EBA Journal: Winter 2025 Edition

EBA JOURNAL Winter 2025 | Volume 10, Issue 1

Innovating Continuing Education

EBA Journal – Winter 2025 Edition

EBA and Authors Copyright Disclaimer These documents and resources are provided solely to members of the Environmental Bankers Association, Inc. (EBA) for informational purposes only. EBA members are authorized to use these materials for internal reference or training purposes, but are not authorized to disseminate or publish any portion of the document to non-EBA members or the general public without prior written consent from EBA. Non-EBA members are not authorized to use these materials for any purpose without the prior written approval of the EBA. Neither the EBA, nor any of its directors, officers, employees or agents, nor any of the Authors makes any representations or warranties, express or implied, or assumes any legal liability for the completeness, reliability, timeliness, currency, accuracy or usefulness of the information provided herein, or for the applicability of the information provided herein to the facts and circumstances particular to any specific use, including but not limited to information found through any links or references to resources, case studies, projects and/or services referred to within these resources.

EBA Journal Winter Edition Volume 10, Issue 1, January 2025

EDITOR/ COMMITTEE CHAIR Victor DeTroy

COMMITTEE The viewpoints and information provided by the Authors is their personal viewpoints and information, and not the viewpoints or information of the organizations of which they are employed or affiliated.

Meghan Conan Tina Huff Elizabeth Krol

Rachel McShane Any action taken based upon the information provided in or through these documents and resources is done so strictly at your own risk. Neither the EBA nor any of the Authors shall be liable for any damages of any nature incurred as a result of or in connection with the use of this information. These materials and the information herein do not constitute legal or other professional advice or opinion. It is recommended that you seek appropriate legal or other professional advice to determine whether any advice, actions or practices referenced within these resources is appropriate or legally correct in your jurisdiction.

Mike Nesteroff Ruxandra Niculescu

Thomas Rengert Mike Seney Stephanie Trueb Charlene Webber

Rita Wiggin

Some of the material provided herein has been published with permission of the copyright holder and is not the copyrighted content of the EBA. Where applicable, attribution to the copyright holder has been given herein. No permission is granted to republish any such content without seeking express permission of the copyright holder.

1

EBA Journal – Winter 2025 Edition

2025 BOARD OF GOVERNORS President

Vice President

David Lambert, Wells Fargo

John Rybak, Truist Bank

Treasurer

Secretary/

Mary Clare Maxwell, Northern Trust

Continuing Education Committee Chair

Mike Seney, SouthState Bank

Governor/ Governor

Conference Committee Chair Jennifer Bellamy, US Bank

Onamia Chun, Zions Bancorporation

Governor/

Governor/

Membership Committee CoChair Enrique Garcia, JPMorgan Chase Bank

Risk Management Committee Chair

Brian Aubry, Comerica Bank

Governor

Governor/

Siri Hill, Woodforest National Bank

Membership Committee Co-Chair Carla Nelson, Bank of Hope

Affiliate Governor

Affiliate Governor

Meghan Conan, ASTM

Elizabeth Krol, Ramboll

Affiliate Governor Victor DeTroy, AEI Consultants

Thank you for your service to the Environmental Bankers Association!

2

EBA Journal – Winter 2025 Edition

In this issue:

5-6 Welcome to EBA – A Message from the EBA President 7-16

2025 CRE Lending Market Update and Near-Term Forecast: Near-Term Caution, Long-Term Optimism

19-26 Use of Flood Risk Data and Modeling in Commercial Loan Underwriting and

How This May Evolve with Promulgation of the ASTM Property Resilience Assessment (PRA) 28-36 EPA Proposes Increases of PFAS Under Regulation: Are Your Investments at Risk?

37-40 The Cosmetic Conundrum: Unmasking PFAS in Your Beauty Routine

41-42 Intro for ERM Essay Corner 44 EBA ERM Course: An Overview from a new participant on ERM Certification Course Pre-Reading: A Snapshot of the History 45-46 Reflections of Environmental Remediation

47-54 The Environmental Risk Manager’s Role in Helping a Home Baker and New Restaurateur Realize Their Dreams

55 Spotlighting New Members 59-60 EBA Committee Updates 61-64 DEI Committee Corner 65-69 Circular Economy Due Diligence 71-78 Leveraging Technology for Retrofitting Building Practices 79-83 EPA Releases Draft Risk Assessment to Advance Scientific Understanding of PFOA and PFOS in Biosolids 3

EBA Journal – Winter 2025 Edition

We are environmental professionals, not comedians. So we asked AI help provide some comic relief for the journal. The results were….Interesting.

Disclaimer: We know there are spelling errors. We know it is nonsensically bizarre (bordering on terrifying).

We asked AI (very nicely) to fix them, and it refused.

We shalt not criticize AI; we are trying to curry favor in case it goes full Terminator on us.

AI, can you show us a funny meme about the relationship between AAI and ASTM E1527-21?

Looks like they lived happily ever after.

4

EBA Journal – Winter 2025 Edition

Welcome to EBA A Message from the President

EBA President David Lambert, Wells Fargo Bank

A MESSAGE FROM THE PRESIDENT It is with great pleasure and excitement that I welcome esteemed colleagues to EBA’s 2025 Annual Conference in Nashville, TN! We gather as an industry at a pivotal time in our profession, as we navigate an ever-evolving landscape of environmental regulation and a changing of the guard as seasoned veterans leave the industry to enjoy their golden years.

As environmental risk professionals, we are tasked with identifying, understanding, mitigating, and addressing risks that not only impact our organizations but the broader world (and climate) around us. The work we do is more crucial than ever, and the knowledge, skills, and strategies we employ must continuously adapt to keep up. The fantastic agenda created by the Conference Committee, chaired by Jennifer Bellamy, is aimed squarely at this goal.

5

EBA Journal – Winter 2025 Edition

As a Board of Governors, in 2025, we are focused on our key strategic priority of fully operationalizing EBA’s certificate educational program. This includes finalizing formal accreditation, development of new content offerings, increased cadence of the Environmental Risk Manager (ERM) certificate classes, and making the program financially sustainable. We made great progress on this in 2024 by rolling out the first two cohorts of the ERM certificate class with an additional three cohorts scheduled for 2025. Thank you to all the volunteers working in EBA’s committee structure to make this happen!

I would like to introduce and welcome new Governors who joined the Board since our last meeting: ❖ Siri Hill, Governor, Woodforest National Bank ❖ Enrique Garcia, Governor, JPMorgan Chase Bank ❖ Victor DeTroy, Affiliate Governor, AEI Consultants ❖ Elizabeth Krol, Affiliate Governor, Rambol And, a big thank you for your service to outgoing Board members, Rita Wiggin, First Bank and Scott Davis, ERIS! I encourage each of you to make the most of the sessions, discussion, and networking opportunities throughout this conference. This is not only a time to learn but also a time to connect with fellow members who share our common vision of elevating the industry.

Nashville, TN

As always, to our sponsors who play a big role in supporting EBA’s mission thank you! Your Board of Governors will be present at the conference to welcome you, listen to feedback, and answer questions, so feel free to reach out. I look forward to seeing everyone!

David Lambert EBA President

6

EBA Journal Winter 2025 Edition

2025 CRE Lending Market Update and Near-Term Forecast: Near-Term Caution, Long-Term Optimism

By: Dianne P. Crocker, Research Director, LightBox

One year ago, after a slow 2023, the Federal Reserve had just announced its intent to begin lowering interest rates. This significant change in tenor awakened hope and optimism that the slowdown in commercial real estate lending and transactions would finally thaw in 2024. Instead, it took five more Fed meetings of keeping rates “higher for longer” before the mid-September rate cut was followed by two more before the year ended. This later-than-expected start to the rate cut cycle slowed the recovery in commercial real estate lending and investment activity that many had forecast for last year. Yet even a few late-year rate cuts were a refreshing step in the right direction, signaling the dawn of a new phase for CRE lending and investment.

As I write this, it’s mid-winter in New England, and it’s easy to imagine the commercial real estate market as a frozen pond with lenders and investors seeing the first entry point to skating that they’ve seen in more than two years.

Some parts of the pond, however, still warrant a cautious approach.

7

EBA Journal – Winter 2025 Edition

Despite a volatile fourth quarter and continued uncertainty, the pervasive market sentiment is still largely bullish about CRE lending and investment in 2025 and broad signals are pointing to a positive market shift gaining momentum. The market is adjusting to a new mindset that future rate cuts may be neither imminent nor guaranteed. Investors are demonstrating a willingness to deploy capital, encouraged by a round of deals that closed late in 2024 and a loosening of debt-side purse strings as banks reinvigorate lending for the first time in years. The forecast is not without its headwinds, however. The uncertainty of how President Trump’s campaign positions on issues like immigration, tariffs and deficit spending will take shape in the form of new policies has implications for the construction, lending, and investment sectors. The lingering threat of inflation and concerns that new federal policies could trigger inflationary pressures may motivate the Fed cause to pause further cuts.

Based on direct outreach to LightBox’s CRE Market Advisory Councils in the environmental due diligence and capital markets segments, below are the top five predictions for what we can expect this year and a look at the near-term outlook.

1.

Interest rates edging down 50-75 bps for the year.

The year’s most significant market development of 2024 was the long anticipated 50 bps cut in interest rates in mid-September, followed by more modest 25 bps cuts in November and December. The question now of course is: what’s the future trajectory of interest rates?

Inflation has moderated significantly since mid-2023, but the last step to reaching the Fed’s 2% target is proving to be a challenge given uneven pace of the latest monthly inflation reports. Recent statements from the Federal Reserve point to a cautious stance due to persistent inflation and concerns that potential trade tariffs and immigration policies could reignite price pressures.

8

EBA Journal – Winter 2025 Edition

While “higher for longer” rates are not the ideal scenario, commercial real estate lenders and investors are recalibrating around the likelihood that rates—while not as high as early 2024—are not likely to come down much this year. Over the next few quarters, more clarity around new federal policies will emerge, but for now, the expectation is for only moderate rate cuts in the range of 50-75 bps for the year. If inflation approaches 2% and the labor market remains healthy, the Fed may cut rates further, which would add up to a significant tailwind for lending activity.

“Inflation remains the biggest challenge. The potential for tariffs and immigration policy changes could be inflationary, limiting the Fed’s ability to lower rates. If the economy remains strong in 2025, the Fed can afford to be patient. If it slows and inflation remains above their target, they will be in a difficult situation.”

– Bryan Doyle, Managing Director, Capital Markets, CBRE and member of LightBox Capital Markets Advisory Council 2. CRE lending poised to increase by about 25% as banks re-engage.

Interest rate cuts and election results dominated the headlines in Q3 and Q4, but the re-emergence of big banks into the lending arena was another important lateyear development.

In the first half of 2024, many lenders focused on divesting portfolios of nonperforming loans to limit their exposure to CRE risk and increase liquidity, as often happens at this stage of the market cycle. The slow pace of loan originations and refinancing in the first half of 2024 turned the corner by the third quarter when data from the Mortgage Bankers Association showed a dramatic 44% increase over second quarter activity. (At press time, the MBA had not yet released Q4 data.) As big banks come off several years of restructuring, modifications, and the sale of non-performing loans to improve their balance sheets, their just-released Q4 earnings reports paint a healthier financial picture that paves the way for their return to CRE lending.

