Assessing Risk and Return on Investment across Canada: Insights from Case Studies using RROIT

In 2018, with funding from National Disaster Mitigation Program (NDMP), Canadian Mortgage and Housing (CMHC), RBC Nature Tech, Neptis Foundation, Peel Region and Member Municipalities, Credit Valley Conservation (CVC), and Risk Sciences International (RSI) developed the Risk and Return on Investment Tool (RROIT) to help municipalities, property owners and financial investors make evidence-based, cost-effective decisions to reduce flood and erosion risks. RROIT is a multi-flood hazard tool aimed at reducing risks under existing and future climate scenarios. Along with aiding decision-makers in understanding the financial implications of extreme events associated with climate change, RROIT can also help meet the requirements of Canadian government funding programs, for which Infrastructure Canada’s “Climate Lens” is required for approval. RROIT has been piloted in five municipalities across Canada to demonstrate that combining management options can simultaneously retain stormwater runoff, reduce damages, and provide co-benefits, such as improving water quality. RROIT can present quantitative costs from a risk assessment regardless of whether neighbourhoods, municipalities, and regions are data rich or lack quantitative models. Some of the financial analysis and management options RROIT can apply to riverine flooding, erosion, urban flooding, and basement flooding. Results produced from using RROIT can be presented in the form of flood risk maps, summary graphs, and tables that reflect the event-based economic impact of flooding and erosion. The tool also has the ability to compare the costs of grey, green, and natural assets. By using RROIT, local governments can inform significant processes, such as infrastructure master planning, watershed planning, asset management, and the identification of critical infrastructure.

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Understanding and Assessing Impacts

Climate projections have demonstrated increasing costs and risks under plausible future climate change scenarios. Future climate conditions within RROIT are based upon the Clausius-Clapeyron relation — a theoretical relationship between air temperature and the amount of water the air could potentially hold —which indicates that an increase in air temperature of 1°C corresponds to an increase of approximately 7% in rainfall amounts. Accordingly, future storm return periods in RROIT are adjusted using a regionalized approach, whereby IDF station data with 30+ years of records are analyzed for future time horizons using the Clausius-Clapeyron adjustment. The temperature change applied in the Clausius-Clapeyron adjustment was the projected increase in annual daily maximum air temperature for the future time periods of 2050 and 2080. Projected temperatures are based on the average output of 37 Global Climate Models (GCMs) within the CMIP5 ensemble. Consistent with a precautionary approach for estimating risk, the tool uses RCP 8.5 (high emissions) as a default scenario. Outputs of RROIT include flood risk area maps that highlight buildings and infrastructure at risk for flooding under the current climate-based storm events, including the 2-, 5-, 10-, 25-, 50-, and 100-year return period. The RROIT methodology used for riverine surface flooding utilizes flood elevations for different flood frequencies to estimate damages, which are adjusted for climate change under future climate scenarios. Such information allows for the monetary quantification of structure and content damage in private and public infrastructure flooding. RROIT provides the business case for investing in infrastructure and natural assets while presenting the financial assessment and return on investment to support decisions.

Identifying Actions

Once RROIT identifies the baseline conditions and associated damages, RROIT can then compare flood mitigation measures and evaluate flood risk damage and reduction. The baseline results can also help municipalities target hazards (i.e. riverine flooding, erosion, urban overland flooding, and basement flooding), as well as identify priority areas for each hazard to assist in decision-making. RROIT uses available area-based damage curves to estimate direct damage costs. The event-based damages are converted to an average annualized damage (AAD) under current climate and future climate scenarios. RROIT’s climate change predictions module allows users to project flood and erosion risks and damages under future 2050 and 2080 climate horizons. The AAD provides a risk-based financial metric, which can be used as a guide to determine a reserve budget that municipalities would need to allocate to respond to extreme events. The dollar values AAD represents can be compared to the savings of mitigation measures to determine the return on investment.

Implementation

RROIT has been piloted in several municipalities across Canada, including one municipality in a fully developed watershed that was established prior to flood and water quality control requirements, making this community especially susceptible to riverine flooding. Applying RROIT’s riverine flood risk assessment feature, the tool was used to direct flood mitigation strategies within the watershed, with key objectives including the consideration of socially vulnerable populations and emergency preparedness, planning, and outreach. This case study applied RROIT in a highly urbanized watershed, examining riverine flooding, erosion, and urban overland flooding. RROIT’s climate change predictions module was run to project flood and erosion risks and damages under 2050 and 2080 climate horizons. Comparing current and future (2050) time periods, floodplain areas were predicted to increase and were therefore modelled to asses for future flood management and protection strategies. Furthermore, these projected increases in flooding revealed subsequent increasing exposure of buildings and facilities in the floodplain, which was then used to identify financial damages both now and in the future. Making smart decisions about risk and prioritizing retrofits is part of how municipalities build resilient communities. In this case study, the RROIT produced priority mapping to target investment for the greatest return on investment. A cost-benefit analysis was then completed for each adaptation option evaluated. This was done by comparing the annual benefits (i.e. savings from damages averted) and annual damages (i.e. costs from flood and erosion damages) and by presenting financial metrics to assist users in evaluating options for their greatest return on investment. One such metric was net present value, which is the difference between the present value of cash inflows (i.e. damages averted) and the present value of cash outflows (i.e. investment cost to the municipality). RROIT outputs are currently being used to support federal infrastructure funding grant applications which require a climate change lens and which have been used to increase capacity among municipal and Conservation Authority staff, such as those involved in emergency management for flood evacuation planning.

Outcomes and Monitoring Progress

The outcomes and monitoring process is specific to the community in which the tool is applied. RROIT is in the process of becoming more widely implemented and disseminated for use across Canada. Within the context of monitoring progress in the case study described above, monitoring is an essential component of implementing identified watershed-based solutions to ensure that risk reduction is, in fact, achieved. To date, monitoring water quality, water quantity and watershed health ensures that degradation or impacts are noted and tracked over time. Long-term trends in these datasets can indicate possible outcomes in the frequency and severity of flooding and, in turn, contribute to adaptive management.

Next Steps

Within the context of the community case study described above, next steps include identifying and further developing high-priority flood risk reduction opportunities that achieve co-benefits. These opportunities are currently being discussed among staff at the municipality and the Conservation Authority to determine timelines for implementation and financial feasibility. In brief, output from RROIT is being used to inform discussions and possible development of or updates to:

  • Capital budget allocations toward flood and climate risk priorities;
  • Projects included within stormwater or transportation master plans;
  • Communication pieces associated with risk and risk management;
  • Geospatial mapping to inform watershed plans and asset management planning; and,
  • Identification of critical infrastructure among emergency management staff.

Resources

Link to Full Case Study