OSFI issues Standardized Climate Scenario Exercise for consultation

Authors: Mario Schlener – Risk Consulting and Global FS Risk Technology Lead and Global Responsible AI Co-Lead, Partner, EY Canada

Katerina Kindyni | LinkedIn – Financial Services Sustainability Lead, EY Canada

Central banks and financial regulators now widely acknowledge that climate change is a source of financial stability risk, via physical and transition risk, with financial institutions already reporting significant losses as a result.

Prudential authorities, for their part, are increasingly focused on the necessity for financial institutions to expedite changes in governance, risk management and disclosure to ensure climate-related risks are properly accounted for and built into decision-making processes, including into capital assessment and allocation.

The Canadian regulator OSFI, which regulates and supervises the Canadian financial system, has published Guideline B-15 on Climate Risk Management, which sets forth comprehensive disclosure expectations for financial institutions in Canada.

This Guideline was updated in March 2024 to align with the International Sustainability Standards Board’s (ISSB’s) final IFRS S2 Climate-related Disclosures standards. Such alignment enhances the clarity of climate disclosures and promotes the transparency of climate-related risks.

To meet compliance requirements, financial institutions must develop and enhance their climate risk management capabilities.