9

EBA Journal – Winter 2025 Edition

3. CRE property transactions will rebound 15-20% as pricing stabilizes.

Going hand in hand with the expected uptick in CRE lending is an increase in commercial property transactions. LightBox Market Advisory Council members are forecasting an increase in the range of 15% to 20% above 2024 levels, driven by stabilizing property values, the return of institutional capital, and improving lending conditions.

After years of a buyer-seller standoff over asset prices, signs of prices bottoming out in key sectors are encouraging investors to re-enter the market. Growing investor momentum, as evidenced by the latest rounds of nine-digit deals tracked

by LightBox since last summer, marks a meaningful turning point for CRE. Demand for commercial property investment is rooted in trends like the explosive growth of the digital economy, the hybrid work dynamic, and the repurposing and redevelopment of space, especially in the office and retail sectors.

10

EBA Journal – Winter 2025 Edition

In the office sector, certain markets are notably showing early signs of stabilization as property value declines moderate after two years of correction, but the story is more nuanced than the headlines suggest. Miami, Seattle, and Manhattan set office leasing and sales records in Q4’24, signaling renewed interest, at least for highquality, well-located assets. Institutional investors are capitalizing on distressed opportunities, especially in the office sector, where nearly 10% of Q3 2024 sales were distress driven. While some older office assets with high vacancies face challenges, a shortage of Class A space in prime locations is spurring demand and driving interest in redevelopment projects, including conversions to apartments, medical offices, and senior housing.

Multifamily and industrial deals continue to dominate transaction volumes, while retail assets—particularly open-air shopping centers and mixed-use developments—are drawing interest given record-low vacancy rates and renewed investor confidence. Investor interest in data centers is also surging, fueled by the explosive growth of the digital economy and the increasing demand for AI-driven technologies. As businesses prioritize cloud computing and data storage, data centers have become one of the most desirable asset classes in CRE and President Trump’s new focus on investing $500 billion AI infrastructure will only add to that momentum.

Although the recovery remains uneven across sectors and geographies, declining interest rates, easing financing challenges, and abundant sidelined capital are expected to drive momentum for CRE transactions across asset classes and geographies.

11

EBA Journal – Winter 2025 Edition

4. Treasury yield will remain volatile, hovering around 4% at year-end The 10-year Treasury yield, after a year of significant volatility, will be a closely watched barometer this year given market uncertainty. Market Advisory Council members forecast that the yield will hover around the 4% for much of 2025, although one forecasts the yield could drop as low as 3.2% this year.

At press time, the 10-year Treasury yield is 4.61%, little changed from its yearend 4.58% high after an extremely volatile fall. The yield jumped 40 basis points in December above November, after October ranked as the 4th most volatile month for the 10-year Treasury market since 2010. The volatility reflects cautiousness on the part of investors who are closely watching factors like federal deficits, potential tariffs under the Trump administration, and inflationary pressures. These concerns have kept yields elevated, nearly 100 basis points higher than September 2024, reflecting ongoing uncertainty in the cost of capital.

While high Treasury yields are expected to temper market enthusiasm somewhat, the good news is they are unlikely to derail the moderate recovery anticipated this year.

Slightly lower borrowing costs, stronger fundamentals across asset classes, and stabilizing valuations are creating opportunities for investors, even in a higheryield environment. Dealmakers are expected to remain selective, with labor market and pricing data playing key roles in shaping bond market trends.

Despite the challenges posed by elevated yields, the outlook for CRE remains positive, driven by improving market clarity and a growing pipeline of buying opportunities compared to last year. The 10-year Treasury yield will remain a critical benchmark for gauging investor sentiment and the broader financial environment in 2025. As long as the Treasury yield remains elevated and volatile, dealmakers will proceed with caution and be selective in their investment targets.

12

EBA Journal – Winter 2025 Edition

5. LightBox CRE Activity Index will continue slow trajectory, approaching 100 by year-end As a more broad-based recovery takes root, the LightBox CRE Activity Index tracks the market’s slow move back to recovery as it responds to a dynamic economic and political environment. The index is an aggregate measure of how momentum across critical functions like property listings, appraisals, and environmental due diligence is shifting in response to market forces. The accompanying figure shows the Index going back to 2022 and expressed as a 12-month moving average to smooth out seasonal volatility and track a broader trajectory of gradual recovery. Based on the latest forecasts for investment and lending activity, and considering the myriad areas of market uncertainty, LightBox predicts moderate improvement in the CRE Activity Index in the range of 95-100 by the end of this year.

At year-end 2024, despite a low December, the 12-month was 84.4, an improvement over 78.84 at year-end 2023 when transactions were thwarted by high interest rates, low origination demand, and a lack of pricing clarity. This improvement reflected the start of the interest rate cut cycle, tempered by uncertainty about future rate cuts and future federal policies.

13

EBA Journal – Winter 2025 Edition

Looking ahead, the 12-month moving average is expected to increase slightly in the first half, as broad signals point to investors demonstrating a willingness to deploy capital and the loosening of debt-side purse strings as banks reinvigorate lending for the first time in years. An increase in property listings over the course of 2025 will trigger demand for the environmental due diligence and appraisal activity that supports transactions and contribute to upward momentum in the index. By the second half of 2025, barring any significant market upset and assuming the Fed agrees to a few more interest rate cuts, the 12-month moving average will be in the 95-100 range, compared to 84.4 in 2H’24 when the market was impacted by major storms, a divisive election season, and dramatic swings in the 10-year Treasury yield.

LightBox CRE Index, Moving Average (2022-2025 Forecast) 140 120 100 80

60 40

0

JAN'22 FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN'23 FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN'24 FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN'25 FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

20

NOTE: The LightBox CRE Activity Index is based on changes in environmental due diligence (measured by Phase I ESA volume), commercial property listings, and valuation market activity indexed to a baseline (Q1 2021 monthly average =100) to give market watchers a pre-slowdown basis of comparison. The index is normalized to account for variations in the number of business days per month. The index shown above is calculated as a 12-month moving average to smooth out short-term fluctuations due to seasonality or market shocks and illustrate the long-term trend.

14

EBA Journal – Winter 2025 Edition

If Not a ‘Banner Year,’ A Better Year Commercial real estate lending and investment is set to march toward moderate recovery this year as two key obstacles—high interest rates and price uncertainty— continue to improve. The strong US economy, stabilizing property prices, and narrowing bid-ask gaps are creating an environment more conducive to lending and investing than what we saw in 2024. While the pace of recovery is expected to remain measured due to significant risks and uncertainty, overall market sentiment is optimistic, driven by the sense that prices in many sectors have bottomed out.

“I predict a noticeable rebound in the 2025 Phase I ESA market as economic conditions stabilize. However, a return to pre-2023 levels will likely require significant economic momentum, which I am not sure we will see in 2025.”

– Brian Wilson, Managing Principal, August Mack The Federal Reserve’s anticipated rate cuts and clarity on federal policies regarding tariffs, deficit spending, and immigration are the biggest question marks, and will play a crucial role in how CRE markets shape up over the course of the year.

Inflation concerns, fueled by potential policy changes, and volatility in the 10-year Treasury yield remain top-of-mind for investors. Despite these challenges, eager investors are placing capital, and distressed opportunities—particularly in office and multifamily sectors—are beginning to surface as maturing loans force financial reckonings.

With sidelined capital flowing back into the market and pricing trends showing signs of upward movement, 2025 could be a turning point for real estate. While distress and loan extensions will be present, market stability and growing investor demand will be strong tailwinds. Input from the leading professionals on the LightBox Market Advisory Councils for capital markets and environmental due diligence are already reporting seeing more portfolios, higher interest from institutional investors, and reengagement from clients who were in wait-and-see mode for much of 2024. Debt funding will remain accessible but with a changing lender mix, as banks cautiously re-enter the market. Developers will also be targeting new opportunities for repurposing underutilized properties into more desirable uses.

Against this backdrop, the outlook for 2025—after a challenging 2-1/2 years, is that CRE lending and investment will likely outpace 2024, but growth will remain moderate given the significant uncertainty and the persistent threat of inflation that will impact further rate cuts.

NOTE TO READERS: For a more detailed discussion of CRE predictions, including a detailed asset class discussion, see the full LightBox 2025 Predictions Report.

15

EBA Journal – Winter 2025 Edition

ABOUT THE AUTHOR Dianne Crocker, Research Director at LightBox and co-host of the new CRE Weekly Digest podcast, leads the generation, analysis, and reporting of the company’s full suite of market metrics. With more than 25 years’ experience in the commercial real estate industry, she has analyzed the market through four cyclical downturns and regularly presents at leading industry conferences, webinars, and LightBox’s own events.

Recent market keynotes include: the January 2025 Environmental Bankers Association conference, 2024 Counselors of Real Estate New England conference, 2023 Credit Union Business Group conference, 2023 Real Estate Summit of the MBA of NY, and the Summer 2022 GlobeSt. Women of Influence conference.

In 2024, Globe St. Real Estate Forum recognized Crocker on its list of nine professionals deserving of the Special Recognition: Mentorship Award, as well as being recognized on CREi’s 2024 List of Influential Women in Commercial Real Estate, which recognizes women based on their social and industry influence. She was also honored to receive the Environmental Bankers Association’s 2023 Community Impact Award, and in 2022, GlobeSt. included her as a leading Advisor in CRE based on career achievements, community outreach and mentorship. She served as co-chair of LightBox’s Women’s Inspiration Network (WIN!), an affinity group dedicated to inspiring, motivating, and empowering the women of LightBox. She is also a co-founder of LightBox’s Developing Leaders mentoring program, now in its sixth year of connecting young environmental professionals in the consulting and lending sectors with veteran mentors. Crocker is a passionate member of CREW Boston and CREW Network and is currently serving a two-year term as a CREW Network Foundation Director.

16

EBA Journal – Winter 2025 Edition

17

EBA Journal – Winter 2025 Edition

AI, what would the big four look like as old timey cartoons?

I guess the critters on the right are the happy consultants that get to review them.

Disclaimer: We asked AI to fix the spelling errors, and it gave us even more. Turns out, AI is more passive aggressive than a teenager.

18

EBA Journal – Winter 2025 Edition

Use of Flood Risk Data and Modeling in Commercial Loan Underwriting and How This May Evolve with Promulgation of the ASTM Property Resilience Assessment (PRA) By: Albert J. Slap, President, Coastal Risk Consulting, LLC .

For decades, commercial lenders have used FEMA flood zones and FEMA flood maps in a binary, decision-making process to determine if loans are approvable and, if flood insurance is a necessary pre-requisite to the loan. While broader and more accurate flood maps for the US have been available for years, their use by commercial lenders has been sporadic. With the new ASTM Property Resilience Assessment (PRA) “best practice”, commercial lenders will now be exposed to property-specific, flood mapping covering many more types of flooding than FEMA flood maps provide, over wider areas of the US, and in much greater levels of detail. As a result, many commercial lenders will likely need to revisit their underwriting procedures and standards, and reassess their policies, as they relate to flood risks.

19 19

EBA Journal – Winter 2025 Edition

Ninety percent of natural disasters within the United States involve flooding. Consequently, floods inflict more economic damage and loss of life and property than any other natural hazard. Flooding is one of the most common and devastating natural disasters. It can occur anywhere, even in areas not typically prone to floods. Due to climate change and other factors, there has been a significant increase in flooding in all areas of the US causing billions of dollars of damage and significant disruptions in people’s lives. Flooding has cost US taxpayers more than $850 billion since 2000. Given increasing flood damage and loss in the US over the past 5 years, a closer look at the important topic of how flood risk is factored into commercial real estate loan underwriting is timely.

