{"id":265909,"date":"2018-02-02T11:30:29","date_gmt":"2018-02-02T16:30:29","guid":{"rendered":"https:\/\/policyoptions.irpp.org\/issues\/modernizing-financial-regulation-to-address-climate-related-risks\/"},"modified":"2025-10-07T21:57:49","modified_gmt":"2025-10-08T01:57:49","slug":"modernizing-financial-regulation-to-address-climate-related-risks","status":"publish","type":"issues","link":"https:\/\/policyoptions.irpp.org\/fr\/2018\/02\/modernizing-financial-regulation-to-address-climate-related-risks\/","title":{"rendered":"Modernizing financial regulation to address climate-related risks"},"content":{"rendered":"

In an important step toward updating financial regulation to maintain relevance in the era of climate change, Ontario\u2019s Ministry of Finance is reviewing the need for new policy<\/a> on the disclosure of climate-related financial risks and opportunities by corporations regulated by the Ontario Securities Commission (OSC).<\/p>\n

The review comes in response to a formal request from Greenpeace Canada<\/a>, made under section 61(2) of Ontario\u2019s Environmental Bill of Rights. <\/em>This mechanism enables citizens or organizations to \u201ccall the question\u201d regarding the need for a new policy or regulation. The legislation doesn\u2019t require the government to undertake a review, but if it chooses not to, then the responsible ministry must explain why not. In the application we argued that the lack of mandatory disclosure of climate-related risks is a gap in Ontario\u2019s plan to adapt to a low-carbon economy and that new requirements should be included in the provincial climate change adaptation strategy (currently under development).<\/p>\n

Concern over climate-related financial risks is being expressed by investors, regulators, governments and environmental groups. A key question is whether disclosures regarding these risks should be made mandatory and comparable with other disclosure requirements, by being integrated into financial regulations, or whether they should be left as voluntary measures.<\/p>\n

Climate change as a threat to the global financial system<\/strong><\/p>\n

Climate-related financial risk is on the global policy agenda as an unintended consequence of the 2008 market meltdown, which was triggered by newly deregulated banks investing in subprime mortgages while regulators ignored the longer-term systemic risks. In the aftermath of that crisis, the G20 established the Financial Stability Board<\/a> (FSB) to coordinate the reform of global financial regulation and to scan the horizon to identify comparable threats to the stability of the global financial system. The Governor of the Bank of England, Mark Carney, was appointed chair of the FSB, and in September 2015 he gave a speech<\/a> at Lloyds of London where he identified the next big threat: climate change.<\/p>\n

Carney appointed Michael Bloomberg to chair the FSB\u2019s Task Force on Climate-related Financial Disclosures<\/a>. It was asked<\/a> to propose \u201cvoluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders,\u201d taking into account \u201cthe physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries.\u201d<\/p>\n

The task force released its final report<\/a> in June 2017, stating that the disclosure of climate-related risks and opportunities is a key mechanism for facilitating the transition to a low-carbon economy and for protecting society as a whole from climate-related financial shocks. It also laid out detailed recommendations on how organizations should disclose those risks with respect to their corporate governance, structure, risk management, and metrics and targets. As part of this process, companies would evaluate the resiliency of their business plans in a scenario where warming is kept below 2\u00b0C (in line with the Paris Agreement) and identify the adjustments required to thrive in a low-carbon world.<\/p>\n

Responses to the task force report in Canada<\/strong><\/p>\n

Immediately upon publication, the FSB task force report\u2019s recommendations were supported<\/a> by more than 100 firms from around the globe with market capitalizations of over $3.3 trillion and financial firms responsible for assets of more than $24 trillion. This list included the Canada Pension Plan Investment Board, the Ontario Teachers\u2019 Pension Plan, OPTrust (the pension plan for public sector workers in Ontario), the Caisse de d\u00e9p\u00f4t et placement du Qu\u00e9bec, the British Columbia Investment Management Corporation and Barrick Gold. Another 24 firms on the list, while not headquartered in Canada, have significant operations here.<\/p>\n

In addition, two Canadian banks (Toronto Dominion and the Royal Bank) are part of a United Nations Environment Programme pilot project<\/a> that is exploring how to implement the task force\u2019s recommendations by developing analytical tools and indicators to strengthen their assessment and disclosure of climate-related risks and opportunities.<\/p>\n

In a parallel move, the Chartered Professional Accountants of Canada\u00a0prepared a report<\/a> in 2017 examining the nature and extent of climate-related disclosures made by Canadian public companies in their securities filings. It found that while there is broad disclosure of climate-related information among Canadian companies, these disclosures did not provide sufficient context for users, they were not comparable across or within industries, there was inconsistent terminology, and less than one-quarter of companies disclosed proactive strategies to deal with the transition to a low-carbon economy.<\/p>\n

Perhaps most significantly, the Canadian Securities Administrators (CSA), in cooperation with provincial regulators such as the OSC, launched its own review<\/a> of disclosure requirements following the release of the draft recommendations of the FSB task force in December 2016. The CSA review has been researching what is happening in other jurisdictions, reviewing climate-related disclosures in the 2016 annual reports of companies listed on the Toronto Stock Exchange and consulting with stakeholders. According to an October 2017 presentation by the OSC\u2019s Jo-Anne Matear<\/a>, the CSA review is contemplating four options:<\/p>\n