Corporate water risk is a function of resource dependence, which exposes firms to uncertainty. Firms rationally seek to reduce this risk, and this shapes their disclosure strategies. However, the consequence is that corporate water risk disclosure is becoming increasingly unfit for purpose. As current approaches begin to acquire institutional legitimacy and the path-dependent label of best practice, a status quo is becoming embedded, reinforced through mimetic behaviour. The agency problem that this creates is unchecked; in part because of the legitimacy acquired by the disclosure strategies, but also because of temporal myopia exhibited by investors, which contributes to unpredictable decision-making. The status quo also results in sub-optimal resource allocation, a problem that is compounded by the large and growing global infrastructure deficit for water supply and services. This thesis sets out a framework by which the disclosure of corporate water risk can be meaningfully evaluated by investors and other stakeholders; and proposes how the water infrastructure investment gap could be narrowed by the development and application of the corporate water return concept. The research builds on empirical foundations to offer new approaches that address the problems of the status quo. First, it empirically explores perceptions of best practice in terms of water risk disclosure, from the perspective of both listed firms and leading institutional investors (Chapters 3 and 4). Second, it proposes a methodology through which firms can disclose water risks in a systematic format; and advances corporate water return as a complementary concept to water risk, in order to catalyse corporate investment in water infrastructure (Chapters 5 and 6). Resource dependence theory, institutional theory, and stakeholder theory are combined to create a trio of integrative, explicative conceptual narratives that form the overarching thesis structure. The research also draws on other themes from economic geography, including proximity; strategic cognition; transaction costs; and real options theory.

Safe drinking water is a basic need; and risk assessment tools may assist in prioritizing actions to improve water safety. The objective of this research was to determine the appropriateness of current risk assessment approaches for First Nations drinking water systems. Criteria to evaluate risk assessment approaches were developed by combining common elements from literature, key informant interviews, and surveys. The criteria were compared against selected tools for drinking water risk assessment, including tools developed by Australia, Montana, Indian and Northern Affairs, and the University of Guelph. None of the tools, as available, met all of the criteria. Important considerations were found to include the operator, monitoring and recordkeeping, maintenance, technical considerations, emergency response plans, and source water protection. The tools were generally weak in assessing some potential challenges facing small, remote, and First Nations communities; including financial constraints, and taking a holistic view of water. / Note: this thesis was also submitted in hard-copy to Graduate Services

[pt] Esta tese estuda as consequências do risco hidrológico para os geradores hidrelétricos no Brasil e propõe o desenvolvimento de quatro modelos para mitigar esse risco. Na primeira parte, um modelo é desenvolvido considerando o redesenho de contratos de energia hidrelétrica para que os geradores possam vender parte da energia por disponibilidade. Esta solução permite que a liquidação financeira das contas espelhe a operação do sistema, em que as fontes de energia podem ser alternadas entre usinas hidrelétricas e térmicas, dependendo da disponibilidade de água. Na segunda parte, são desenvolvidos três derivativos de opções, denominados swap, collar e collar por diferença. No swap, os geradores definem um nível de proteção a partir do qual trocam energia com os consumidores através de um fator de entrega de energia. No collar, os geradores definem um piso de geração para se proteger de perdas financeiras no mercado de energia e a partir do qual eles estão comprados em um preço teto de mercado. Neste caso, os geradores também definem um teto de geração no qual eles estão vendidos a um preço piso. O collar por diferença é formado por dois agentes distintos por meio de um comerciante. Neste caso, os geradores definem uma opção e um valor de exercício, enquanto que os clientes definem uma posição contrária com o mesmo valor de exercício com o comerciante. Para testar a eficiência desses quatro modelos, foram geradas duas mil simulações mensais de preço e geração de energia para o ano de 2016. Os resultados indicam que ao adicionar flexibilidade às regras de contratação, o risco hidrológico é mitigado. Os resultados também sugerem que os geradores com contratos existentes de energia podem optar respectivamente pelos derivativos swap, collar por diferença e collar, enquanto que geradores com energia nova optariam por vender parte da energia em contratos por disponibilidade. No longo prazo as tarifas de energia diminuiriam devido a redução do risco de geração sob esses modelos. / [en] This thesis studies the consequences of hydrological risk for hydropower generators in Brazil and proposes four models to mitigate this risk. In the first part, a model is developed considering the redesigning of hydro energy contracts so that the generators are allowed to sell part of their energy per availability. This solution allows the financial settlement of the accounts to more closely mimic the operation of the system, where energy sources can be optimally switched between hydro and thermal plants depending on water availability. In the second part, three derivative options, namely swap, collar and collar by difference are developed. In the swap model, the generators define a protection level and from that level they exchange energy with the consumers through a power delivery factor. In the collar model, the generators define a generation floor to protect themselves against financial losses in the market in such way they would be long at a high spot price. Also, the generators define a generation cap from which they would be short at a low price. The collar by difference is a collar formed by two distinct agents through a trader. In this case, the generators set an option with an exercise value, while the customers set an opposite position with that same exercise with the trader. To test the efficiency of these four models, two thousand monthly simulations of energy price and power generation for 2016 were generated. The results indicate that by adding flexibility to the contracting rules, hydrological risk is mitigated. Also, the results suggest that the generators with existing contracts may respectively opt for the swap, collar by difference and collar derivatives, while the generators with new energy would opt to sell a portion of their energy in contracts by availability. In the long-term energy tariffs may decrease in future energy auctions due to the reduction in the risk to hydropower generators under these models.

