The Office of the Superintendent of Financial Institutions (OSFI) has published Guideline B-15: Climate Risk Management, which sets out OSFI’s extensive expectations for the management of climate related risks.
“Climate change and the global response to the threats it poses, have the potential to significantly impact the safety and soundness of the Canadian financial system,” the regulator states in its announcement about the guideline’s publication. “The publication of Guideline B-15 follows one of the most extensive consultations in OSFI’s history.” The regulator received more than 4,300 submissions during its consultations on the guideline, which becomes effective fiscal year-end in 2024 for internationally active insurance groups headquartered in Canada and for systemically important banks. All other federally regulated financial institutions (FRFIs) will need to meet the guideline’s expectations by fiscal year end in 2025.
The guideline’s expected outcomes include that FRFIs understand and mitigate the potential impact of climate related risks to their business models and strategies. It calls for FRFIs to have appropriate governance and risk management practices to manage identified climate-related risks, and it aims to keep FRFIs financially resilient through severe, yet plausible climate risk scenarios.
“Senior management has overall accountability for FRFI’s climate risk management. The FRFI should consider whether and how senior management compensation policies and related practices should incorporate climate-related risk considerations,” the guideline states. “The FRFI should identify and understand the impact of climate-related risks on the FRFI’s short-term and long-term strategic, capital and financial plans.” They add that companies should also develop and implement a climate transition plan. The guideline goes on to consider risk identification, measurement and management, monitoring and reporting, stress testing, and capital and liquidity adequacy – a section OSFI says it may develop further in future iterations of the guideline. “The FRFI should maintain sufficient capital and liquidity buffers for its climate related risks,” they state.
The guideline goes on to stipulate the disclosures it will require from institutions in the future, as well. “The FRFI should disclose specific and comprehensive information,” the guideline states, including historical and future-oriented disclosures that are clear, balanced, understandable, neutral and verifiable.