Canada’s Office of the Superintendent of Financial Institutions (OSFI) announced the launch of a three month consultation, seeking to engage federally regulated financial institutions (FRFIs), federally regulated pension plans (FRPPs), and other interested stakeholders in a dialogue on climate-related risks in the financial sector. The consultation is being initiated along with the publication of a discussion paper by OSFI, “Navigating Uncertainty in Climate Change: Promoting Preparedness and Resilience to Climate-Related Risks,” which focuses on risks arising from climate change that can affect the safety and soundness of FRFIs and FRFPs.
OSFI is an independent agency of the Government of Canada, established in 1987, to protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks. According to OSFI, through the consultation, the agency is seeking input to help guide the development of regulatory and supervisory approaches that meet its mandate. Specifically, OSFI stated that it is interested in how FRFIs and FRPPs define, identify, measure and build resilience to climate‑related risks, while also seeking feedback on how it can facilitate FRFIs’ and FRPPs’ preparedness for, and resilience to, these risks.
OSFI categorizes climate related risk as physical risks arising from climate change, such as the increasing frequency and severity of wildfires, floods, wind events and rising sea levels, transition risk stemming from efforts to reduce greenhouse gas (GHG) emissions as the economy shifts towards a lower-GHG footprint, and liability risk, relating to potential exposure to the risks associated with climate-related litigation.
Ben Gully, OSFI Assistant Superintendent, Regulation Sector, said:
“Climate-related risks are difficult to predict, but will affect most sectors of the economy sooner rather than later. The submissions received and the discussions that will occur will support effective climate risk management and contribute to the resilience of the Canadian financial sector.”