Canada introduced mandatory climate-related risk disclosures for federally-regulated banks and insurance companies beginning in 2024. This follows similar actions by the Security and Exchange Commission (SEC) in the United States as well as other countries in Europe.
Banks and Insurance Companies Required to Report
According to an article earlier this year in ESG Today, “Canada will require banks and insurance companies to provide disclosures on their climate-related risks and exposures beginning in 2024, according to the federal government’s newly released Budget 2022. The budget also outlines over $9 billion in proposed funding to address climate change, and plans for a new green bond offering in the upcoming year.”
From Voluntary to Mandatory
Several years ago (2015), the Financial Stability Board (FSB) established the Task Force on Climate-related Financial Disclosure (TCFD) to develop voluntary climate-related financial risk disclosures. This was designed for companies to use when providing information to investors, lenders, insurers, and other stakeholders.
On April 22, 2022, Deloitte wrote that “The Canadian government unveiled its federal budget last week, with an entire chapter devoted to climate. As US companies assess the SEC’s climate disclosure proposal and shareholder demands, this requirement is another sign that regulators and investors are losing patience with voluntary disclosures about emissions and climate risks to companies, and moving towards mandates for comparable info.”
According to the law firm, MLT Aikins, “Beginning this year, the Office of the Superintendent of Financial Institutions (OSFI) will consult with banks and insurers on developing climate disclosure guidelines that adhere to the TCFD framework. The goal is to gradually phase in reporting requirements for financial institutions beginning in 2024.”
They also state that “Although the OSFI guidelines will focus on reporting requirements for financial institutions, they are expected to have wide-ranging impacts throughout the Canadian economy, the government noted.”
Banking Customers Will Disclose
According to the blog by MLT Akins, banks and other financial institutions will be expected to collect climate risk evaluation data and emission data from their clients. This means the companies with whom they do business will also need to make climate-related disclosures in order to access financing and other financial services.
Support from Bankers
A post in late October 2022, the Canadian Bankers Association appears to support the reporting requirement: “Canada’s banks recognize the urgency of addressing climate change and understand that the financial sector is central to securing the transition to a low-carbon economy, mitigating the impacts of humans on the environment and ensuring the continued resilience of our country’s financial system.”
“Banks also understand that firm commitments are required to accelerate clean economic growth in Canada and to meet the ambitious goal of a net-zero economy by 2050 set by the Paris Agreement on climate change.”
They also state that several banks are working on implementing the climate-related disclosures developed by the Task Force on Climate-Related Financial Disclosures.
American Bankers Association’s Strongly-Worded Letter
As mentioned above, our neighbors to the south in the United States have made similar moves discouraging banks from lending to fossil fuel companies. Some states have issued warnings to lenders who take these positions.
The American Bankers Association (ABA) has taken exception with policies under the Biden Administration. On June 23, 2022, the ABA issued a letter that said in part, “The undersigned bankers associations write to reinforce our longstanding view that bank supervision, and other purportedly neutral government requirements like disclosures, must not become a means of allocating capital or implementing unrelated policy preferences” (see, “The impact of Environmental, Social and Governance guidance and regulatory proposals on banking”).
We will continue to report on this and other environmental issues that may affect the regulated community in our blogs and newsletters.
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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), remedial investigations, soil and groundwater remediation, Permits to Take Water, Records of Site Conditions, excess soil management, vapour intrusion, and site decommissioning. Chris is a frequent speaker, author, and expert witness. See Chris’ bio.
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