On October 12, 2021, the Office of the Superintendent of Financial Institutions (OSFI) published a summary of stakeholder feedback in respect of a discussion paper entitled "Navigating Uncertainty in Climate Change: Promoting Preparedness and Resilience to Climate-Related Risks" released on January 11, 2021 (the Discussion Paper). The Discussion Paper invited federally regulated financial institutions (FRFIs), federally regulated pension plans (FRPPs) and interested stakeholders to respond to specific questions developed by OSFI regarding climate change-related risks and the development of guidance to address such risks.

Some of the key areas of focus in the Discussion Paper included: preparing for and building resilience to climate-related risks; improving identification and measurement of climate-related risks; OSFI's role in relation to climate-related risks; whether new or adapted governance structures or policies should be used to manage climate-related risk; and whether climate-related considerations should be factored into the capital framework (to the extent they have not already been included).

Summary of feedback

Below is a summary of stakeholder feedback that OSFI published in respect of FRFIs:

  1. Climate-related risks are drivers of financial and non-financial risks. Physical risks should include the risk to public health (in terms of morbidity and mortality) due to extreme weather events, poor air quality and increased risk of vector-borne diseases.
  2. OSFI should play a role in standardizing taxonomy, measurement methodologies and metrics to help FRFIs improve their definition, identification, measurement and management of climate-related risks.
  3. Many FRFIs are in the early stages of assessing and quantifying climate-related risk.
  4. FRFIs may manage climate-related risks through existing governance and risk management frameworks, by including new tools such as climate-related scenario analyses.
  5. The availability of decision-useful data, analytical tools and skills are key challenges for FRFIs.
  6. Internal alignment of accountability across the three lines of defence is key to embedding climate-related risk management in FRFI operations.
  7. Some FRFIs have developed risk management tools and approaches to manage new and existing climate-related exposures that are aligned with their circumstances and/or business.
  8. Any guidance from OSFI should be principles-based and align with any existing global standards, having consideration to the Canadian context.
  9. Supervision and market discipline, rather than minimum regulatory capital requirements, should be used to promote FRFI preparedness and resilience.

Next steps

Based on the feedback received from stakeholders and OSFI's comments, we expect that any guidance for FRFIs on climate-related risks would be principles-based and any expectations or requirements would be commensurate with the size, nature and complexity of a FRFI's business.  

OSFI also stated that the development of any guidance would be informed by the results of the joint pilot project launched by the Bank of Canada and OSFI on November 16, 2020. We anticipate that OSFI will communicate additional information in respect of any policies or guidance to FRFIs in early 2022, after the results from the pilot project are available. OSFI indicated it continues to monitor other Environmental, Social and Governance factors for potential links to FRFI safety and soundness.

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