In late December of last year, Canada released a new policy aimed at ending international public financing for fossil fuels, (starting January 1, 2023) delivering on a climate promise made at COP26 in Glasgow. The next step is ending domestic fossil fuel financing and also holding the big banks accountable for managing climate risks during the phasing out of fossil fuels.
(This post is sourced from The Narwhal. The full article can be viewed here.)
Canada’s Big Banks
What would happen to billions of dollars in profits for bankers and insurance companies in a world that decides to take climate change seriously?
For the first time in Canada, a federal regulator is requiring the big banks and insurance companies to answer that question.
And it says it will hold senior executives at these institutions accountable for how they are managing the many possible climate-related risks to their businesses, like the destruction of homes and communities from extreme weather, the worsening of public health, the devaluing of high-polluting assets by climate laws and changes in consumer practices, and environmental lawsuits.
The Office of the Superintendent of Financial Institutions delivered this message through new rules released March 7 that require federally-regulated banks, insurance companies and pension funds to publish annual data about the emissions they’re linked with, and to come up with plans to manage the risks associated with the transition away from coal, oil and gas.
The five large Canadian banks have promoted different strategies to cut emissions and get clients to decarbonize, including signing on to a voluntary net-zero initiative. But all five also issued billions of dollars worth of loans and underwriting for fossil fuels in 2021, and some have pushed back against the idea that they should divest from high-polluting clients.
Five takeaways from the new rules
Banks will have to describe the resilience of their business plans to climate change, taking into consideration different scenarios, including one where global warming is limited to 1.5C.
What happens to Canadian banks and insurers in a 1.5 C world
Banks will have to show what will happen to their profits and revenues under a range of different future climate scenarios, including a future where countries have slashed emissions enough to hold the global average temperature increase to 1.5 C above pre-industrial levels.
But meeting it will require humans to dramatically slash greenhouse gasses such as carbon and methane, which could impact Canada’s oil and gas companies and any banks that continue to underwrite them. The International Energy Agency’s version of this exercise, which the regulator recommended the banks use, envisions no new oil and gas development.
Canadian banks will have to account for emissions from their loans
The rules will require banks to calculate and then publish the carbon pollution associated with their products, such as business loans, auto loans, corporate bonds, commercial real estate or mortgages. Some Canadian banks also previously lobbied against this requirement.
Independent Quebec Senator Rosa Galvez called the regulator’s new rules a “good first step” in acknowledging how the climate crisis could disrupt banking operations. But she said in a statement that the rules don’t go far enough in recognizing the impact that financial institutions themselves have on the climate. Her proposed legislation, Bill S-243, the Climate-Aligned Finance Act, would hand the regulator more powers to force banks to align with climate commitments.
Today in the @SenateCA I introduce the Climate-Aligned Finance Act to align Canada’s financial sector with our climate commitments.
Let’s provide the tools and guidance necessary for an orderly transition and protect our finance sector from climate risk.https://t.co/kmFYha86xG
— Rosa Galvez (@SenRosaGalvez) March 24, 2022
Rules come in advance of other corporate disclosure requirements
The rules don’t set a date for when scenario planning reports and climate transition plans will be required from Canadian banks and insurance companies, but it is likely to be within the next two years.
Implementation and enforcement begin next fiscal year
Large financial institutions will have to start complying with the bulk of the new rules by the end of the 2024 fiscal year. The regulator said it will now start bolstering its oversight of Canadian banks and other institutions to ensure they’re following the rules when they kick in.
Rules for Canadian banks won’t tackle ‘greenwashing,’ critics argue
The regulator won’t be asking banks to publish their climate-related information in certain key financial documents, such as a Report to Shareholders, instead allowing them to disclose it in standalone reports like an “environmental, social, and governance” report.
The legal non-profit Ecojustice said the rules won’t tackle “rampant greenwashing by Canada’s financial giants.” Climate program director Alan Andrews said in a statement that the regulator should be given the power to reject climate plans from banks that don’t include a credible path to 1.5 C.
Shift Action for Pension Wealth and Planet Health also said the rules fell short of what was necessary to stop financial institutions from destabilizing the climate and financial system.
The full Narwhal article is available here.
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