In partnership with six other financial institutions, the Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI) have laid plans for a pilot project to assess the impacts on the financial sector of transitioning to a low-carbon economy.
The project — which will be supported by Intact Financial, Manulife, Royal Bank of Canada, Sun Life Financial, TD Bank Group and The Co-operators Group Limited — will “use climate-change scenarios to better understand the risks to the financial system,” a release said.
The first step will be to develop climate change scenarios that are relevant for Canada, the release said. These will build on and reference globally focused work by organizations such as the Central Banks and Supervisors Network for Greening the Financial System (NGFS), of which the BoC is a member.
Each participant in the new Canadian project will “explore the potential risk exposures of their balance sheets.” The BoC and OSFI will publish a report on the overall results, scenarios and methodology.
That report is expected by the end of 2021.
The overall goal is to not only help the financial sector better grasp and disclose climate-related risks, but also to help regulators and authorities understand the governance practices of banks and insurers.
“Climate change is a major challenge for the economy, and it is accelerating,” said BoC Governor Tiff Macklem in the release.
Similar to the BoC, OSFI also works with international counterparts on sustainable initiatives, such as the United Nations-sponsored Sustainable Insurance Forum. In advance of the pilot project paper, OSFI said it plans to release a separate paper in early 2021 on building resilience in the face of climate risks.