Canada's financial regulators draft rules for financial institutions to ensure they can sustain operations during climate change
Canada's big banks and other federally regulated financial institutions will have to ensure they can sustain operations during climate-related disasters and remain financially viable through severe yet plausible climate risk scenarios, according to a set of draft rules released Thursday by the country's top financial regulators. The rules were laid out in the Office of the Superintendent of Financial Institutions OSFI preliminary that sets out the regulators'expectations regarding climate-change risk management and disclosure. Joe Hood, the Financial Post spokesman, breaks down what you need to know about the proposed framework.
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Tap here to see other videos from our team. What is the B-15 Guideline? What are some things that you need to know about OSFI's new proposed climate-risk guidelines for financial institutions? The B-15 guideline is an effort by the OSFI to enhance scrutiny of climate-related risks in the financial institutions it oversees. It is divided into two sections, the first dealing with governance and risk management, and the second dealing with disclosure. On the risk side of the equation, OSFI is concerned with both physical risk - damage caused by severe weather and other climate-change related events - and the transition risk that comes with businesses trying to reduce emissions and their reliance on fossil fuels. The goal is to make institutions aware of the potential risks to their business models and have the appropriate practices in place to address them, and remain viable, according to OSFI. B- 15 is considered a framework, as there is no one-size-fit-all response to climate change that will work for all companies.
B- 15 calls for companies to understand and manage the risks arising from climate change. It includes references to creating and implementing a climate transition plan to address the physical risks of climate change and ensuring the necessary governance policies and structures are in place. It calls for companies to conduct climate-related stress tests using scenario analysis, a method that involves using a hypothetical future state of the world to determine the potential impact on operations. When it comes to physical operations, B- 15 says institutions should consider severe, yet plausible, climate-related disaster scenarios and their impact on business continuity and recovery planning, as well as exposure to third party providers who may be affected.
The OSFI oversees all federally regulated financial institutions, including domestic and foreign banks operating in Canada, life insurers and property and casualty insurers. In a briefing, OSFI officials said they expect larger institutions to lead the way when it comes to certain more complicated aspects of disclosure, with smaller regulated entities following suit over time. When will the rules come into effect? The proposal isn't a draft framework, and the OSFI is seeking comment on it until August 19, 2022. The final version will be released by early 2023, along with a non-attributed summary of comments received, according to a press release issued with the guideline.