[pt] Entre 2013 e 2015, os níveis dos reservatórios das hidrelétricas brasileiras foram reduzidos pelas secas que atingiram o país. Como consequência, o Operador Nacional do Sistema restringiu a geração hídrica na composição da oferta de energia, aumentando a participação de energia térmica no suprimento da demanda. A restrição da geração hídrica, no entanto, impossibilitou os geradores hidrelétricos de cumprirem seus contratos de venda com a geração própria, forçando-os a comprar energia no mercado de curto prazo e acumular prejuízos. A crise hídrica evidenciou a exposição dos geradores hidrelétricos aos riscos hidrológicos, consequência da modalidade contratual praticada na comercialização de energia hídrica, na qual os geradores assumem todo o risco relacionado à geração. O presente estudo apresenta uma alternativa a este modelo de contratação, de forma que a parte da geração mais exposta aos riscos hidrológicos seja vendida na modalidade que repassa os riscos ao comprador. Para que não haja alteração nos custos totais esperados do comprador com a troca de modelos, o gerador deve pagar um prêmio, refletido na diferença de preços entre as duas modalidades de venda. Os resultados mostraram ganhos em termos de equivalente de certeza e redução considerável do CVaR para o gerador em todos os cenários analisados, porém, o prêmio demonstrou significativa sensibilidade em relação a diversos fatores do modelo. / [en] Between 2013 and 2015, the water levels at storage reservoirs of the Brazilian hydroelectric power plants were reduced by the droughts that impacted the country. As a consequence, the National System Operator restricted hydro power generation in its offer composition, increasing the thermal energy generation to meet the demand. However, this restriction on hydro power energy prevented suppliers from fulfilling their contracts through their own energy production, which forced them to purchase short-term-trade energy and accumulate loss. This water crisis highlighted how exposed hydro power generators are to hydrological risks, a consequence of the contractual modality practiced in this market, in which suppliers take on all of the risk associated with generating power. This study presents an alternative to this contractual model, one in which part of the hydroelectric energy is sold in a modality of contract where risks are borne by the buyer. In exchange, the hydro generator is expected to pay a premium, reflected on the price difference between the two contractual modalities and calculated in a way that would not alter the expected total costs for the buyer. The results showed gains in terms of certainty equivalent and a considerable decrease of CVaR for the hydro generator in all analyzed scenarios. The premium, however, showed significant sensitivity in regards to many factors of the model.

[pt] Este trabalho objetiva a definir as motivações, benefícios e limitações de atuação – e protagonismo – de empresas para a gestão dos recursos hídricos em nível de bacia hidrográfica. Aborda a bacia como espaço de conflito e cooperação, demonstrando como o conflito ante a escassez hídrica atual ou iminente é constantemente o resultado da (falta de) interação cooperativa entre os atores. Aprofunda, ainda, sobre a disputa pelo uso da água ante a lógica da interdependência água-energia-alimento e argumenta, a partir de uma análise da Teoria dos Jogos, que o conflito é consequência da falta de diálogo e de expectativas diferentes entre os atores. Por fim, demonstra como esses gaps podem ser, e já são, superados a partir da liderança de atores empresariais, enfatizando os ganhos potenciais da ação e gargalos para seu sucesso. / [en] The economic and population growth of the last two centuries presents a clear challenge to the management of water resources, easily explained by the relationship between supply and demand as well. Going beyond the usual categorization on the availability of fresh and salt water in the world, as important it is to mention the total amount of water on Earth. The water supply remains stable in absolute amounts on the planet, ranging just from where it can be captured and subsequent used, as well as its quality. Natural to say that water security is closely connected to food, energy, climate and, ultimately, to the classic sense of security of countries. It should be considered the tenuous balance between water availability and its multiple uses; agricultural production and the supply needs; generation by hydropower and growing energy demand; and changes of the hydrological cycle and changes in rainfall and flow. Globally, it is projected a growth of over 60 percent on water demand, driven mainly by rising industrial demand and power generation. (OECD, 2012) In Brazil, water management is largely decentralized since 1997 s Water Law. This means that the discussions, definitions, policies and actions with respect to water resources management in Brazil is made largely by local actors that are more affected. Institutionally, the Watershed Committees are the formal space for this dialogue. In this dynamic of Watershed Committees, given that participation is precisely from those who have the most interest in better use by availability and quality of water of the watershed, there is a great possibility that those users make choices that optimize the potential for multiple uses water, maximizing the possibility of continuity of their activities. This work analyzes the duality between conflict and cooperation in these scenarios, especially at the logic of the water-energy-food nexus. To this end, it uses concepts of Games Theory to demonstrate how rational actors tend to take collective decisions potentially bad for everyone precisely due their visions of maximization of their own gains. Finally, in the other hand, it presents the overcoming of these joint performance gaps in favor of the collective good from the institutionalization of a better-concerted action by the leadership of the business sector.