Current Flood Risk Assessments in Commercial Loan Underwriting While it is commonly stated that flood risks are a critical factor in commercial real estate loan underwriting, just how critical are they? Some pertinent questions include these: ❖

Are commercial loans declined because of the presence of significant flood risks? If so, why?

❖ Are there types of severity levels of flood exposures that are just too risky (i.e., unacceptable) for commercial lenders? If so, what are they and why?

❖ What are the measures that lenders employ to reduce default risks for loans in high-risk flood areas (e.g. requiring borrowers to install risk-mitigation measures) ❖ How differently do underwriters assess current year flood risks vs. long-term, climate change risks, such as sea level rise?

While we aren’t necessarily able to answer these questions, they are a good place to set the stage for this inquiry.

20

EBA Journal –Winter 2025 Edition

For many years, lenders have typically used FEMA flood maps and zones as a primary source to determine if a property is located in a 100-year flood zone or flood plain. A FEMA 100-year flood zone is also known as the Special Flood Hazard Area (SFHA). For residential and commercial loans, if a property is located in a FEMA 100-year flood zone, and a mortgage is provided by a federal mortgage loan guarantee institution, then, the borrower must obtain federal National Flood Insurance Program (NFIP) flood insurance coverage. This requirement applies to properties with mortgages from government- backed lenders, such as those insured by Fannie and Freddie, the Federal Housing Administration (FHA), the Veterans Administration (VA), or the U.S. Department of Agriculture (USDA), etc.

In Commercial Loan Underwriting, How Might Flood Risk as a Factor Change with the ASTM Property Resilience Assessment (PRA)?

First of all, it is important to point out that FEMA flood maps do not include heavy rainfall or pluvial flood risks. Extreme rainfall has significantly increased flooding damage and loss in the US over the past few years. Extreme rainfall events have become more frequent and intense due to climate change.

A warmer atmosphere can hold more moisture, leading to heavier downpours. Flash floods due to extreme rainfall, as we experienced recently with Hurricane Helene in Tennessee and North Carolina, have risen dramatically. For example, in 2024, there were 91 flash flood emergencies, the highest since records began in 2003. Rainfall from hurricanes Debby, Francine, Helene and Milton accounted for about half of all flash flood emergencies issued last year, according to CNN. Helene dumped never-before-seen rainfall amounts of up to 30 inches in western North Carolina and caused catastrophic flood damage that left many locales unrecognizable. Helene accounted for more than 30 flash flood emergencies on its own. Consider for perspective, there were 29 total flash flood emergencies in 2023.

21

EBA Journal – Winter 2025 Edition

After a flood, many property owners claim, “My insurance agent and the bank said I didn’t need flood insurance.” While they may have meant that flood insurance was not federally required for the loan, owners might interpret this as a sign of minimal flood risk. Even if federal law doesn’t mandate flood insurance for Zone X properties, risks still exist, and NFIP coverage is available. Flooding can occur in these areas, becoming more common due to climate change.

Properties located in FEMA’s blind spots are being pummeled at an alarming rate.

For example, after Hurricane Harvey hit the Gulf Coast of Texas in 2017, the Harris County Flood Control District, which includes the city of Houston, found that half of the 204,000 homes that flooded were outside the federal hazard zone. According to FEMA, 40 percent of claims made through its National Flood Insurance Program come from people beyond the 100-year floodplain.

Additionally, if a property is not in a FEMA flood zone, but there are other substantial flood risks, the FEMA map may mislead a commercial loan underwriter to determine that a loan should be approved, when actual flood risks may be much more significant than the FEMA-mapped risks and, the loan should either not be approved or it should be conditioned upon the borrower making reasonable, flood risk mitigation investments.

A two-car garage leans precariously on its foundation as a torrent of water flows over a crumbled and undulating driveway following a flood in Barre, Vermont.

John Tully / The Washington Post via Getty Images

22

EBA Journal – Winter 2025 Edition

The ASTM Property Resilience Assessment (PRA) In the past, due diligence for physical/environmental aspects for commercial loans has mainly consisted of the Phase I ESA (presence of hazardous substances and petroleum products), a FEMA flood map, a Property Condition Assessment (PCA) and perhaps a seismic risk assessment in earthquake-prone areas. As of November 2, 2024, however, a new “best practice” for due diligence has been introduced by ASTM International. It is called the Property Resilience Assessment or PRA and, it recommends for CRE transaction due diligence a much more in-depth and holistic approach to exposures to floods, natural hazards, extreme weather, and future climate impacts. ASTM International standards are widely regarded as "best practices" in many industries. These standards are developed through a consensus process involving industry experts, ensuring they represent the most current and effective practices. They provide guidelines, test methods, and specifications that help ensure quality, safety, and efficiency.

In a December 17, 2024 Press Release from ASTM, “New Standard Provides Approach for Property Resilience Assessment,” it stated: “The PRA described in E3429 is designed to accompany [a] phase I environmental site assessment, as presented in ASTM standard E1527; and property condition assessment, covered in ASTM E2018.”

Let’s focus on the flood information a loan underwriting team would typically have available to it during the fast-paced, underwriting process. Historically, the loan underwriting team would only see a FEMA flood map of the property. With the advent of the PRA, however, it is likely that underwriting teams will soon be receiving much more information about flood risks (and other hazards as well) than was previously provided to them. Hazard exposure maps and models, risk scoring, and data are available through the Risk Footprint and other software-as-a-service tools. In 2025, bank and non-bank lenders may begin to require PRAs to be included with Phase I ESAs, as ASTM suggests, for all commercial loans over a certain dollar amount.

23

EBA Journal – Winter 2025 Edition

At a minimum, commercial loan underwriters will want to see the results of the hazard exposure, which is Step One of the PRA. Depending on the location of the property, underwriting team may see, in addition to FEMA maps, flood maps and data for: (1) tsunamis (from ASCE); (2) coastal flood risks (from Fathom/Swiss Re); (3) hurricane storm surges (from NOAA); and, (4) tidally- influenced flooding with future sea level rise (from NOAA/NASA). Additional exposure data from a PRA Step One may provide down-scaled maps, revealing the areal extent of flooding on a property, depth of flooding exposures, annual return frequencies of the events; and, depth of inundation above the ground levels (AGLs).

While the underwriting team may not have ready access to a building’s Elevation Certificate, Artificial Intelligence (AI) software utilizing Google Street View now makes available reasonable estimates of the height of the building’s first floor above the ground level. While AI estimates of finished floor height (FFH) are not yet as accurate as a building’s surveyed Elevation Certificate from a local building department, it is useful for making rough assessments of a building’s vulnerability to flooding through a quick comparison of the modeled height of flood inundation with the estimated height of the lobby or first floor above the ground level.

How Does This Additional Information from the ASTM PRA Help Underwriters?

In addition to offering a better understanding of the flood hazards present at a property being considered for a loan, lenders can use detailed information from the PRA to identify the feasibility of building upgrades or resilient retrofits that may be needed to reduce risks of loan default. Identification of feasible resilience measures falls in Step Three of the ASTM’s PRA. Lender measures may also include loan holdback and adjustments to the loan-tovalue until property resilience measures are completed.

24

EBA Journal – Winter 2025 Edition

While the identification of feasible resilience measures in PRA Step Three may seem like “uncharted territory” for lenders, it is not that different from “recommendations” that flow from the tried-and-true, PCAs, wherein field assessments may uncover issues with the building’s roof, electrical, mechanical, or plumbing systems, etc. Commercial loan underwriters often use PCAs to identify potential issues in older buildings that need to be addressed pre- or post- closing. Lenders have years of experience dealing with PCA issues and obtaining borrower cooperation. A similar work process to the PCA will be undertaken in PRA Step Three for floods -- and other natural hazards -- that pose serious risks to the subject property. In PRA Step Three, inspectors, and hazard- specific experts will identify the resilience measures that are available to reduce the risks of exposures to floods and other hazards revealed in PRA Steps One and Two and the rough order of magnitude (ROM) costs of such investments. By identifying these issues early, underwriters can ensure that necessary repairs, maintenance, and resilience measures are planned and budgeted for and implemented, thereby reducing the risk of unexpected costs, and ensuring the long-term viability of the property.

25

EBA Journal – Winter 2025 Edition

Conclusion In conclusion, a wealth of additional flood, natural hazard, extreme weather, and future climate change impact information is soon headed to commercial loan underwriting teams as a result of the new ASTM Property Resilience Assessment “best practices” approach. Commercial loan underwriters can prepare for the forthcoming PRA assessments by collaborating closely with their environmental managers who are familiar with these issues and can help them develop new policies, underwriting procedures, and risk tolerance metrics that are more up-to-date and appropriate for assessing or reassessing flood risks of commercial loans.

26

EBA Journal – Winter 2025 Edition

27

EBA Journal – Winter 2025 Edition

PFAS CORNER

28

EBA Journal – Winter 2025 Edition

EPA Proposes Increases of PFAS Under Regulation: Are Your Investments at Risk?

Martin E. Hamann, P.G. Principal Hydrogeologist, Farallon Consulting

As regulators crack down on toxic 'forever chemicals' like PFAS (per- and polyfluoroalkyl substances), banks and investors holding contaminated properties could face liabilities in the tens of millions—threatening both their portfolios and reputations. Recent findings from the U.S. Geological Survey (USGS) reveal that millions of Americans may be relying on groundwater supplies contaminated with PFAS. PFAS are persistent in the environment and have been linked to various health risks. The pervasive nature of PFAS contamination poses a significant public health concern, especially as many communities depend on groundwater for their drinking water. The liability and cleanup costs associated with PFAS contamination present significant challenges for property owners, investors, and banks holding those properties as collateral. As regulatory scrutiny increases and public awareness grows, property owners and investors must be prepared to proactively address these challenges.

To add to these complications, in October 2024, the US Environmental Protection Agency (EPA) proposed to add 16 additional PFAS and 15 PFAS categories to the Toxics Release Inventory (TRI) list. EPA’s proposal has substantial implications for environmental safety and the banking/investment sector, particularly in risk assessment and management strategies.

29

EBA Journal – Winter 2025 Edition

30

EBA Journal – Winter 2025 Edition

Understanding PFAS PFAS are a large group of man-made chemicals used in numerous industrial applications and consumer products due to their resistance to heat, water, and oil. They can be found in non-stick cookware, waterproof clothing, food packaging, and firefighting foams, among other items. The unique properties that make PFAS useful in these products also contribute to their environmental persistence. Because these chemicals do not break down easily, they can accumulate in the soil and water systems, leading to widespread contamination.

The chemical structure of PFAS includes a carbon-fluorine bond, which is one of the strongest bonds in organic chemistry. This bond is largely responsible for the stability of PFAS in the environment, meaning they can remain intact for decades. As a result, PFAS can infiltrate groundwater sources through various pathways, including industrial discharges, agricultural runoff, and even wastewater treatment processes.

The Scope of Contamination According to the USGS report, an estimated 19 million people in the United States are served by public drinking water systems that may contain PFAS. Furthermore, individual wells, particularly in rural areas, are also at risk. The contamination is often a result of industrial discharges improper waste disposal, and the use of PFAS-containing products. Communities situated near manufacturing facilities, military bases, or firefighting training sites—where PFAS have historically been used—are especially vulnerable. These areas often face the highest levels of contamination, leading to significant health concerns for residents. The study emphasizes the urgent need for comprehensive testing and regulation to address these dangerous contaminants in drinking water.

