Guidelines require increased risk disclosures starting next year
Canadian financial institutions will need to disclose more about their climate-related risks and exposure beginning in 2024, according to new guidelines published by the Office of the Superintendent of Financial Institutions (OSFI) on Tuesday.
OSFI advised financial institutions to incorporate potential climate change consequences into their risk profiles and account for a range of possible climate-related outcomes when assessing whether their capital is adequate, but it did not mandate specific increases in capital buffers to deal with climate change risks.
The regulator also ruled out assigning higher risk factors and capital requirements to fossil-fuel lending and investments, as proposed by environmental activists.
The new framework, officially published as a document called Guideline B-15 – Climate Risk Management, is a result of extensive consultations that drew more than 4,300 submissions, with the rules aimed at bolstering public confidence in the financial system by increasing transparency.
OSFI superintendent Peter Routledge said this final version “balance the concerns of stakeholders in all regions of Canada and remain in line with the expectations of global and domestic investors who fund Canadian federally regulated financial institutions.”
These guidelines require financial institutions to increase their climate risk disclosures and put serious plans in place for the transition to a low-carbon economy, the Globe and Mail reported. Institutions were also told to “consider whether and how senior management compensation policies and related practices should incorporate climate-related risk considerations.”
The Canadian Bankers Association said its members are assessing the guidelines to understand their implications, adding that the industry is committed to doing its part to address climate change.
Federally regulated institutions will need to begin the first phases of detailed disclosure at the end of the 2024 fiscal year, with most of the remaining requirements coming into effect in 2025. They will also get an extra year to tally Scope 3 emissions, which refer to emissions produced by their borrowers and the companies in their portfolio.
Additionally, some disclosure expectations will be updated after International Sustainability Standards Board publishes its first set of reporting practices by the end of June.
What are your thoughts on OSFI’s new climate risk guidelines? Let us know in the comments below.
