Who does this affect: All federally regulated financial institutions (FRFIs) in Canada, which are primarily banks and insurers, including foreign institutions with branches in Canada. It will also have an indirect impact on any company in a Canadian FRFIs’ value chain.
Why has it been introduced: This guidance was introduced to ensure the proper preparation for and mitigation of physical and transition risks associated with climate change, consistent with TCFD guidelines.
What does the proposal require: This proposal requires FRFIs to implement climate-related risk management and produce annual disclosures that break down into four main categories, consistent with the Task Force on Climate-Related Financial Disclosures (TCFD):
- Governance: Description of the board of directors’ oversight of climate-related risks and opportunities and management’s role in assessing and managing said risks and opportunities.
- Strategy: Disclosure of short-, medium-, and long-term climate-related risks and opportunities; the impact of said risks and opportunities on the FRFI’s businesses, strategy, and financial planning; their climate transition plan; and the resilience of their strategy after climate-related scenario testing.
- Risk Management: Description of their process for identifying and assessing risks, the process for managing those risks, and how said processes are integrated into their overall risk management.
- Metrics/Targets: Disclosure of the metrics used to assess climate-related risks and opportunities according to its strategy and risk management process; Scope 1, 2, and 3 emissions and the reporting standards used to calculate and disclose emissions*; targets set, progress made against them, and any public climate-related commitments made.some text
- *If the FRFI uses calculation and reporting standards that differ from those recommended by the OSFI, they must explain how their chosen standards are comparable.
When did this guidance come into effect: This proposal was announced March 2023 and will require large banks and insurers to start reporting on fiscal year 2024, with smaller companies to follow for fiscal year 2025.
Where is reporting required: FRFIs are expected to use their discretion regarding where to report. The OSFI names reports to shareholders and stand-alone reports as potential locations. Additionally, organizations are required to make their disclosure publicly available, such as listing it on their company website, within 180 days of the fiscal year-end and maintain an ongoing archive of prior reports.
Original text:OSFI Climate Risk Management