31

EBA Journal – Winter 2025 Edition

EPA’s Proposed Actions The EPA's decision to incorporate specific PFAS into the TRI will require facilities to report on their use and release of these hazardous substances. The TRI serves as a critical tool for communities to access information about the presence of toxic chemicals in their environment, which can inform both regulatory actions and public awareness. By adding these PFAS to the TRI list, the EPA aims to provide clearer insights into the potential risks associated with PFAS exposure, enabling more informed decision-making by local governments and stakeholders.

Under the proposed rule, the newly identified PFAS will also be classified as chemicals of special concern, which means they will be subject to more stringent reporting requirements. This classification eliminates exemptions that previously allowed facilities to avoid reporting low concentrations of these chemicals. This shift towards stricter regulation aligns with growing public and governmental pressure to mitigate the effects of PFAS contamination, particularly in vulnerable communities disproportionately affected by industrial pollution. It reflects a broader trend towards environmental accountability and transparency, which could influence investment decisions and risk management strategies in the banking and investment sector.

32

EBA Journal – Winter 2025 Edition

Banking Sector Implications The proposed additions to the TRI and the heightened scrutiny surrounding PFAS have significant ramifications for the banking industry, particularly in the realms of environmental risk assessment, compliance, and financial decisionmaking. Financial institutions are increasingly required to evaluate the environmental impact of their investments, as there is a growing emphasis on sustainability and responsible lending practices. ❖

Risk Assessment: As PFAS become more regulated, banks must assess the potential financial risks associated with lending to industries that use or produce these substances. Increased regulatory scrutiny could lead to higher compliance costs, potential liabilities, and reputational risks for companies involved in PFAS production or use. Institutions need to consider the long-term impacts of potential cleanup costs and liability exposure, which may significantly affect the financial stability of companies within affected sectors.

❖

Investment Decisions: With the proposed rule enhancing transparency around PFAS usage and release, investors may shift their portfolios away from companies associated with these chemicals. This shift aligns with a broader trend towards socially responsible investing (SRI), where environmental concerns play a significant role in investment strategies.

Banks and financial institutions may need to develop new criteria for assessing the sustainability of potential investments, taking into account a company’s PFAS exposure and management strategies.

33

EBA Journal – Winter 2025 Edition

❖

Regulatory Compliance: Banks must stay abreast of evolving regulations related to PFAS to ensure compliance. This may involve enhancing internal policies and procedures for environmental risk management and reporting, as well as training staff on new regulatory requirements. Institutions may need to incorporate environmental due diligence in their lending processes, requiring borrowers to disclose their PFAS usage and management practices.

❖

Community Engagement: The proposed rule is likely to affect community relations, particularly in areas historically impacted by PFAS contamination.

Banks may need to engage with local communities to address concerns and demonstrate commitment to responsible lending practices. By fostering transparency and open communication, financial institutions can help mitigate the social and environmental risks associated with their investments.

34

EBA Journal – Winter 2025 Edition

❖

Opportunities for Green Financing: The regulatory landscape surrounding PFAS may also create opportunities for banks to support remediation efforts and the development of safer alternatives through green financing initiatives.

Providing loans for projects aimed at cleaning up contaminated sites or developing PFAS-free products can enhance a bank's reputation as a socially responsible lender. This could involve partnerships with environmental firms specializing in PFAS remediation or funding for research into alternative chemicals and technologies.

❖

Insurance and Liability Considerations: As regulatory requirements evolve, banks will also need to assess the insurance and liability implications of lending to companies that may be affected by PFAS regulations. This includes evaluating the adequacy of existing insurance coverage for environmental liabilities and the potential for increased premiums as the risk associated with PFAS exposure becomes more apparent. Financial institutions may need to work closely with insurers to understand the implications of new regulations on coverage options.

❖

Financial Modeling and Reporting: The inclusion of PFAS in the TRI may require banks to refine their financial modeling and reporting practices.

Institutions will need to incorporate environmental risks associated with PFAS into their overall risk assessment frameworks. This could involve developing new metrics for evaluating environmental performance and integrating sustainability into financial reporting processes.

35

EBA Journal – Winter 2025 Edition

❖

Strategic Planning and Policy Development: As the landscape of environmental regulations changes, banks will need to engage in strategic planning and policy development to adapt to new realities. This may involve creating dedicated teams to focus on environmental risks, enhancing governance structures related to sustainability, and developing comprehensive environmental policies that align with emerging regulations.

❖

Partnerships and Collaboration: Banks can leverage partnerships with environmental organizations, regulatory bodies, and other stakeholders to enhance their understanding of PFAS risks and regulatory developments.

Collaborative efforts can foster knowledge-sharing and best practices, helping financial institutions navigate the complex regulatory landscape more effectively.

❖

Consumer Awareness and Demand: There is an increasing awareness among consumers regarding environmental issues, including the impacts of PFAS. Banks may need to respond to this growing consumer demand for environmentally responsible practices by incorporating sustainability into their product offerings and marketing strategies. This can include promoting green loans or investment products that support environmentally friendly initiatives.

36

EBA Journal – Winter 2025 Edition

Conclusion EPA's proposal to add PFAS to the TRI list represents a significant additional issue for the banking sector and the way it evaluates its investment portfolio and lending decisions. These changes necessitate a proactive approach to environmental risk management, as they could influence investment strategies, regulatory compliance practices, and community engagement efforts. As public concern about PFAS contamination grows, financial institutions must adapt to the evolving landscape by integrating environmental considerations into their business models and engaging with stakeholders to foster a more sustainable future. The interplay between environmental regulation and banking underscores the importance of accountability in addressing the challenges posed by hazardous substances like PFAS.

37

EBA Journal – Winter 2025 Edition

References ❖

U.S. Environmental Protection Agency (EPA) Announcement:

❖

Title: "Addition of Certain PFAS to the TRI by the National Defense Authorization Act"

❖

Source: U.S. Environmental Protection Agency

❖

URL: https://www.epa.gov/toxics-release-inventory-tri-program/addition-certain-pfas-trinational-defense-authorization-act

❖ U.S. EPA Proposal: ❖

Title: "Listing of Specific PFAS as Hazardous Constituents"

❖

Source: Federal Register, U.S. Environmental Protection Agency

❖

URL: https://www.federalregister.gov/documents/2024/02/08/2024-02324/listing-of-specificpfas-as-hazardous-constituents

❖ U.S. Geological Survey (USGS) News Release: ❖

Title: "Millions in the U.S. may rely on

❖

groundwater contaminated with PFAS for drinking water supplies"

❖

Source: U.S. Geological Survey

❖

URL: https://www.usgs.gov/news/national-news-release/millions-us-may-rely-groundwatercontaminated-pfas-drinking-water

❖ USGS PFAS in US Groundwater Interactive Dashboard: ❖

Title: "PFAS in US Groundwater Interactive Dashboard"

❖

Source: U.S. Geological Survey

❖

URL: https://geonarrative.usgs.gov/pfasinusgroundwater/

38

EBA Journal – Winter 2025 Edition

The Cosmetic Conundrum: Unmasking PFAS in Your Beauty Routine

By Mary Bruno

The concept of questions spawning more questions can be best described as ”a cascade of curiosity." This phrase captures the idea that one question often leads to multiple new questions, creating an ongoing process of inquiry and discovery. This concept is fundamental to scientific inquiry, philosophical discourse, and critical thinking. It emphasizes that the more we learn, the more we realize there is to know, driving continuous exploration and deeper understanding. I don’t know if I’m at the point of deeper understanding, but I can report I have many questions. Four years ago, a colleague hit me with this alphabet soup: Per- and Polyfluoroalkyl Substances (PFAS). My response was a slow “no”, as I searched my memory bank. I thought to myself that it’s likely I sketched the chemical compound in one of several chemistry labs.

Fast forward to now, and suddenly it’s everywhere and everyone’s talking about it. Now I’m paying attention. Why is this a hot topic? I decided to channel my inner Sherlock Holmes and do some digging.

39

EBA Journal – Winter 2025 Edition

Concerns about PFAS have been emerging over several decades, but public awareness and widespread concern have grown significantly since the early 2000s. Initial studies began to show potential health and environmental risks associated with PFAS. In the early 2000s, a major manufacturer of PFOA (a type of PFAS), 3M, voluntarily phased out its production. Phase out? Oh, how noble!

It's like saying, "We'll stop selling you potentially harmful stuff... eventually.” The consumer product first widely linked to PFAS (Per- and Polyfluoroalkyl Substances) was Teflon non-stick cookware. Polytetrafluoroethylene (PTFE) was invented by DuPont in the late 1930s and introduced for consumer use in the 1950s. While PTFE itself is not considered a PFAS, the manufacturing process historically used PFOA, as a processing aid to produce Teflon.

So, can we just toss our non-stick pans and call it a day? If only it were that easy!

Apparently, PFAS compounds have been used in various other products since the 1940s, including water-resistant fabrics, fire-fighting foams, and food packaging.

My curiosity is in full cascade mode. Where else was PFAS found? I grabbed a shovel and started digging and what I encountered was disturbing. Not content with just making our cookware questionable, PFAS decided to go full diva and sneak into our beauty routines. Although PFAS in cosmetics studies began in the early 2000s, it wasn’t until a landmark study published in Environmental Science & Technology Letters brought widespread attention to the issue in 2021. This study, conducted by researchers from the University of Notre Dame, tested 231 cosmetic products and found high levels of PFAS in many of them, particularly in waterproof mascara, liquid lipsticks, and foundations. PFAS are used to improve product spreadability, increase durability, and enhance water resistance.

40

EBA Journal – Winter 2025 Edition

Upon discovering the potential risks associated with PFAS in waterproof cosmetics, I immediately discarded my waterproof mascara. However, this action prompted a concerning realization: having grown up in Texas and now residing in Florida, where humidity reigns supreme, nearly all my makeup is designed to be waterproof. Before hastily purging my entire cosmetics collection, I decided to delve deeper into the subject. My research revealed several alarming facts about PFAS: i. i. ii.

iii.

These substances are dubbed "forever chemicals" due to their remarkable persistence in both the environment and human bodies.

PFAS have been linked to a range of health issues, including cancer and other ailments related to environmental exposure.

Disturbingly, these chemicals have been detected in the bloodstreams of humans and animals across the globe.

Exposure to PFAS can occur through multiple pathways, with the use of PFAS-containing products being a significant route.

While not comprehensive, this information was compelling enough to spur me into action. Despite the difficulty, I felt compelled to make changes based on my newfound awareness. This decision marked a turning point in my approach to consumption, prompting a more mindful evaluation of the products I use daily. The ubiquity of PFAS in our environment poses significant challenges for environmental professionals.

As we uncover more about these "forever chemicals," we're faced with complex questions about risk assessment, remediation, and regulation. The persistence of PFAS in the environment means that traditional cleanup methods may be inadequate.

For instance, granular activated carbon filtration, while effective for some PFAS, doesn't address the full spectrum of these compounds.

41

EBA Journal – Winter 2025 Edition

Recent advancements in remediation techniques, such as electrochemical oxidation and plasma treatment, show promise but are still in early stages of development.

How can we scale these technologies to address widespread contamination?

Moreover, as we phase out older PFAS compounds, we're seeing the emergence of new, less-studied replacements. Are these truly safer alternatives, or are we simply shifting the problem? The regulatory landscape for PFAS is rapidly evolving, with some countries taking aggressive stances while others lag behind. How can we ensure a coordinated global approach to PFAS regulation? And as we set standards for PFAS in drinking water and consumer products, how do we balance public health concerns with technological and economic feasibility?

