As part of the growing global regulatory focus on addressing risks to financial institutions presented by evolving issues like climate change, the Office of the Superintendent of Financial Institutions (“OSFI”) issued draft Guideline B-15: Climate Risk Management (the “Draft”) in May 26, 2022.[1] On March 7, 2023, OSFI issued its final guideline (the “Guideline”),[2] applicable to all federally regulated financial institutions (the “FRFI(s)”), covering over 350 banks and insurance firms.

Similar to the Draft, the Guideline highlights the importance of building resilience against climate-related risks by banks and insurers which will require these institutions to (a) understand and reduce the potential impacts of climate-related risk, (b) have appropriate governance and risk management practices, and (c) remain financially and operationally resilient through severe, but possible, climate risk scenarios.[3]

The Guideline lays out the following climate-related risk categories to FRFIs:

  • Physical risks allude to the financial risks brought on by environmental events such as floods, wildfire and landslides, among others, as a consequence of long-term, gradual climate change.  Physical risks can be acute (e.g. hurricanes and typhoons, floods, wildfire) or chronic (e.g. sea level rise, heat stress, drought stress and precipitation stress);
  • Transition risks refer to the financial dangers associated with the transition to a low-greenhouse gas (“GHG”) economy. These risks could be caused by current or future laws, regulations, and government policies aimed at reducing GHG emissions; and
  • Liability risks are related to legal liability resulting from people seeking compensation for loss suffered as a result of physical and transition risks which include risk of climate-related claims under liability insurance policies, as well as direct actions against financial institutions for failing to manage their climate-related risks or overstating without concrete evidence their climate ambitions.

The Guideline focuses on two key topics: governance and risk management procedures and disclosure requirements.

Chapter 1. Governance and risk management expectations

Chapter 1 of the Guideline sets out OSFI’s expectations about governance and management of climate-related risks by FRFIs. The Guideline stipulates that each FRFI, shall amongst other things:

  1. Incorporate the implications of climate change and the transition to a low GHG economy in its business model and strategy, including by developing and implementing a Climate Transition Plan that guides the management of increasing physical risks and sets internal metrics and targets (e.g. GHG emissions reduction target);
  2. Integrate climate-related risks (both physical and transition risks) into its Risk Appetite Framework, Internal Control Framework, Enterprise Risk Management framework and relevant policies and practices;
  3. Implement tools to measure climate-related risks and develop capabilities to aggregate the data to identify and internally report on climate-related exposure (identifying the so-called “hot spot” of GHG emissions in loans or investment portfolios);
  4. Develop a process and expertise in climate scenario analysis, which uses one or more climate scenarios to map a hypothetical future state of the world to assess the impact of climate-related risks on the FRFI’s operation, as part of its Stress Testing Framework; and
  5. Maintain sufficient capital and liquidity buffers for its climate-related risks, by incorporating these risks into its Internal Capital Adequacy Assessment Process and Own Risk Solvency Assessment process.

The Guideline states that OSFI will provide standardized climate scenario analysis exercises that FRFIs can utilize to determine their overall exposures to physical and transition risks. FRFIs will be expected to implement these scenarios and inform OSFI of their findings.[4] We note that climate scenarios analysis models are typically based today on one or more scenarios developed by the Intergovernmental Panel on Climate Change (“IPCC”), the Internal Energy Agency (“IEA”) or the Network for Greening the Financial System (“NGFS”).

Chapter 2. Climate-related financial disclosures

Chapter 2 of the Guideline specifies a number of principles that give direction on OSFI’s expectations for disclosure of financial risks related to climate change. These are in line with the framework developed by the Financial Stability Board under the Task Force on Climate-related Financial Disclosures (the “TCFD”) and are meant to encourage institutions to enhance the standard of their governance and risk management procedures with regard to climate change. These principles mandate that FRFIs disclose pertinent information (such as the potential impact of climate-related risks and opportunities on the FRFI’s markets, businesses, and financial information and, where applicable, an explanation of its significance), and that the disclosure should include:

