Canada’s Banking Regulator Wants Higher Capital Buffer For Climate Change

The Office of the Superintendent of Financial Institutions (OSFI) is looking to increase the amount of reserve capital that Canadian banks need to hold to protect against climate change risks.

Canada's banking regulator said that, while it likely won't happen this year, it's important that banks build up capital buffers this decade to guard against potentially increasing volatility.

Speaking at RBC's Canadian Bank CEO Conference, OSFI head Peter Routledge said it's important to increase resilience to both the physical risks of climate change and the transition risks as the global economy shifts towards net zero emissions.

He says that while the world may start moving away from emissions this decade in a more measured approach, action could be delayed until next decade — when any transition would be more rushed and volatile.

Routledge said that, along with work on the buffer, the regulator will launch discussions with financial institutions as it looks to produce climate risk management guidelines later this year.

He said OSFI wasn't first but is an early mover internationally on guidelines that are still limited as measurement standards and policies are still being defined.

In the U.S., the Office of the Comptroller of the Currency, which regulates national banks in that country, put out draft guidelines on climate change in December that spells out some expectations on how banks look at climate-related risks and incorporates those risks into strategic planning.