Canada’s financial regulator, the Office of the Superintendent of Financial Institutions (OSFI), announced the release of its new guidelines on climate risk management, setting out requirements for banks and insurance companies to manage and disclose climate-related risks.

The guidelines include expectations for Canada’s major banks and insurance companies to begin climate-related reporting for fiscal year 2024, followed by smaller institutions the following year.

Canada first announced last year, with the release of the 2022 budget in March, that OSFI would begin requiring federally regulated financial institutions to publish climate disclosures aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework, following directions by Prime Minister Justin Trudeau to cabinet ministers directing them to move towards a system of reporting based on the TCFD. OSFI said that it conducted one of the most extensive consultations in its history before releasing the guidance, with over 4,300 submissions received.

The new climate-related reporting requirements for Canadian financial institutions cover disclosure categories including governance, strategy, risk management, and metrics & targets. Key governance and strategy disclosure requirements include reporting on identified climate-related risks and opportunities, as well as how management assesses and the board oversees them, the impact of the risks and opportunities on the institution’s business and strategy, and a description of the institution’s climate transition plan.

The climate-related disclosure requirements also include reporting of Scope 1, 2 and 3 greenhouse gas emissions, including financed, facilitated and insured emissions, as well as the targets used to manage climate-related risks and opportunities, and public commitments made as part of a Net Zero alliance, such as the Net-Zero Banking Alliance (NZBA), or the Net-Zero Insurance Alliance (NZIA).

The guidance also includes OSFI’s expectations for banks and insurance for the governance of climate-related risks and opportunities, which include having appropriate structures in place to manage the risks, considerations of having senior management compensation policies incorporating climate-related factors, the implementation of a climate transition plan, the integration of climate-related risk into the institution’s risk management frameworks and risk monitoring practices, and the use of climate scenario analysis to assess the impact of climate-related risks on risk profiles, business strategy and business models.

The banks and insurers are also directed to maintain sufficient capital and liquidity buffers for its climate-related risks, incorporating climate factors into capital adequacy and liquidity risk profile assessment processes.

Click here to access the OSFI guidance.