  1. Relevant information– information that is important to other stakeholders such as investors, analysts, and the public at large;
  2. Specific and complete information– information specific to the potential impact of climate-related risks and opportunities on its markets, businesses, corporate or investment strategy, and future cash flows;
  3. Clear, balanced, and understandable information– to provide sufficient detail to enable users to assess their exposure and avoid generic or “boilerplate” disclosures that do not add value to users’ understanding of issues;
  4. Reliable, verifiable, and objective information– provide high-quality reliable information, free from bias and future-oriented and consistent with what is used in the FRFI’s investment decision-making and risk management strategies;
  5. Information appropriate for its size, nature, and complexity; and
  6. Consistent Presentation and Disclosure of Information over time.

The Guideline notes a number of technical details regarding disclosure and provides information on the minimum mandatory climate- related disclosure expectations.[5]  The disclosure is to be clear, balanced, understandable, and verifiable financial information that serves the needs of a range of users. At this time, the required disclosure is not subject to independent external assurance; however, OSFI urges FRFIs to anticipate future external assurance requirements. To enable consumers to comprehend the impact of climate-related risks on an FRFI’s business and to enable useful inter-period comparisons, the FRFIs should report consistently over time.

One of the most debated metrics during the Draft’s commentary period was the requirement for disclosure of Scope 3 GHG emissions. The Guideline makes it clear that the FRFI’s Scope 3 GHG emissions for the applicable period (absolute basis) and the related risks must be disclosed including the reporting standard used by the FRFI to calculate and disclose the GHG emissions. If the reporting standard used by the FRFI for Scope 3 GHG emissions is not the Corporate Value Chain (Scope 3) Accounting and Reporting Standard, the FRFI is required to disclose how the reporting standard used by the FRFI is comparable with the Corporate Value Chain (Scope 3) Accounting and Reporting Standard. If the reporting initiative used by the FRFI is not the PCAF Standard for financed, facilitated and insured Scope 3 GHG emissions, then the FRFI is required to disclose how the reporting initiative used by the FRFI is comparable with the PCAF Standard.[6] It is evident that banks will inevitably and eventually be relying on their clients to supply the data necessary for them to calculate their Scope 3 GHG Emissions given that in a value chain someone’s scope 1 emissions is someone else’s scope 3 emissions.

By fiscal year-end 2024, the six largest banks, known as Domestic Systemically Important Banks (D-SIB) and internationally active insurance groups with Canadian headquarters must begin reporting, making their financial disclosures related to climate change publicly available no later than 180 days after fiscal year-end. All other federally regulated banks and insurers must report no later than one year after.

TCFD standards serve as a general framework for the Guideline. However, the International Sustainability Standards Board’s (ISSB) proposed sustainable disclosure regime whose S-2 climate-related framework is broadly based on the TCFD framework is set to be finalized this year.  ISSB has announced earlier this year that S-2 would be effective for annual or reporting periods beginning on or after January 1, 2024.  Consequently, FRFIs should keep a close watch on the ISSB initiative as it is very likely to become the  new standard for climate-related disclosure.

Should you have any questions or concerns, please feel free to reach out to a member of Miller Thomson’s ESG and Carbon Finance group.

Mark your calendars for Wednesday, May 10, 2023, our ESG and Carbon Finance group will be hosting a panelist discussion on Sustainable Finance. The event will be held in-person at our Montreal office and will be broadcasted virtually for those who wish to dial-in. To learn more about the event, please click here.


[1]  P. J. Kroft & G. Hamedani, Overview: OSFIs draft guideline B-15 climate risk management (30 August 2022).

[2] Office of the Superintendent of Financial Institutions. (2023, March 7). OSFI issues new guideline on Climate Risk Management.

[3] ibid. See Section A3. Outcomes.

[4] ibid. See Chapter 1. Part III. Climate Scenario analysis ad stress testing.

[5] ibid. See Annex 2-2- Minimum mandatory climate-related financial disclosure expectations.

[6] ibid. See Annex 2-2- Metrics and Targets- Section (b)(ii)