O.Reg 511/09 The Banker s s View

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1 O.Reg 511/09 The Banker s s View James R. Evans Senior Manager, Environmental Risk Corporate Environmental Affairs Royal Bank of Canada June 23, 2010

2 Outline Why Banks Conduct ESAs Banks Opinion on the New Regulations Client Requirements Consultant Requirements Historical Reports

3 Why Banks Conduct ESAs Stability of Client Cash Flow: Fines, shutdowns, clean-up orders or lawsuits could adversely affect the financial position of borrowers with contaminated properties or significant environmental problems; Opportunity to Provide Value-added Advice to Clients: Clients may need advice on how to avoid environmental liabilities when purchasing a property or how to manage an environmental problem that arose after financing was in place; Reputation Risk: RBC faces negative impact on its corporate reputation if it does not hold its clients to some reasonable environmental standard.

4 Why Banks Conduct ESAs Value of Collateral: The property may be worth much less than the appraised value, or may be so contaminated that it has no value as collateral at all; Super priority of environmental claims: In a bankruptcy situation, federal or provincial government environmental claims rank above any other claims, rights or charges against a property. Portfolio Liquidity: Liquidity of the portfolio may be adversely affected by contaminated sites, since they are less desirable than clean properties for securitization or redevelopment.

5 Why Banks Conduct ESAs Avoid Legal Liability: RBC may be held legally liable for remediation of environmental problems in the event it realizes on contaminated security.

6 Banks Like Criteria are science based Regulations will limit supervision and sign off of RSCs to professional engineers and professional geoscientists (QPs( QPs) Phase I s and Phase II s to be much more prescriptive in nature New criteria for hydrocarbons in groundwater

7 Banks Don t t Like MOE has initiated an 18 month transition period although they became the commercial standards the day they were released. Consultants are failing to use or even mention the existence of the 2009 criteria in current Phase II s Asbestos and lead based paint not in new Phase I requirements.

8 Banks Don t t Like RSC applications cannot use 2009 criteria until July 1, Extension period for the transition period. Outreach and education program. Limited consideration of commercial reality

9 Client Requirements Ensure that your consultant uses the 2009 criteria in Phase II reports Not all consultants or QPs are created equal Expect confusion in the marketplace on what MOE standards to apply Expect report costs to at least double Expect slower review times at your bank

10 Client Requirements Build longer lead times into your developments Expect to have to do more Tier II risk assessments More municipalities are expected to require RSC s for building permits Your old RSC may not be sufficient for lending purposes

11 Consultant Requirements The 2009 criteria apply now Make sure you fully understand the new requirements Make sure your Phase II uses the 2009 criteria Educate your clients about the new requirements

12 Consultant Requirements On July 1, 2011 we will expect all consultants to fully meet the requirements of O Reg 511/09. RSC or no RSC. Banks will require that all risk assessment have very clear conclusions and recommendations that banks can use to make a rational business decision.

13 Historical Reports Phase I s using the old standards will be OK as long as we can get reliance for them For Phase II ESAs,, banks will require a new Phase II report or an addendum report to confirm that the site meets the 2009 criteria Banks are not expecting consultants to provide reliance beyond one year. Risk assessments will not require updating or revision unless the toxicological reference data has become more stringent.

14 Questions? James R. Evans, M. Eng. P.Geo. Senior Manager, Environmental Risk Corporate Environmental Affairs Royal Bank of Canada Phone