As environmental professionals, we must grapple with these questions and more: i.

ii. iii.

iv.

v.

How can we develop more comprehensive and efficient methods for detecting and quantifying the full range of PFAS compounds in various environmental matrices?

What are the long-term ecological impacts of PFAS bioaccumulation in food chains, and how might this affect biodiversity and ecosystem health?

How can we better understand and address the environmental justice issues surrounding PFAS contamination, given that exposure often disproportionately affects disadvantaged communities?

What role should the precautionary principle play in regulating new chemical compounds to prevent future "PFAS-like" scenarios?

How can we improve cross-sector collaboration between academia, industry, and government to accelerate research and implementation of PFAS solutions?

As we continue to unravel the complexities of PFAS contamination, each answer inevitably leads to more questions. This cascade of curiosity drives our field forward, challenging us to innovate, collaborate, and persist in our efforts to protect both human health and the environment. The PFAS story is far from over – what chapter will we write next?

42

EBA Journal – Winter 2025 Edition

|Intro| ERM Essay Corner

During the Summer of 2023, EBA President Dave Lambert announced the development of our new Environmental Risk Manager Certificate program, and in just two short years we’re off to the races! We’re presenting the course to our third group of students and will have two more sessions in 2025 – one starting in April and the other starting in July. This is a rigorous program that covers the entire process of ordering and receiving due diligence about environmental risks, assessing that information, and making financial decisions. While this program was developed with internal bank reviewers in mind, it’s the perfect accompaniment to the ASTM’s Environmental Professional certification for our EBA affiliates who work with commercial banks and other lending institutions. Many of our affiliates serve as outsourced environmental risk consultants for banks, and this program demystifies internal bank processes.

43

EBA Journal – Winter 2025 Edition

As Education Director, it’s been an honor and a joy to shepherd this program through the development and operational phases. Not only do I get to know many of you better through the classes, I am constantly learning about learning for professionals in our field. This EBA Journal features some of the essays written by our students during the last ERM Certificate Course last fall. They chose any topic that intersected with the course materials and their career. The Autumn 2024 cohort was encouraged to craft reflection pieces on any course readings that they found particularly interesting, for which they were given bonus points for the final exam. The current selection of articles are but a small sub-set of those reflections.

I hope you enjoy these reflections and consider joining a future ERM Certificate course.

Marty Walters, Education Director Recovery Risk

44

EBA Journal – Winter 2025 Edition

EBA ERM Course: An Overview from a new participant Kathy Christensen AVP, Environmental Risk Manager, Cambridge Savings Bank I am currently enrolled in the second Environmental Risk Manager Certificate Program, and to be honest there is so much information covered in this course, it’s a bit overwhelming! But I know that once I’ve had time to process everything, it’s going to be extremely helpful.

I am the sole ERM at a local community bank and created this position on my own a few years ago. Like many people in this role, I was an environmental consultant before transitioning into banking, so while I have environmental experience, I’m still learning the ropes of commercial lending. I’ve had several resources to assist in creating the position, but it has been challenging at times. This course has provided so many more resources, including risk-mitigant analysis, multiple templates for evaluating different risks, how to more efficiently communicate environmental findings and risks, and ways to incorporate ESG. I know that once this course is over, I’ll be able to take what I’ve learned and utilize it into my day-to-day activities. I feel more confident in my role and am looking forward to suggesting ways to better integrate environmental risk management into our policies and procedures.

Lastly, Marty Walters is a wealth of knowledge and presents the course content in an approachable way. She is a great instructor! I would highly recommend this course to anyone who works at a bank, or a consultant who works with banks, to better understand environmental risks in commercial lending.

45

EBA Journal – Winter 2025 Edition

46

EBA Journal – Winter 2025 Edition

Reflections on ERM Certification Course PreReading:

A Snapshot of the History of Environmental Remediation

Rachel McShane, Wells Fargo

You perhaps have heard of potassium permanganate as a popular fast and cost-effective method for in-situ (i.e. in place) remediation of chlorinated solvents in soil and groundwater. It’s powerful and purple, a Barney dinosaur on steroids, if you will. Made popular in the 1990s, this method works by injecting a substance that induces chemical oxidation directly at the source of contamination. While useful for a wide variety of contaminant types, it is particularly effective on substances like tetrachloroethylene (PCE) and trichloroethylene (TCE), which are denser than water, do not readily degrade, and tend to settle into low permeability zones and as a result can be notoriously hard to access and get rid of. Another popular modern in-situ technique is called enhanced reductive dichlorination, which takes advantage of microbes that can break down TCE and PCE in anaerobic conditions by injecting hydrogen rich compounds, often organic substrates like vegetable oil, that serve as electron donors to strip away chlorine atoms and replace them with carbon atoms, ultimately producing non-toxic dissolved gases such as ethene and ethane.

Trapping solvents in granular activated carbon or pulling them out via soil-vapor extraction are other common remedial techniques we use today.

47

EBA Journal – Winter 2025 Edition

What you may not be as familiar with are some of the older methodologies used for a wide variety of contaminant types, including the chlorinated solvents noted above. As evidenced by our assigned ERM certification course case study reading, “Trichloroethylene Groundwater Contamination at Vero Beach, Florida” (December 1984), pump-and-treat methods were far more common throughout the 1980s that unfortunately were more likely to simply displace the problem rather than solve it. While it can be true that “the solution to pollution is dilution,” a tried-and-true motto many consultants and regulatory officials adhere to, simply pumping out large volumes of highly contaminated groundwater and air stripping to remove volatile compounds is a less-than-ideal methodology when the end result, as in this particular case study, is discharge of contaminated water to a nearby surface water body that empties into a lagoon, feeding a river, and, ultimately, enters the ocean. Not only did this particular case study indicate that dewatering at the point source did not ultimately eliminate all of the contamination (in fact, the concentration of vinyl chloride increased over time as a breakdown product of TCE), it was also shown to result in detectable concentrations of TCE in oysters and other downstream biota. Perhaps most astounding of all was the fact that a total of 778 million gallons of contaminated groundwater stemmed from just a single 500-gallon TCE underground storage tank with one leaky fitting at this facility. It speaks to how much we have learned as an industry about the impacts of these chemicals and the optimal ways to address them.

Ultimately, when considering the performance of environmental due diligence, it’s important to understand how remedial strategies have morphed over time, and that due to the cleanup technologies of the past, you may still see contamination today, sometimes in unexpected places.

48

EBA Journal – Winter 2025 Edition

The Environmental Risk Manager’s Role in Helping a Home Baker and New Restaurateur Realize Their Dreams

By Kelly O'Rourke, Jennifer Bellamy, and Nicole Field

The following essay presents hypothetical loan scenarios and was prepared by the authors to illustrate concepts from the Environmental Risk Manager Certificate course and is not intended to describe U.S. Bank policies, procedures, or processes.

A home baker, Amy, has dreams of opening her own bakery in Metropolis. She decides to go to her local ABC Bank branch to discuss her business plans and begin the next steps of realizing her dream. She requests a loan to purchase the vacant building on the corner of Main Street. The Relationship Manager (RM) requests that she submit financial information to determine her credit situation. The RM submits her financials to Underwriting, who is located within the first line of defense of ABC Bank’s risk management program. The Underwriter approves the loan but with conditions, including ordering an Appraisal and a Phase I Environmental Site Assessment (ESA) for the subject property. By the time the Phase I ESA is ordered, Amy believes her loan is approved with no issues and the loan is set to close at the end of the month.

49

EBA Journal – Winter 2025 Edition

Meanwhile, the Environmental Risk Manager (ERM) has received the Phase I ESA and notes that the environmental consultant has identified a previous gas station on the subject property with no documentation of removal of underground storage tanks (USTs). Based on ABC Bank’s risk appetite, additional due diligence is required prior to loan closing because cleanup cost for liabilities could exceed the value of the collateral. The ERM uses some of the US EPA’s 7 Cardinal Rules of Risk Communication (plan carefully and evaluate efforts; be honest, frank, and open; work with other credible sources, and speak clearly and with compassion, essentially emphasizing transparency, actively listening to RM concerns and building trust with RMs through clear and empathetic communication) to communicate to the RM the risks associated with historical gas stations; the memo provides the history of the property, the sources of data used, and site map featuring the location of the historical gas station. The memo indicates that a Phase II Subsurface Investigation is warranted as a pre-closing requirement.

The RM has the uncomfortable conversation with Amy that an additional amount of money would be required to conduct the Phase II prior to the loan closing. The Phase II is completed, and the ERM reviews the report. It is determined the USTs were left in place and there are minimal petroleum hydrocarbon and volatile organic compound impacts in soil and groundwater. Based on ABC Bank’s risk appetite, they choose to use the mitigant strategy of restoration. Pre-closing conditions include submittal and approval of a remedial action plan to the state agency, which includes a cost and schedule that will be used to create an escrow agreement.

50

EBA Journal – Winter 2025 Edition

Unfortunately, this process delays the loan closing by three months while they wait for approval by the state agency. The ERM at ABC Bank recommends that an escrow account be set up to cover the costs of UST decommissioning and remediation post-closing. The credit agreement requires that this work be completed within 12 months of loan closing. Amy is determined, though, to have her bakery at this particular location on Main Street and is able to work with the seller, which includes the seller putting money in an escrow account to pay for remediation. Amy is excited to take the next steps toward opening her dream bakery.

This outcome turned out great because all the stakeholders cooperated and communicated clearly. However, when environmental concerns are identified or provided due diligence is insufficient, the entire process can be upended and become significantly more onerous. In some cases, additional due diligence might not be an option. For purchase loans, sellers may refuse to allow any Phase II investigation, and Borrowers may face loss of their downpayment if the loan does not close by a certain date. Insurance policies may even prohibit voluntary sampling (i.e., not at the direction of a regulatory agency). In Amy’s example, the seller was cooperative, and the process resulted in a successful loan.

51

EBA Journal – Winter 2025 Edition

In other cases, a seller may not be as cooperative to assist with assessment and remediation. So how can we protect ABC Bank while still supporting good risk decisioning and customer service? Environmental cost estimates can be a useful tool.

There are different approaches to cost estimates, including realistic or worst-case estimates. The estimates can be presented as a range, or an expected value method may be used.

Regardless of the approach and whether an ERM is reviewing or preparing a cost estimate, there are some factors to consider that could impact a credit decision: ❖ ❖ ❖ ❖ ❖

What are the assumptions used to define each outcome?

What facts, site conditions, or projections are the assumptions based on?

How much uncertainty exists?

Does the cost estimate address uncertainty?

How likely is this cost to be realized?

In addition, there are more factors to consider in actually implementing this strategy: ❖ Once a cost estimate is completed, what is done with it? ❖ Perhaps it is only used by credit during evaluation of the loan or in the event of future foreclosure, or perhaps that amount or part of it needs to be escrowed as a mitigant. ❖ Perhaps the Borrower needs to do additional due diligence post loan closing to refine the cost estimate or eliminate the concern altogether.

52

EBA Journal – Winter 2025 Edition

ABC Bank recently made a loan to Rick for the purchase of a vacant diner across the intersection from Amy’s future bakery. Rick is a chef and has always dreamed of opening a small restaurant. He has managed to save a good-sized downpayment. When he was helping his friend Amy look for properties for her bakery, he saw the vacant diner for sale at a good price and decided it was the right time to open his restaurant. He already banks with ABC Bank and immediately applies for a loan. The RM guides Rick through the loan application process and obtains conditional Underwriting approval for the loan. The Appraisal and Phase I ESA are ordered, and the appraised value comes in higher than expected. Everything is going great, until the Phase I is completed.

