Canada’s new guidelines on climate risk management propose a prudential framework that is more climate sensitive and recognises the impact of climate change on managing risk. Canada’s Office of the Superintendent of Financial Institutions (OSFI) has issued the draft guidelines that set the stage for OSFI’s expectations of federally regulated financial institutions.
The draft guidelines issued in May 2022 said that climate-related risks, including physical and transition risks, could have significant impacts on the safety and soundness of financial institutions and the broader Canadian financial system.
Building financial resilience against intensifying climate-related risks requires institutions to address vulnerabilities in their business model, their overall operations, and ultimately on their balance sheet.
The OSFI will also introduce mandatory climate-related financial disclosures aligned with the international Task Force on Climate-related Financial Disclosures framework. These disclosures will incentivise improvements in the quality of the institutions’ governance and risk management practices related to climate.
This is expected to contribute to public confidence in the Canadian financial system by increasing transparency. This also aligns with a commitment made by the federal government to require financial institutions to publish climate disclosures starting in 2024.
OSFI head and superintendent Peter Routledge said, “Ensuring that the financial system remains resilient in the face of climate change demands that we address its threats with a greater sense of urgency, vigour and effort. With the release of this draft guideline, we are taking deliberate steps towards addressing climate-related risks in our broader regulatory and supervisory activities.” M