OSFI consulting on climate risks to banks, insurers and pensions

Amid growing concern about the effects of global warming among both investors and policymakers, federal financial regulators are examining whether capital requirements need to give these risks greater weight.

The Office of the Superintendent of Financial Institutions (OSFI) launched a consultation Monday on climate-related risks to the safety and soundness of federally regulated financial institutions and pension plans.

OSFI published a discussion paper that seeks feedback on how banks, insurers and pensions are measuring climate risks and factoring them into their operations, balance sheets and risk management efforts.

The regulator is also considering how it can encourage the industry to ensure that it is capable of absorbing these risks.

“This input will guide the development of regulatory and supervisory approaches that meet OSFI’s mandate of protecting depositors, policyholders and private pension plan beneficiaries while allowing institutions to compete and take risks,” it said.

For instance, the regulator indicated that it’s considering whether capital requirements should incorporate additional climate-related considerations.

It’s also examining whether climate-related risks should play a bigger role in its supervisory work, including stress testing; and whether market discipline should be beefed up through enhanced disclosure.

“Climate-related risks are difficult to predict, but will affect most sectors of the economy sooner rather than later,” said Ben Gully, assistant superintendent, regulation sector, at OSFI, in a release.

“The submissions received and the discussions that will occur will support effective climate risk management and contribute to the resilience of the Canadian financial sector,” he added.

The paper is out for comment until April 12, and OSFI indicated that it may invite firms to participate in additional consultations (bilateral or multi-stakeholder discussions).

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.