs. By analyzing surface water data, banks in France can offer better loan terms to food processors that adopt sustainable water use practices, ensuring the longevity of their investments.

Bangladesh: Textile Sector Water Risks

Bangladesh’s textile industry, a key global supplier, relies on surface water for its production processes. As pollution and water scarcity threaten the industry, banks are using surface water data to assess risks. They also encourage investments in water treatment and recycling systems, reducing environmental impact while securing financial returns.

5. Municipal and Infrastructure Financing: Ensuring Water Utility Stability

Surface water data is crucial for banks financing municipal water utilities or infrastructure projects, especially in regions where surface water is the primary source for public supply. Stable water availability is key to ensuring these utilities can meet their financial obligations.

Nepal: Urban Water Systems

In Kathmandu, water shortages are becoming more frequent as nearby rivers experience declining flows. Banks providing loans for urban water infrastructure can use surface water data to evaluate the sustainability of these projects, offering favorable terms to cities investing in water-efficient systems like smart grids and rainwater harvesting.

India: Ganga River Cleanup Projects

The Ganga River, vital to millions, is under threat from pollution and overuse. Banks financing the “Namami Gange” cleanup project are leveraging surface water data to assess the river’s recovery progress. Loans are structured to incentivize water quality improvements, with interest rates linked to milestones in pollution reduction and water treatment advancements.

Banks Use Surface Water Data

Incorporating surface water data into credit analysis helps banks reduce risk, promote sustainability, and uncover new business opportunities. A report by S&P Global notes that water-related risks could impact up to 45% of global GDP by 2050. By using this data, banks protect their loan portfolios while aligning with environmental, social, and governance (ESG) standards.

Success Stories

  • In Senegal, banks are funding desalination projects to combat water shortages, turning a climate challenge into a lending opportunity.
  • In France, regional banks have collaborated with environmental agencies to prioritize green loans for farmers adopting sustainable water practices.

Key Statistics any ESG-performance driven banker should know

  • A CDP study found that water risks could cost businesses up to $301 billion globally, but opportunities related to water efficiency are valued at $711 billion.
  • The World Economic Forum ranks water crises as one of the top five global risks, highlighting the importance of water availability in financial risk assessments.

By leveraging surface water data, banks can ensure more sustainable lending practices, mitigate risks, and remain competitive in a world where water scarcity is an increasingly pressing concern. 

Interested in instantaneous access to hydrological data? We invite to explore our hydrological services.

banks use surface water data