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.

Governance

• 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 Management

• 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.