The Phase I ESA identifies a former gas station on this property and recommends a Phase II investigation. Based on ABC Bank’s risk appetite, the ERM prepares a memo indicating a Phase II is warranted as a pre-closing requirement. However, unlike Amy’s situation, the Seller in Rick’s case is adamantly against allowing a Phase II investigation to be completed. After several weeks of negotiating with the Seller, Rick asks the RM what else can be done if the Seller won’t allow a Phase II investigation?

53

EBA Journal – Winter 2025 Edition

The RM immediately contacts the ERM to let them know ABC Bank is going to lose the deal if the ERM requires a Phase II investigation and to ask if there are any alternatives to a Phase II investigation. The ERM revisits the available information—ABC Bank’s risk appetite and environmental risk policy and procedures— in light of the RM’s request and evaluates alternative mitigants. As part of this process, the ERM has a long discussion with the Phase I consultant about the former gas station and asks the consultant to develop a cost estimate for potential investigation and cleanup costs that could be incurred related to the former gas station during the term of the loan. The consultant uses the information available to develop a cost estimate using the expected value method. As part of the cost estimating process, the consultant considers the known facts and potential data gaps, develops a site conceptual model, and makes several assumptions about site conditions: ❖ ❖

❖

❖

Aerial photographs show the property ❖ was undeveloped through at least 1957.

City fire department records indicate two 1,000-gallon gasoline USTs and dispensers were installed on the southeast corner of the property in 1959, near the intersection of Main ❖ Street and Gas Station Road. No other records related to the USTs were found.

City building department records indicate the former gas station building was demolished in 1979, and a new restaurant building was constructed on the northwestern portion of the property in 1980.

The consultant assumes that it is likely the USTs were never removed.

❖

54

Groundwater has been measured at approximately 50 feet in depth in the area and is assumed by the consultant to be at similar depth at the property.

Groundwater is not used for drinking water at the property or nearby area.

Given the fact that no structures are located near the area where the USTs were installed (the former gas station was located in the diner’s parking lot in the southeast corner of the property, more than 100 feet from the building which is located on the northwest corner of the property) and gas station operations ceased approximately 45 years ago, the consultant assumes that it is unlikely former gas station operations would pose a significant health risk to occupants of the property or offsite receptors from vapor intrusion.

The consultant assumes cleanup would be conducted to commercial screening levels.

EBA Journal – Winter 2025 Edition

Below is a simple example of the type of analysis that the consultant might do in this situation to develop the cost estimate. Here the consultant has identified three potential components of investigation and cleanup (UST removal, soil investigation and cleanup, and groundwater investigation and cleanup), evaluated potential outcomes, and assigned estimated costs and probabilities to each outcome based on their experience. The estimated cost and probability for each outcome are multiplied and then summed to arrive at the Expected Value. The consultant provides ABC Bank with a cost estimate of $470,750 in relation to potential impacts from the former gas station operations.

The expected value method evaluates potential outcomes and assigns a cost and probability to each outcome; the cost and probability for each outcome are multiplied; and the sum of the resultant amount for each outcome is the expected value.

As a math equation, the expected value method looks like this: 𝑂𝑢𝑡𝑐𝑜𝑚𝑒 𝑉𝑎𝑙𝑢𝑒𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 = σ𝑁𝑡ℎ 1𝑠𝑡 𝑂𝑢𝑡𝑐𝑜𝑚𝑒 𝐶𝑜𝑠𝑡 × 𝑃𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦

Investigation/ Cleanup Component

USTs

Estimated Costs

Soil

Groundwater

Potential Outcome

Outcome Cost

Outcome Probability

Contribution to Expected Value

USTs not present/ No action required

$0

10%

$0

USTs present/ Removal required

$80,000

90%

$72,000

Soil impacts not present/ No action required

$0

5%

$0

Limited soil impacts/ Excavation required

$125,000

75%

$93,750

Extensive soil impacts/ Excavation & SVE required

$500,000

20%

$100,000

Groundwater impacts not present/No action required

$0

20%

$0

Limited groundwater impacts/Monitoring required

$200,000

65%

$130,000

Moderate groundwater impacts/Insitu treatment & monitoring required

$500,000

15%

$75,000

55

Expected Value = $470,750

EBA Journal – Winter 2025 Edition

ERM recommends use of the cost estimate in Credit’s consideration of the loan in lieu of conducting a Phase II investigation prior to loan closing and recommends that Rick be required to purchase an environmental lender liability policy for the term of the loan or until a Phase II investigation (and follow-up assessment and cleanup if needed) is conducted and demonstrates there are no USTs or subsurface impacts present at the property.

Although the Seller would not allow a Phase II investigation, Rick was able to negotiate a substantial discount on the purchase price.

Since the appraised value was significantly higher than expected and Rick was able to negotiate a great purchase price, the loan to value ratio is low even when the cost estimate is taken into consideration. Based on these factors, the cost estimate, and the environmental lender liability policy, Credit approves proceeding with the loan without a Phase II investigation.

Luckily for Amy, she is making headway towards her dream of opening her bakery. And she already has a customer in Rick, who opened his restaurant last month and wants to buy fresh bread from Amy for his restaurant once her bakery is up and running. As you can see through the process, the ERM department is vital for identifying environmental risks, providing mitigants that align with ABC Bank’s risk appetite, and assisting the Bank in serving their customers while managing risk.

56

EBA Journal – Winter 2025 Edition

Spotlighting New Members EBA would like to extend a warm welcome to all new members who have recently joined. We are excited to grow with you!

Affiliate Members Company Name

Registration Month

City

State

ALC Environmental

October 2024

Saddle Brook

New York

Biscayne Aquifer Services, LLC

October 2024

Pompano Beach

Florida

Oncor Electric Delivery

October 2024

Lancaster

Texas

Bureau Veritas

October 2024

Signal Mountain

Tennessee

RGA Reinsurance Co.

December 2024

Chesterfield

Missouri

SGS North America Inc.

January 2025

Wilmington

North Carolina

Rimkus

January 2025

Richmond

Virginia

Virgil Technologies

January 2025

St. Louis

Missouri

Big East Environmental

January 2025

Norwalk

Connecticut

Property Archives, LLC

January 2025

Athens

Georgia

Company Name

Registration Month

City

State

Northern Trust

October 2024

Chicago

Illinois

Sunrise Banks, N.A.

January 2025

St. Paul

Minnesota

Bank Members

57

EBA Journal – Winter 2025 Edition

58

EBA Journal – Winter 2025 Edition

AI, what’s the difference between sources and resources?

I’m not sure what this is supposed to bee…

Disclaimer: We asked AI to fix the spelling errors, and it gave us even more. Turns out, AI is more passive aggressive than a teenager.

59

EBA Journal – Winter 2025 Edition

AI, create a funny comic strip about hydraulic lifts with a nifty punchline:

This one looks half-baked. Maybe AI was in a pinch.

60

EBA Journal – Winter 2025 Edition

EBA Committee Updates EBA Gives Back: Support Adaptive Wilderness Within Reach (AWWR) Get to know Adaptive Wilderness Within Reach, or Adaptive Wilderness.

Adaptive Wilderness is a Minnesota-based nonprofit that works to eliminate barriers to wilderness recreation for people with physical disabilities. Jill and Sean Leary formed Adaptive Wilderness in 2022, and since that time the program has been successful in securing grant funding from the State of Minnesota and other sources to provide adaptive equipment and programming. People with disabilities face significant obstacles to outdoor recreation, especially in a wilderness setting. Adaptive Wilderness aims to change this reality for our participants.

This past summer, Adaptive Wilderness officially launched its programming with adaptive kayaking and fishing, including installation of an ADA kayak launch system with a fleet of adaptive kayaks. In September, we hosted an adaptive wild rice harvest on Birch Lake in Ely, Minnesota led by a Native ricing expert. Adaptive kayaking and fishing continued throughout October and in November we began dryland dogsled training and photography tours through Superior National Forest.

Now that the lakes are frozen over and the snow is piling up in northern Minnesota, we have been busy putting the dogs’ training to work as we are nearly a month into our winter dogsled programming. We purchased a classical country ski groomer so that we can provide accessible trails as well. Participants from across the country are traveling to the Boundary Waters for adaptive dogsledding, cross-country skiing, and ice fishing, which will continue through March.

LEARN MORE AND DONATE

61

“People with disabilities haven’t had equal access to recreational opportunities in the wilderness of the Superior National Forest and BWCA. We want to do our part to change that.” ~ Sean Leary

EBA Journal – Winter 2025 Edition

Please consider donating today. 100% of your contribution will go towards funding wilderness experiences for people with physical disabilities. Our young program is investing in new equipment and interest in our programming is strong. Please help us make outdoor wilderness recreation more inclusive.

Please reach out if you know someone who is interested in participating in our adaptive programming.

You can connect with us through our website at www.awwr.org or our Instagram at @adaptivewilderness.

You can also email Jill directly at jill@awwr.org for more information.

62

30

EBA Journal –Winter 2025 Edition

DEI Committee Corner Reflections from Outgoing Chair As I conclude my term as Chair of EBA’s Diversity, Equity, and Inclusion (DEI) Committee, I want to take a moment to reflect on our journey and express my heartfelt gratitude to each of the EBA Board Members, EBA staff and Committee Members for supporting this group. I must of course thank Bill Sloan, for shepherding this Committee into formation all those years ago.

By: Lori McKinnon (Current DEI Committee Chair)

This Committee has worked tirelessly over the last four years to foster an inclusive environment where members feel heard and safe to discuss DEI topics and celebrate diversity of thought. We have launched initiatives like the ever-popular Book Club, hosted content at conferences, and created resources that I hope have had a tangible impact on our members. These accomplishments would not have been possible without the dedication and passion of our Committee Members and the unwavering support from this organization. We have laid a strong foundation for continued progress. Our work has not only enhanced our organization but has also set a standard for others to follow.

As I step down, I am confident that the incoming Chair, Cate Landry (current CoChair) will continue to lead with the same commitment and vision. Cate has been an integral part of this Committee’s success from the beginning. I encourage all of you to support Cate as you have supported me. Together, we can continue to build a more diverse, equitable, and inclusive community.

Thank you for the opportunity to serve as your Chair. It has been an honor and a privilege. I look forward to seeing the continued growth and success of our DEI initiatives and continuing the conversation.

63

EBA Journal – Winter 2025 Edition

Carrying the Momentum into 2025 By: Cate Landry (incoming 2025 DEI Committee Chair)

We are extremely fortunate, and I am personally very grateful for, the leadership that Lori has provided to the EBA’s DEI Committee since its inception in 2020. A core tenet of diversity and inclusion is giving opportunity for all members to actively participate and share in leadership roles. To support this, the DEI Committee built into our charter that the chair and co-chair roles will serve for a 12-month term, with a three-term limit to promote diversity in leadership within the committee. I am honored to be stepping into the role, I hope I can live up to the high bar that Lori has set, and I look forward to carrying the momentum Lori has built into 2025 along with co-chair Siri Hill. All are welcome to attend our committee meetings on the second Tuesday of each month. You can request the meeting link here or by contacting Lisa.

