The OSFI’s climate risk management requirements

AUTHOR – Jessica Di Bartolomeo

The OSFI finalizes climate risk management requirements for financial institutions in Canada

The Canadian Office of the Superintendent of Financial Institutions (OSFI) released their final Guidelines on Climate Risk Management on March 7th, 2023. These set out expectations for how Canadian financial institutions should manage and disclose their climate-related impacts and risks to improve resilience of the financial system.

The new requirements will ask federally-regulated financial institutions to report on their climate-related governance, risk management, strategy, and metrics and targets, following the Task Force for Climate-related Financial Disclosures (TCFD) framework. They also point financial institutions to the GHG Protocol Corporate Accounting and Reporting Standard, the GHG Protocol Corporate Value Chain Accounting and Reporting Standard for calculating their scope 3 emissions and to the latest Partnership for Carbon Accounting Financials’ (PCAF) Global GHG Accounting and Reporting Standard for calculating their financed greenhouse gas emissions.

The OSFI will also consider the final version of the International Financial Reporting Standards’ (IFRS) S2 Climate-related disclosure standard, which is expected to be completed in Q2 of this year with an effective date of January 2024, for metrics specific to the financial sector.

According to the publication, targeted institutions may disclose the information in the type of report of their choice, so long as they make it public and disclose annually.

Targeted (“in-scope”) financial institutions include domestic systemically important banks, small- and medium-sized deposit-taking institutions (Categories 1-3), internationally-active insurance groups and other federally-regulated insurers.

The publication follows a consultation period on the draft guidelines with over 4,300 responses that went from May to September 2022. The consultation process notably led to changes in the timeline for the first disclosure (initially proposed for fiscal years ending on or after October 1, 2023) and phase-ins for certain requirements such as scope 3 reporting across all institution types.

*Institution Type refers to Canadian institutions and FY refers to “Fiscal Year”

The financial institutions will need to report on the relevant fiscal year within 180 days of the year-end.

Implementation dates for transition planning and scenario analysis are to be determined. The OSFI plans to release a separate guidance for scenario analysis and refers financial institutions to the TCFD Guidance on Metrics, Targets, and Transition Plans for their transition planning across various scenarios.

Elsewhere in the world, New Zealand, Switzerland, the European Union, Indonesia, and the United Kingdom have climate disclosure requirements in place targeted at financial institutions. The United States, Australia, and Hong Kong are some jurisdictions that are in consultations on such mandatory disclosures.

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Reading Time: 3 Minutes

Date Published: April 13, 2023

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TLDR:

The Canadian Office of the Superintendent of Financial Institutions (OSFI) released their final Guidelines on Climate Risk Management on March 7th, 2023. These new requirements set out expectations for how Canadian financial institutions should manage and disclose their climate-related impacts and risks to improve resilience of the financial system. All federally-regulated financial institutions will be required to publicly disclose their climate-related governance, risk management, strategy, and metrics and targets, following the TCFD (Task Force for Climate-related Financial Disclosures) framework.

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