Released on March 7 by the Office of the Superintendent of Financial Institutions (OSFI), the New Guideline sets out OSFI expectations concerning the management of climate-related risks.
OSFI sets principles-based expectations that will help manage climate-related risks, some of which are highlighted hereunder.
Implementation of adequate governance and accountability mechanisms
Incorporation of the implications of physical risk from climate change and the risks associated with the transition of GHG economy to the entity ‘s business model and strategy.
Development and implementation of a Climate Transition Plan
Risk identification (e.g. identify, collect, and use reliable, timely, and accurate data pertaining to physical risks) , measurement (of the current and potential future impact of climate-related risks on its portfolio of exposures ) and management (through the internal control framework)
Risk monitoring and reporting : develop capabilities to aggregate climate risk data to identify and internally report on climate-related exposures.
Climate scenario analysis and stress testing
Use climate scenario analysis to assess the impact of climate-related risks on the company’s risk profile, business strategy, and business model.
Consideration of climate scenarios that encompass both physical and transition risks, and the potential interplay between these two types of risks.
Capital and liquidity adequacy
Requirement that a financial institution have sufficient capital and liquidity buffers for its climate-related risks.
Climate-related financial disclosures
Disclosure of relevant information (e.g. 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…).
Disclosure of specific and comprehensive information (e.g. company’s exposure to current and potential future impacts of physical and transition risks; the potential nature and size of such impacts…).
Disclosure of verifiable and reliable information (e.g. objective data and use best-in-class measurement methodologies…)
This finalised Guideline builds on the various feedback received by OSFI during the consultation phase (see our previous article here).
The implementation period will be phased-in over a period of 3 years starting from 2024.