Climate change and the global response to associated risks have the potential to significantly impact the Canadian financial system. The Office of the Superintendent of Financial Institutions¹ (OSFI) published Guideline B-15: Climate Risk Management (the Guideline) on March 7, 2023, to guide federally regulated financial institutions (FRFIs), including Canada’s major banks, in managing this risk.

The Guideline is broadly based on the requirements of the Task Force of Climate Related Financial Disclosures (TCFD). The Guideline’s disclosure principles and disclosure requirements are also broadly consistent with the proposals being developed by the International Sustainability Standards Board (ISSB) which when finalized, we anticipate, will have a significant impact on the climate-related disclosure requirements being developed by the Canadian Securities Administrators. See our paper on these developments here.

The Guideline is comprised of two chapters, each with its own focus and principles-based expectations: (1) Governance and Risk Management Expectations, and (2) Climate-Related Financial Disclosures. OFSI notes the Guidelines are expected to evolve with new standards and best practices.

1. Governance and Risk Management Expectations

This chapter outlines five principles to guide governance, strategy and risk management expectations of FRFIs for climate-related physical and transition-related risks:

Principle 1: The FRFI should have the appropriate governance and accountability structure in place to manage climate-related risks.

Principle 2: The FRFI should incorporate the implications of physical risks from climate change and the risks associated with the transition to a low-greenhouse gas (GHG) economy in its business model and strategy.

Principle 3: The FRFI should manage and mitigate climate-related risks in accordance with the FRFI’s Risk Appetite Framework.

Principle 4: The FRFI should use a climate scenario analysis to assess the impact of climate-related risks on its risk profile, business strategy and business model.

Principle 5: The FRFI should maintain sufficient capital and liquidity buffers for its climate-related risks.

2. Climate-Related Financial Disclosures Expectations

OSFI’s goal of establishing climate-related financial disclosure expectations is to ensure relevant information is publicly available to enable the understanding of a FRFIs’ financial condition and the risks to which they are exposed, recognizing that interested users of the information will include depositors, creditors, policyholders, investors, analysts and the public at large.

This chapter of the Guideline outlines a set of six principles to be followed in providing climate-related financial disclosures and sets out the minimum mandatory climate-related financial disclosure expectations. The principles are as follows:

Principle 1: The FRFI should disclose relevant information.

Principle 2: The FRFI should disclose specific and comprehensive information.

Principle 3: The FRFI should disclose clear, balanced and understandable information.

Principle 4: The FRFI should disclose reliable and verifiable information.

Principle 5: The FRFI should disclose information appropriate for its size, nature and complexity.

Principle 6: The FRFI should disclose information consistently over time.

OFSI outlines minimum mandatory climate-related financial disclosure expectations for FRFIs in Annex 2-2 of the Guideline, which are as follows:

Governance

• Describe the board of directors’ oversight of climate-related risks and opportunities.
• Describe management’s role in assessing and managing climate-related risks and opportunities.

Strategy

• Describe the climate-related risks and opportunities the FRFI has identified over the short, medium and long term.
• Describe the impact of climate-related risks and opportunities on the FRFI's businesses, strategy and financial planning.
• Describe the FRFI's climate transition plan, which is discussed in Chapter 1 of the Guideline.**
• Describe the resilience of the FRFI's strategy, taking into consideration different climate-related scenarios, including a scenario which limits warming to the level aligned with the latest international agreement on climate change (being 1.5℃ above pre-industrial levels, as of the date of publication of the Guideline), or lower.**

Risk management

• Describe the FRFI's processes for identifying and assessing climate-related risks.
• Describe the FRFI's processes for managing climate-related risks.
• Describe how processes for identifying, assessing and managing climate-related risks are integrated into the FRFI's overall risk management.

Metrics and targets

• Disclose the metrics used by the FRFI to assess climate-related risks and opportunities in line with its strategy and risk management process.
• Disclose the FRFI's Scope 1 and Scope 2 greenhouse gas (GHG) emissions (absolute basis) for the period.
• Disclose the reporting standard used by the FRFI to calculate and disclose the GHG emissions.
• If the reporting standard used by the FRFI is not the GHG Protocol Corporate Standard, disclose how the reporting standard used by the FRFI is comparable with the GHG Protocol Corporate Standard.
• Disclose the FRFI's Scope 3 greenhouse gas (GHG) emissions for the period (absolute basis), and the related risks.
• Disclose the reporting standard used by the FRFI to calculate and disclose the GHG emissions.
• If the reporting standard used by the FRFI for Scope 3 GHG emissions, is not the Corporate Value Chain (Scope 3) Accounting and Reporting Standard, disclose how the reporting standard used by the FRFI is comparable with the Corporate Value Chain (Scope 3) Accounting and Reporting Standard.
• For financed, facilitated and insured Scope 3 GHG emissions, if the reporting initiative used by the FRFI is not the PCAF Standard, then disclose how the reporting initiative used by the FRFI is comparable with the PCAF Standard.
• Describe the targets used by the FRFI to manage climate-related risks and opportunities and the FRFI's performance against these targets.
• Disclose any public climate-related commitment(s), if the FRFI has made one or more, whether through an industry-led Net-Zero alliance (e.g., Net-Zero Banking Alliance, Net-Zero Insurance Alliance, other) or otherwise.
• Supplement "Metrics and Targets" Disclosure Element a) with OSFI-specified prudential cross-industry metrics.**
• Supplement "Metrics and Targets" Disclosure Element a) with OSFI-specified prudential industry-specific metrics.**

The Guideline requires FRFIs to provide climate-related financial risk disclosures on a yearly basis, within 180 days from their fiscal year-end, as early as after the end of the FRFI’s 2024 fiscal year (Scope 3 GHG Emissions at the end of the FRFI’s 2025 fiscal year). At some point, banks will be looking to their borrowers to provide information the banks will need to determine their Scope 3 GHG Emissions.

OFSI noted the final disclosure expectation and/or timing of implementation for disclosure expectations marked ** in the list above will be determined at a later date.

For more information on the new Guideline or on climate-related disclosure proposals and requirements generally, contact Bill Gilliland and Heather Bonnell at Dentons Canada LLP.

1. OFSI is empowered to regulate FRFIs (which includes Banks, Trust Companies, Loan Companies, Life Insurance Companies, Fraternal Benefit Societies and Property & Casualty Insurance Companies) under the Office of the Superintendent of Financial Institutions Act and related Acts. The publication of the Guideline follows one of the most extensive consultations in OSFI’s history as they received over 4,300 submissions from stakeholders, including FRFIs. OSFI’s responses to the feedback in these submissions can be found here. ↩