Pick Up the Pace on Climate Risk Exposure, Bank of Canada Governor Macklem Urges
Canada’s banks and businesses must pick up the pace on disclosing the risks they’re exposed to as a result of the climate crisis, newly-installed Bank of Canada Governor Tiff Macklem told an online panel earlier this week organized by the Public Policy Forum.
“Information and disclosure are essential for the financial system to be able to do its job,” Macklem said. “Companies need to assess, price, and manage their climate risks, and they need to disclose these risks for markets to function well.”
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In the course of the session, the former Mark Carney associate “said it’s a competitive imperative for the country to do a better job at accelerating capital flows to areas that reduce climate risks and minimize potential destabilization from the transition to a low-carbon economy,” BNN Bloomberg reports. “The governor highlighted the recent surge in environmental, social, and governance bonds, saying it’s crucial for Canadian companies to be able to take advantage of that funding.
He added that the Canadian financial system, “which weathered the global financial crisis and the challenges posed so far by the COVID-19 pandemic, must remain equally resilient in the face of climate change,” the news agency says.
With global banks introducing climate plans and Canadian businesses facing risks in the transition off carbon, “we need to position Canada to seize the climate-smart opportunities that consumers, workers, and investors are looking for,” Macklem said. “But to mitigate the threat and capitalize on the opportunity, we all need to mobilize. And we need to do it quickly.”
Earlier this week, the Bank of Canada and the Office of the Supervisor of Financial Institutions (OSFI) launched a pilot project to look at how different “climate change scenarios” will affect banks’ and businesses’ bottom lines.
But the project “will not focus on physical risks, such as an increase in heat waves and forest fires,” the Globe and Mail reports. Instead, it’ll address “‘transition risks’ related to climate change. This means analyzing policy shifts around things such as carbon taxes, technological change, and shifting consumer and investor preferences.”
By conducting the pilot alongside two banks and four insurance companies, the Bank and OFSI hope to “apply their models to the actual balance sheets of major Canadian financial institutions,” the Globe says.
“To be the most useful, these scenarios should be extreme yet plausible,” a Bank of Canada researcher wrote earlier this year, referring to an earlier climate scenario analysis report. “This will give a sense of the full range of possible risks.”