MNI: Canada Orders Banks To Plan For Climate Change Risks

Canada's bank regulator ordered institutions Tuesday to prepare for "severe, yet plausible" losses linked to climate change, with the first major guidelines falling short of requiring specific levels of capital be set aside for that purpose.

Lenders must be resilient to physical damage and financial losses from climate change, the Office of the Superintendent of Financial Institutions (OSFI) said in a report. The set of principles say banks must increase disclosure of climate risks and prepare for a time when their statements could be subject to outside auditing.

"The Federally Regulated Financial Institutions should maintain sufficient capital and liquidity buffers for its climate-related risks," and subject those risks to stress testing, according to the new B-15 guideline. The severe yet plausible language puts climate change on par with other factors banks must account for with OSFI.

The rules are similar to other OSFI projects in using regulation based on principles rather than setting specific targets. Still, Superintendent Peter Routledge told MNI in December 2021 that OSFI could set capital requirements and the cost of dealing with climate change would be higher the longer firms delay action. (See: MNI INTERVIEW: Canada To Drive Climate Risk Rules For Banks)