“Diversity is a mix, and inclusion is making the mix work.” – Andrés Tapia 64

EBA Journal –Winter 2025 Edition

Updated DEI Resources Page As we move into a new year, our DEI Committee Resources page is getting a new look. Thank you to Onamia Chun and Siri Hill, who spearheaded this project. In addition to refreshed resources, our page will now include a quarterly spotlight on timely resources. Here is a sneak peek at our Q1 2025 Quarterly Spotlights. Please visit the DEI Resources Page here, and we welcome all feedback and suggested additional resources!

65

EBA Journal – Winter 2025 Edition

Celebrate Black History Month in February Project 1619 is a series of essays published starting in August 2019 by the New York Times Magazine to commemorate the 400th anniversary of slavery's roots in America. While the project has stirred up some controversy, including legitimate criticism by historians which resulted in some corrective edits, the project shares historical factual content and opinions that allow readers to learn about the history of slavery in America and hear a perspective they may not otherwise encounter. ❖ The 1619 Project ❖ The 1619 Project Documentary, available on Hulu and Disney+, trailer ❖ Twelve Scholars Critique the 1619 Project, and the New York Times Magazine Editor Responds

EBA DEI Book Club in February Join us for the EBA DEI Book Club at conference, or virtually before, as we discuss how climate change risk management runs the risk of echoing historic redlining practices with blue-lining. Learn more about the Book Club and register here. ❖ Book: Segregation by Design: Local Politics and Inequality in American Cities, by Jessica Trounstine

❖ Article: Banks consider climate risk for home loans, a process called ‘underwaterwriting’ or ‘blue-lining’ ❖ Groundwork/Climate Safe Neighborhoods: Mapping redlining, segregation, and predicted impacts of climate change

66

Circular Economy Due Diligence

EBA Journal – Winter 2025 Edition

Understanding circular economy performance and value creation or value protection opportunities for an investment, whether a product or a building portfolio.

This paper is based on a session presented at the EBA 2024 Virtual Conference.

Author: Imani Hamilton, Americas Practice Lead Circular Economy + Resource Management, Ramboll Ramboll Contributors: Alan Kao, Brooke Dillion, Elizabeth Krol

In parallel with other due diligence workstreams, a company or investment can be assessed from a circular economy perspective. Most relevant are investments in companies that manufacture products or develop buildings, where the investor seeks to identify value creation opportunities during their ownership period through improvements in the sustainability of the company’s offering. This is also where the regulatory and certification drivers for circularity are the most present. A circular economy due diligence assessment is most often paired with traditional environmental due diligence reviews including Phase 1 environmental site assessments, property assessments, or ESG reviews.

A circular or circular economy approach is one of resource efficiency: maximizing material yield, extending the use of resources, and reducing waste. The field was largely developed by the Ellen Macarthur Foundation, which in 2013 defined a circular economy as “based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems.” In June 2024, an ISO definition was released for the circular economy.

67

EBA Journal –Winter 2025 Edition

There are a host of global regulations driving circularity, including embodied carbon regulations and limits for buildings (EU, Canada, and California), building products (Federal/State BuyClean Acts), imported goods in the EU (CBAM), and produced and packaged goods (EcoDesign, CSRD, EPR, Packaging requirements), as well as many product-specific regulations (batteries, textiles, etc.). Starting in 2025, the EU’s Corporate Sustainability Reporting Directive (CSRD) requires annual reporting on a topic that is material to most businesses (of a certain size with EU operations): E5 - Resource use and circular economy. Metrics include the company’s inflows and outflows, from a product and site level. More are coming; for example, Brazil’s circular economy regulation is anticipated in 2025.

It is important to highlight circularity’s critical connection to decarbonization: circular practices reduce embodied carbon. As such, there are direct connections to corporate or ESG commitments, Scope 3 accounting, Life Cycle Assessments and correlated reporting for EPDs, Product Carbon Footprints and CBAM, EcoDesign, and more. The decarbonization commitments by major actors in most sectors are driving demand for decarbonization, and consequently circularity, throughout their supply chains.

Because resourcefulness is fundamental to any good business, many entrenched design, engineering, construction, and manufacturing practices would be considered circular.

68

EBA Journal –Winter 2025 Edition

However, there are many companies whose products, procurement practices, buildings, or operations are inefficient and costly from an economic, waste, resource, and time perspective.

A circular economy due diligence assessment can assess the circularity of a company’s products, buildings/facilities, and operations, and their corresponding life cycle and end-of-life (EoL) practices. This can be beneficial information for an investor to better understand the current sustainability performance of a company, from a material and waste perspective, and the gaps, or opportunities for improvement post-investment.

The assessment vets the company against full circularity, as well as regulations and competitor benchmarking. The process, tailored to what is relevant for each investment opportunity, examines the life cycle of a building or a product, including the inflow materials and their sourcing, manufacturing or construction, use, extension of life cycles through repair or remanufacturing, and end-of-life or waste outcomes.

A desktop review includes procurement data, bills of materials, product or building specifications, product lifetime services, site-specific procurement data and waste manifests. This is paired with an interview with sustainability, design, engineering, and/or manufacturing personnel. Site visits depend on whether manufacturing operations are included in the scope and can be easily integrated with standard environmental due diligence and waste compliance workstreams.

The process identifies where gaps might exist, opportunities to increase circularity, and how circular economy initiatives can be drivers for value creation or value protection.

69

EBA Journal –Winter 2025 Edition

For example, recycled content is one way to increase the circularity of a product, but the end-of-life destination is just as important. Is that recycled content material reusable, recyclable, compostable? If that material is still destined for landfill, might a value creation opportunity be to choose a more circular material that can be recycled mechanically, chemically, or biologically?

Leveraging the zero waste hierarchy, a circular economy approach not only tries to reduce waste going to landfill, but addresses the source challenges: can a product be re-designed, can the material usage be reduced, and could it be reused (perhaps through renovation, restoration, repair, or remanufacturing) before sending it to recycling, or least of all, landfill. The cost-benefit analyses of these scenarios are part of the decision making for implementation.

This approach can be modified for investor needs, the company’s profile, and the regulatory context. If a company is reporting for CSRD, for example, a high-level due diligence assessment utilizing those specific metrics, or studying the company’s existing CSRD reporting could be included, such as technical or biological materials, sustainable sourcing, or outflows of waste. If a company wants to reduce their Scope 3 GHG footprint, this could also be a lens.

In a circular economy due diligence case study for a consumer goods manufacturer, some example value creation (VC) or protection (VP) opportunities include: ❖

❖ ❖

❖

In SKU Analysis, assess products for circularity, including recycled content and recyclability (VP, VC).

Reduce carbon footprint of products by increasing recycled content (VC).

Assess materials and pair new manufacturing locations with closest available source of raw materials, driving product decarbonization (VC, VP).

Introduce a Procurement Policy around chemicals of concern or other “Red List” substances (VP).

70

EBA Journal –Winter 2025 Edition

From a return-on-investment (ROI) perspective, a company may be able to get a better interest rate on an investment due to a focus on circular, or lower embodied carbon, outcomes. If the product is subject to the EU’s CBAM (Carbon Border Adjustment Mechanism) regulation for imported components of products, the company will pay less for a lower embodied carbon component. Introducing circular rather than landfill-bound packaging will reduce Extended/Packaging Producer Responsibility (EPR/PPR) fees in several states and countries. This is known as packaging design ecomodulation. Companies that introduce zero waste manufacturing are often able to take a cost center (waste management) and turn it into a profit center; GM is an excellent case study where their zero waste program generated $1 Billion in profit annually as of 2013: (see: 2013 Forbes article: How GM Makes $1 Billion A Year By Recycling Waste).

From a commercial real estate perspective, owners seeking to improve operational efficiency during the ownership term may find a circular economy assessment beneficial, and lenders may see this as ensuring viability of the asset during the loan period, potentially tying to financial performance.

Finally, a project to create more circular material, product, or buildings are a departure from business-as-usual and are often scoped as Research + Development (R+D), which in the US, represent a variety of tax benefits.

In most cases, up front CAPEX investments in circular practices, because of resource efficiency and decarbonization, create OPEX savings. The rate of return on investment varies but can be assessed for the specific context.

A circular economy due diligence process is a high-level review of opportunity, and can offer a roadmap for improvements post-investment, which can then be studied in even greater detail during implementation, and drive sustainable value.

@Elizabeth Krol Let me know what you think about this as a comment in the ROI section.

71

EBA Journal –Winter 2025 Edition

AI, can you create a funny comic strip about topographic maps:

Disclaimer: We asked AI to fix the spelling errors, and it gave us even more. Turns out, AI is more passive aggressive than a teenager.

72

EBA Journal –Winter 2025 Edition

Leveraging Technology for Retrofitting Building Practices By: Emily Scoones, Lora Brill, and Elizabeth Krol, Ramboll

The push to make buildings more efficient in operation has become a mainstream focus in the building and construction sector. As global challenges, such as the cost of energy and climate change, have a greater impact on investment and procurement decisions, innovative solutions for retrofitting and energy efficiency can deliver costeffective answers to these top priority problems. The construction industry faces a unique challenge--80 percent of the buildings that will exist in 2050 have already been built. This underscores the critical need to focus on existing building stock to achieve net-zero carbon goals, both in the US and internationally. Retrofitting conserves the value of existing materials, reduces waste that has to be disposed of, and can reduce construction costs, compared to demolition and rebuilding. Utilizing advanced modelling and parametric analysis complex engineering decisions can be costeffectively distilled into easy-to-understand financial dashboards and staged investment plans in a fraction of the time this previously would have taken. This innovative technology enables building retrofits to reduce the energy consumption and carbon emissions in a rational and evidence-based program.

73

EBA Journal –Winter 2025 Edition

Trends and Challenges for Asset Owners Stranded Assets One of the pressing concerns for financial institutions and property owners is the risk of stranded assets, which are properties that have lost value or become obsolete due to their inability to meet new environmental regulations and standards. As energy performance regulations become more stringent, buildings that do not comply risk becoming unprofitable investments, thereby stranding significant capital. Regulations can vary not just country to country internationally, but even city to city in the US, making a complex environment for informed retrofit decisions.

Rising Energy Costs Energy prices have been steadily increasing, with a dramatic jump noted in recent months. This trend is likely to continue due to various factors, including geopolitical events, climate change, and the push towards net-zero carbon targets by 2050.

Reduced reliance on fossil fuels and increased production of renewable energy are essential, but achieving this requires modernizing existing buildings and a multifaceted approach to energy management.

The Existing Analysis Approach The typical process for analysing the impact of different retrofitting design options to a building happens at a stage of the design when often many of the constraints have been set. For example, the façade design or plant space may already be fixed. Engineers usually analyse three or four options of combinations based on previous project experience or “gut feel” expectations. After this analysis, and possibly a few iterations, to see the impact and approach, a decision is then made. This process can be slow, inflexible, and limited in options for the client and we must ask ourselves, is it enough? Are we really exploring all the options and proving to ourselves that this is the most environmentally and financially sustainable approach?

74

EBA Journal –Winter 2025 Edition

Important considerations for lending institutions financing commercial real estate assets Climate risk affecting commercial real estate assets is one specific challenge in the lending community. A growing recognition of climate risk as business risk is creating greater demand for understanding a property asset, especially how resilient it may be in the face of climate events such as flooding, hurricanes, and wildfires. ASTM International (ASTM) has recently published a guide to Property Resilience Assessments that aids in understanding how these climate risks can impair commercial real estate assets. E3429 Standard Guide for Property Resilience Assessments

Innovative Solutions: Technology-Driven Retrofitting To tackle the sizable task of retrofitting, technology plays a pivotal role by providing tools for comprehensive analysis and data-driven decision-making.

