OSFI joins the international Network for Greening the Financial System
On November 30, 2021, the Office of the Superintendent of Financial Institutions (“OSFI”) announced its membership in the international Network for Greening the Financial System (“NGFS”). The NGFS is an international group of central banks and supervisors that share best practices and help to develop environment and climate risk management measures in the financial sector. In a press release, Peter Routledge, the Superintendent of OSFI, called climate change “the challenge of our generation” and stated that OSFI’s membership in the NGFS is a “milestone in our efforts to address climate change risk amongst Canadian financial institutions and pension plans.” The Bank of Canada is also a member of NGFS.
OSFI’s membership in the NGFS is the latest in a series of recent developments that highlight Canada’s commitment to address the impact of climate change on the financial sector and the sector’s role in addressing it. OSFI has invited feedback during the past year to a discussion paper that it published on addressing climate risk factors. Thereafter, OSFI committed to undertaking the development of best practices in climate risk evaluation and planning in a principled and holistic way. Guidance developed will be informed by OSFI’s joint pilot project on climate risk scenarios with the Bank of Canada.
The NGFS membership marks the latest international engagement by Canadian regulators with environmental, social and governance (“ESG”) factors and sustainability in recent months. In October, the Canadian Securities Administrators (“CSA”) published a proposed national instrument that would introduce climate-related financial disclosure obligations for Canadian public issuers. In November, Montreal was announced as the home of the second office for the International Sustainability Standards Board (“ISSB”), an organization tasked with developing a comprehensive set of baseline sustainability standards for global use. Our review of those developments can be found here and here.
The OSFI Announcement and NGFS
The NGFS is a network comprised of more than 100 central banks and regulatory supervisors. Its membership represents nations that collectively account for more than 85% of global greenhouse gas emissions. The NGFS was established in Paris during the inaugural One Planet Summit on December 12, 2017 to develop climate risk management best practices. It also focuses on incentivizing the mainstream finance sector to transition towards greater focus on sustainability.
OSFI’s membership in the NGFS signifies the Canadian financial sector’s increasing commitment to the global effort to address climate-related risks. As part of the NGFS, OSFI will contribute time and resources to the further development of supervisory practices, risk assessment measures and action plans intended to prepare the global economy and financial system for the impacts of climate change. OSFI’s related international commitments include:
- participation in the Basel Committee on Banking Supervision’s (“BCBS”) Task Force on Climate-related Financial Risks (“TCFR”), which addresses regulatory and supervisory practices;
- participation in the International Association of Insurance Supervisors (“IAIS”), including membership in the Climate Risk Steering Group (“CRSG”) and collaborating on the drafting of the Application Paper on the Supervision of Climate-related Risks in the Insurance Sector;
- participation in Financial Stability Board (“FSB”) working groups on regulatory and supervisory approaches to climate-related financial risk management and disclosure obligations; and
- participation in the Sustainable Insurance Forum.
Recent Developments in the Canadian Sustainable Finance Space
Canada’s membership in the NGFS is the latest action by OSFI in addressing climate risk management by Canadian federally regulated financial institutions and pension plans.
In November 2020, the Bank of Canada and OSFI launched a pilot project focused on using climate-change scenarios to model the risks to the financial system associated with transitioning to a low-carbon economy. The pilot project explored different pathways for the transition, focusing on policy, technology and public and investor interests. OSFI subsequently published a climate risk discussion paper and commenced a three-month consultation period on how climate-related risks are presently dealt with and how it could assist institutions to be more resilient to such risks.
Over 70 respondents submitted feedback on the discussion paper. OSFI agreed that climate-related risks should be evaluated on a principled basis, looking at both the Canadian and international contexts. Guidance developed by OSFI will be informed by the results of the Bank of Canada-OSFI joint pilot project on climate-change scenarios and any other ESG factors that arise in OSFI’s monitoring of federally regulated financial institutions (“FRFIs”) and federally regulated pension plans (“FRPPs”).
Beyond OSFI, significant actions have been taken by other Canadian regulatory bodies and financial sector participants. In October 2021, the CSA published Proposed National Instrument 51-107 – Disclosure of Climate-Related Matters and its companion policy for comment. The proposal would introduce far-reaching climate-related disclosure requirements for reporting issuers in Canada.
Also in October, as part of the lead up to COP 26 in Glasgow, six of Canada’s largest banks joined the Net-Zero Banking Alliance (“NZBA”), a global industry-led voluntary initiative to accelerate efforts to address climate by aligning financing activities with net-zero emissions by 2050.
In November 2021, the International Financial Reporting Standards Foundation (“IFRS”) announced the formation of the ISSB. The ISSB will focus on developing global baseline sustainable disclosure standards. It will have offices in Frankfurt, London, Montreal and San Francisco. The Montreal office will support the work of the ISSB and engage with key stakeholders. Notably, the Montreal ISSB office is the second most important office for the organization after its Frankfurt headquarters.
The Bottom Line
OFSI’s membership in the NGFS is the latest climate-related commitment undertaken by Canada internationally. Canada is joining a group of more than 100 countries in the collective effort of making the global economy more sustainable. As OSFI’s involvement in developing global baseline practices and obligations increases, it has indicated that it will continue to seek input and feedback from Canadian stakeholders. OSFI has announced that it will communicate the next steps in its climate-related risk assessment work in early 2022.
We’re Here to Help
By strategically leveraging our deep industry expertise, McCarthy Tétrault lawyers enable our clients to navigate Canada’s complex and rapidly changing ESG regulatory environment for financial institutions. Please contact Nancy J. Carroll, Ana Badour, Hartley Lefton, or Will Horne if you have any questions or for assistance.