The Office of the Superintendent of Financial Institutions ("OSFI"), Canada's principal bank and insurance solvency and prudential regulator, published an updated version of Guideline B-15: Climate Risk Management (the "Guideline") on March 7, 2025. The Guideline has aligned OSFI guidance with corresponding requirements of the Canadian Sustainability Standards Board ("CSSB") standards released last December to ensure interoperability between the Guideline and the CSSB standards. This article provides a high-level overview of the Guideline.
The Guideline was issued shortly after an OSFI letter to industry February 20, 2025, which announced that some climate-related reporting requirements would be delayed, in order to align the Guideline with certain CSSB standards. Accordingly, there will be a:
- Three year delay (from 2025 to 2028) for the expectation to disclose Scope 3 greenhouse gas emissions of federally regulated financial institutions ("FRFIs");
- Four year delay (from 2025 to 2029) to provide additional and specific information on Scope 3 disclosure for asset management activities; and
- Three year delay (from 2025 to 2028) to disclose industry-based metrics.
Key Requirements of the Guideline
The Guideline outlines OSFI's expectations for FRFIs in managing climate-related risks. It "aims to support FRFIs in developing greater resilience to, and management of, these risks." Accordingly, the Guideline expects each FRFI to achieve three core outcomes:
- Understand and mitigate the potential impacts of climate-related risks on its business model and strategy;
- Ensure it has appropriate governance and risk management practices to manage climate-related risks; and
- Remain financially resilient through severe, yet plausible, climate risk scenarios, and operationally resilient in the face of climate-related disasters.
To achieve these outcomes, the Guideline provides specific expectations for FRFIs, discussed below.
Governance and Risk Management Expectations
(a) Governance
FRFIs should "have the appropriate governance and accountability structure in place to manage climate-related risks." Senior management should hold overall accountability and each FRFI should consider incorporating climate-related risk considerations into their senior management compensation structure.
FRFIs should also "incorporate the implications of physical risks from climate change and the risks associated with the transition to a low-greenhouse gas ("GHG") economy" into their business models and strategies. This includes, for instance, identifying and understanding the impact of climate-related risks to short-term and long-term strategic, capital and financial plans, as well as implementing a Climate Transition Plan to help manage the "increasing physical risks from climate change, and the risks associated with the transition towards a low-GHG economy."
(b) Risk Management
To manage climate-related risks effectively, FRFIs should incorporate climate-related risks into their Risk Appetite, Enterprise Risk Management and Internal Control frameworks. OSFI expects FRFIs to put in place policies and procedures and personnel to assist in the identification and management of climate-related risks, including implementation of tools and models to collect and measure relevant climate risk data and metrics. FRFIs should also have internal reporting systems that could monitor and report any relevant climate risk to assess and support its climate risk management.
(c) Climate Scenario Analysis and Stress Testing
OSFI expects FRFIs to "use climate scenario analysis to assess the impact of climate-related risks on [their] risk profiles, business strategies, and business model".
This analysis should "consider a range of plausible and relevant models and climate scenarios, over various time horizons", including scenarios that take into account both physical and transition type risks.
In addition to the climate scenario analysis conducted internally at an FRFI, OSFI will also require FRFIs to conduct standardized climate scenario exercises that allow OSFI to compare FRFI approaches to climate scenario analysis.
(d) Capital and Liquidity Adequacy
Finally, FRFIs should "maintain sufficient capital and liquidity buffers" for climate-related risks. This involves, for instance, incorporating climate-related risks in the FRFIs' Internal Capital Adequacy Assessment Process or Own Risk and Solvency Assessment process, as well as incorporating the impact of climate-related drivers on FRFIs' liquidity risk profiles and accounting for severe, yet plausible, climate-related stress events into FRFIs' assessments of their liquidity buffers.
Climate-Related Financial Disclosures
The Guideline reinforces OSFI's "climate risk management expectations through climate-related financial disclosure expectations." These disclosures help protect depositors, creditors, and policyholders, and contribute to "public confidence in the Canadian financial system, by ensuring relevant information is publicly available."
To that end, each FRFI should disclose information that is:
- Relevant: Information "specific to the current and potential future impact of climate-related risks and opportunities on its markets, businesses, corporate or investment strategy, financial statements and reports, and future cash flows;"
- Specific and comprehensive: Information relating to "its exposure to current and potential future impacts of physical and transition risks; the potential nature and size of such impacts; the FRFI's governance, strategy, processes for managing these risks, and performance with respect to managing climate-related risks and opportunities;"
- Clear, balanced, and understandable: Information that is presented in a way that "serves the needs of a range of users (i.e., sufficiently granular to inform sophisticated users but also provide concise information for those who are less specialized);"
- Reliable and verifiable: Information that is of high-quality, free from bias, and verifiable through traceable sources; and
- Appropriate for its size, nature, and complexity: A "volume and level of detail of disclosure" commensurate to the FRFI itself. For a larger FRFI, for example, OSFI expects a higher degree of disclosure.
- FRFIs should disclose information consistently: OSFI expects FRFIs to disclose the information required by the Guideline at least annually – and make it publicly available within 180 days after the fiscal year-end. The format for disclosure is flexible and can be presented in whichever format best suits the FRFI, including but not limited to a report to shareholders or a stand-alone "ESG" report.
Implementation Timelines and comparative period disclosure
The Guideline included various annexes that complements the Guideline's expectations including examples of physical and transition risks. Importantly, FRFIs should carefully review Annexes 2-1 and 2-2 of the Guideline which provides further information on GHG emissions accounting and reporting standards expected of FRFIs and disclosure expectation timelines for climate-related financial disclosures.
In general, FRFIs are expected to implement the expectations in Annexes 2-1 and 2-2 in the fiscal periods ending on or after October 1, 2024, 2025 and 2026 as applicable. FRFIs can adopt disclosure expectations voluntarily.
In the reporting period after the implementation of the Guideline's expectations, OSFI expects FRFIs to disclose comparative period numbers to the extent that these are helpful to understanding its climate disclosures.
How McCarthy Tétrault Can Help
Whether you are a new entrant to Canada's financial services market or a financial institution with a long track record in Canada, we are here to help. By leveraging our deep industry expertise and experience – including in ESG and Sustainability – we help our clients navigate Canada's complex, highly regulated financial institutions environment to achieve their business goals.
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