In a recent webinar hosted by Manifest Climate, Julie Segal, Senior Program Manager, Climate Finance along with fellow panelists provided an overview of the Office of the Superintendent of Financial Institution’s (OSFI) recently published draft climate related risk guideline and discussed what it means for Canada’s financial institutions. While OSFI’s guidelines are an important first step, they are missing points that are essential for a climate-safe financial system.
What is the significance of OSFI’s Guideline?
OSFI regulates federal financial institutions like banks and insurers, and is therefore one of the most significant among the jigsaw of different institutions regulating Canada’s financial system. OSFI is supposed to “contribute to public confidence in the Canadian financial system”, building safety and soundness in the financial system. It is therefore crucial they incentivize a green transition and prepare the financial sector for climate-related vulnerabilities. Inaction today means sharper policy shifts in the future as the risks related to climate change increase.
The Guideline is still a draft, open to consultation until September 30th. In its current form, it:
- Takes a first step towards ensuring Canadian financial institutions consider climate-related risks relating to physical climate damage and the transition away from polluting assets.
- Ensures that financial institutions consider their investments’ emissions footprint (which is known as “Scope 3” emissions).
- Begins to align Canada with Europe and the UK, who are far more advanced with climate-related financial regulations, and puts Canada nearly at par with the current state of climate-related financial regulations in the US.
What is Missing?
- The guideline underestimates systemic climate risks. It only considers how climate related risks affect financial institutions, but does not consider how they enable worsening climate change.
- The guideline doesn’t work towards limiting warming to 1.5C, but treats 2C of warming as good enough – which we know it isn’t. By suggesting that financial institutions should plan their strategy for at best a “2C or lower scenario”, OSFI disincentives ambition and discredits the importance and likelihood of less warming. (For reference: three times more people will be exposed to unliveable heatwaves under 2C than under 1.5C.)
- The guideline wouldn’t require climate information to be included in financial statements – which is what the people in charge really focus on. This is key to making sure executives think about climate mitigation as a key part of the business strategy.
Interested in learning more about what OSFI’s guidelines mean for the future financial stability of the Canadian economy?
See below to watch the full webinar: