As we discussed in our November 4, 2022, blog, Canada is moving forward with mandatory climate-related risk disclosures for federally-regulated banks and insurance companies in 2024. It is anticipated that this will affect 400 institutions and their customers across Canada.
On March 7, 2023, The Office of Superintendent of Financial Institution (OSFI) released “Guideline B-15: Climate Risk Management.” This guideline will govern the methods the financial sector in Canada is required to use to manage and disclose climate-related risk.
In their overview, the OSFI states, “Climate-related risks may manifest over varying time horizons, and are likely to intensify over time, especially if the global economy undergoes a disorderly transition.”
GHG Reporting Requirements
According to Persefoni (a Climate Management & Accounting Platform company), the new Guideline will require the affected institutions to (1) establish governance and risk-management processes to identify, monitor, and respond to the physical and transition risks associated with climate change, (2) incorporate that information into their strategy, scenario analysis and stress-testing processes, and capital and liquidity adequacy analyses, and (3) provide disclosures about their climate-related financial risks.
The focus is on “Scope 3 Emissions.” These emissions are not from the lending institutions but from their clients.
Scope 1 emissions are direct emissions from a facility.
Scope 2 emissions are indirect – for example, purchasing energy for heating and cooling.
Scope 3 emissions are described this way by Deloitte, “Now here’s where it gets tricky. In this category go all the emissions associated, not with the company itself, but that the organisation is indirectly responsible for, up and down its value chain. For example, from buying products from its suppliers, and from its products when customers use them. Emissions-wise, Scope 3 is nearly always the big one.”
Will Scope 3 Affect Your Company?
Companies doing business in Canada with affected lenders and insurance companies should expect to receive requests about their emission profiles from financial institutions subject to the new rules. That’s because in order to calculate their Scope 3 “financed emissions,” banks and insurers will need to collect emissions data from companies to whom they lend or insure. Again from the Persefoni website, “Therefore, companies in Canada doing business with Canadian banks and insurers will face increasing pressure to have their own carbon emission management systems in place to collect and report this (sic) data.”
It appears on first blush that this will have broad application with the potential to affect companies across the Canadian economy.
This is just a brief overview of the new reporting requirements. We encourage you to read the Guideline by the OSFI.
If you have questions or need assistance with GHG reporting or any other environmental issue, contact Christopher Paré, P.Geo., Q.P. at 519-948-7300, Ext. 114.
This blog was drafted by Alan Hahn. Alan has an undergraduate degree in Environmental Studies and completed a graduate program in Environmental Management. He has worked in environmental management for 45 years. He has written hundreds of blogs and articles. His published work includes HazMat Magazine, BizX Magazine, Michigan Lawyers Weekly, GreenStone Partners, Manure Manager Magazine, and Progressive Dairy.
This blog was reviewed by Christopher Paré, P.Geo. Chris is a senior geoscientist and manager of Dragun’s Windsor, Ontario, office. Chris has more than 30 years of experience on projects ranging from environmental site assessments (Phase One/Two ESA), excess soils, remedial investigations, soil and groundwater remediation, Permits to Take Water, Records of Site Conditions, vapour intrusion, and site decommissioning. Chris is a frequent speaker, author, and expert witness. See Chris’ bio.
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