We have developed a digital tool that assesses existing commercial buildings' energy usage and identifies optimal retrofitting solutions. Here's how the process works: 1. Build a Digital Representation: Create a digital model of the building using existing data and surveys to understand the passive energy usage.

2. Calibrate to Reality: Use metered data to ensure the model reflects actual building usage, enhancing the accuracy of predicted outcomes.

75

EBA Journal –Winter 2025 Edition

3. Test Interventions: Evaluate both passive (fabric changes e.g. upgrading the façade and roof insulation) and system (mechanical and electrical equipment) interventions to find the best combinations for energy efficiency.

4. Exhaustive Analysis: Use cloud technology to analyse all possible combinations of engineering measures (such as upgrading the windows, changing to LED lights, using a more efficient heating, and cooling system) and, if the data is available, incorporate considerations for cost and embodied carbon to create an exhaustive database of tens to hundreds of thousands of results of how to reduce operational energy. When paired with cost data and methodologies, this can help support clients in understanding their return on investment and where they can make the biggest impact with the resources they have.

5. Interactive Dashboard: Create dashboards to visualize the engineering options and impacts data to support client decision making around various retrofitting scenarios, identifying the balance between cost and carbon reduction.

76

EBA Journal –Winter 2025 Edition

77

EBA Journal –Winter 2025 Edition

The result is a visual roadmap for asset owners showing how they can reduce energy usage for their buildings and improve their operational energy ratings. This sets out the pathway to decarbonization and any interrelationships between interventions. It’s important to remember these construction and infrastructure investments will need to align with annual budgets or asset management events. This will mean that while some decarbonization projects will take on a “big bang” approach and implement all the works needed to achieve net zero carbon at the same time, while on other projects a sequenced pathway of interventions over time is deployed. Either a complete retrofit or a running retrofit approach is possible with the visual roadmap; whatever package of interventions is undertaken at each asset management event, they are programmed in line with the organization’s financial, carbon, and energy goals.

Portfolio Scale Analysis

Larger portfolio or fund managers consider a range of value parameters for their assets, including leasing velocity, strength of covenant, yields, and the range and type of potential buyers. Occupier demand, regulation, and institutional investor targets on energy and carbon mean that a retrofitfirst approach is a common risk mitigation approach in the building sector. By ensuring that buildings within their portfolios meet the latest energy efficiency standards, stakeholders can protect their investments and contribute to overall sustainability goals.

Undertaking portfolio-scale analysis is an effective strategy for managing these value risks. We have developed a methodology for comprehensive portfolio analysis known as ZebraFish Decarbonization Tool, of operational energy and carbon retrofit options, with clients able to set targets and tolerances according to their own goals and market risks and opportunities. This is done by categorizing a portfolio of assets into a set of typologies or archetypes, running the dashboard, and visualising the options into a portfolio level dashboard for analysis and review.

78

EBA Journal –Winter 2025 Edition

These dashboards allow asset owners to:

1. Identify At-Risk Assets: Determine which buildings are most likely to become stranded due to non-compliance with upcoming regulations.

2. Evaluate Retrofit Potential: Assess the potential for energy-saving upgrades while considering wider factors such as the embodied carbon investment and the cost-effectiveness of various retrofitting measures.

3. Prioritize Investments: Strategically prioritize retrofitting projects that offer the greatest return on investment in terms of energy savings and compliance.

Align interventions to capital availability, lease events, and block dates.

4. Optimize Resource Allocation: Make informed decisions on where to allocate resources to maximize the impact of retrofitting efforts across the entire portfolio.

Conclusion Changes in technology are allowing for much more informed and transparent decision-making when considering building renovation options and the impact on operational energy and carbon. Retrofitting existing buildings is a critical strategy for achieving sustainability goals and mitigating risks around stranded assets. The blend of regulatory pressures, rising energy costs, and grid limitations necessitates a holistic and technological approach to building upgrades. Individual and portfolio asset owners can draw valuable lessons from the advancements and methodologies discussed, ensuring they are wellequipped to support sustainable retrofitting initiatives in their portfolios.

By leveraging technology for detailed analysis and optimal decision-making, stakeholders can contribute significantly to reducing carbon footprints, minimizing energy costs, and advancing towards a sustainable future—a journey that is not just prudent but essential for the well-being of our planet.

79

EBA Journal – Winter 2025 Edition

AI, what is a de minimis condition?

Disclaimer: We asked AI to fix the spelling errors, and it gave us even more. Turns out, AI is more passive aggressive than a teenager.

AI, can you create a funny comic strip about records that are not reasonably ascertainable?

80

EBA Journal –Winter 2025 Edition

EPA Releases Draft Risk Assessment to Advance Scientific Understanding of PFOA and PFOS in Biosolids Authors: Michael Miller and Diane Samuels, SCS Engineers On January 14, 2025, the U.S. Environmental Protection Agency (EPA) released a draft risk assessment, or scientific evaluation of the potential human health risks associated with the presence of toxic per- and polyfluoroalkyl substances (PFAS) chemicals in biosolids, also known as sewage sludge.

According to EPA the findings for the draft risk assessment show that there may be human health risks associated with exposure to the “forever chemicals” PFOA or PFOS with all three methods of using or disposing of sewage sludge – land application of biosolids, surface disposal in landfills, or incineration. Once finalized, the assessment will help EPA and its partners understand the public health impact of forever chemicals in biosolids and inform any potential future actions to help reduce the risk of exposure.

81

EBA Journal – Winter 2025 Edition

Draft Risk Assessment The EPA’s draft risk assessment focuses on a specific and narrow population of people that EPA considers most likely to be exposed to PFOA or PFOS from the land application of biosolids or through consumption of products from land where biosolids were used as fertilizer. The draft risk assessment scientifically models hypothetical human health risks for people living on or near sites impacted by PFOA or PFOS or for people relying primarily on those sites’ products (e.g., food crops, animal products or drinking water). The preliminary findings of the draft risk assessment indicate that there can be human health risks exceeding EPA’s acceptable thresholds, sometimes by several orders of magnitude, for some scenarios where the farmer applied biosolids containing 1 part per billion (ppb) of PFOA or PFOS (which is near the current detection limit for these PFAS in biosolids).

These modeled scenarios include farms with one application of biosolids at a rate of 10 dry-metric-tons per hectare and 40 consecutive years of biosolids land application at this same rate. The modeling in this assessment also finds human health risks exceeding the EPA’s acceptable thresholds in some scenarios where biosolids containing 1 ppb of PFOA or PFOS are placed in an unlined or clay-lined surface disposal unit. Once finalized, EPA will use the risk assessment to help inform future risk management actions for PFOA and PFOS in sewage sludge.

For the incineration scenario, risk is not quantified due to significant data gaps.

EPA recognizes that certain “hot spots” and specific farming operations may have higher levels of PFOA or PFOS if contaminated sludge was applied, and that further collaboration with impacted operations and other federal agencies will be important to fully understand risks and support impacted farmers. The actual risks from exposure to PFOA or PFOS will vary at farms that land-apply biosolids or at biosolids disposal sites based on the amount of PFOA or PFOS applied, as well as geography, climate, soil conditions, the types of crops grown and their nutrient needs and other factors.

82

EBA Journal –Winter 2025 Edition

Under EPA’s PFAS Strategic Roadmap, the agency has provided tools to restrict PFAS from entering the environment and to hold polluters accountable, including increasing reviews of new PFAS before they enter commerce and encouraging states to use their Clean Water Act permitting authorities and industrial pretreatment programs to require industrial dischargers of PFAS to remove them before sending their effluent to the environment or to wastewater treatment plants.

Moving forward, EPA is working to set technology-based limits on discharges from several industrial categories—including PFAS manufacturers, electro- and chrome-platers and landfills—under the agency’s Effluent Limitations Guidelines program.

83

EBA Journal –Winter 2025 Edition

Where Do PFOA and PFOS End Up? Landfills and the solid waste industry face the larger challenge of being held accountable even though they are not PFAS or PFOS generators, because these products used by consumers or manufactured with the substances ultimately end up in landfills or wastewater treatment plants. ❖ Municipal wastewater treatment plants (WWTPs) may receive PFOA or PFOS from manufacturers and other facilities that use, or historically have used, these PFAS and release contaminated wastewater to WWTPs.

❖ Households and businesses are also sources, as PFAS from consumer products (e.g., cookware, clothing or cosmetics that may contain certain PFAS) are washed down drains and make their way to a WWTP. ❖ Landfills may have PFAS in wastewater or landfill leachate as a result of consumer products that end up in landfills.

84

EBA Journal – Winter 2025 Edition

EPA and State Actions on Forever Chemicals Under EPA’s PFAS Strategic Roadmap, the agency has made progress in establishing some standards to protect communities from PFAS pollution.

These actions include finalizing the nation’s first drinking water standards for PFAS, holding polluters accountable to clean up PFAS across the country and declaring PFOA and PFOS hazardous substances under the Superfund law.

Several states have begun monitoring for PFAS in sewage sludge and published reports and data that are publicly available. Some states continue to collect additional sewage sludge PFAS monitoring data.

Where to Find the Sludge Risk Assessment Draft Sewage Sludge Risk Assessment for Perfluorooctanoic Acid (PFOA) and Perfluorooctane Sulfonic Acid (PFOS), will be available for public comment for 60 days following announcement in the Federal Register.

85

EBA Journal –Winter 2025 Edition

Read Back Issues Contribute to the Journal Learn more at: envirobank.org/EBAJournals

86

EBA Journal – Winter 2025 Edition

COMMITTEE ROUND-UP Conference Committee Plans the EBA conference agenda and conference experience.

2025 Chair: Jennifer Bellamy, U.S. Bank

Continuing Education Committee Oversees EBA educational content, including webinar planning and execution, and recommended topics for conference sessions.

2025 Chair: Mike Seney, SouthState Bank

DEI Committee The EBA has several committees meeting regularly. In fact, it is due to our volunteer members who dedicate their time, talent, and expertise, that most of the EBA's content exists, including this Journal.

Identifies and organizes opportunities we can make EBA and our industry more diverse, equitable, and inclusive.

2025 Chair: Cate Landry, Truist Bank

ESG Committee Assesses environmental, social, and governance risk management as it relates to financial institution regulation, risk management industry standards, and development of methods for assessing and mitigating risks.

2025 Chair: Kate Flaherty, Wells Fargo Bank

Gives Back Committee Identifies and organizes opportunities where our members can make an impact through contributions to charitable organizations.

2025 Chair: Jonathan Green, Green Environmental Management

Membership Committee All EBA members are invited to join these open committees and get involved! Contact eba@envirobank.org to learn more.

Builds connections with members to ensure they’re making the most of their EBA membership, as well as identifies and makes initial outreach to future members.

2025 Co-Chairs: Carla Nelson, Bank of Hope, and Enrique Garcia, JPMorgan Chase Bank

Journal Committee Collects, writes, edits, and assembles articles our members contribute to our 2x annual publication.

2025 Chair: Victor DeTroy, AEI Consultants 87

EBA Journal – Winter 2025 Edition

DIAMOND SPONSORS

PLATINUM SPONSORS

GOLD SPONSORS

SILVER SPONSORS

88

Questions, concerns or feedback?

Contact us at eba@envirobank.org

Environmental Bankers Association 2900 Delk Road Suite 700, PMB 321 Marietta, GA 30067 Phone: (678) 619-5045 Fax: (678) 229-2777