Opening Remarks Superintendent, Peter Routledge Senate Committee on Banking Commerce and the Economy, December 6, 2023

Good afternoon, Madame Chair and members of the Committee.

We are gathered today on the traditional un-ceded territory of the Anishinabe Algonquin Nation who have lived on and been the caretakers of this land for millennia.

I am joined by my colleague Stéphane Tardif, Managing Director of OSFI’s Climate Risk Hub.

The Intergovernmental Panel on Climate Change (IPCC) reported earlier this yearFrom: https://www.ipcc.ch/report/ar6/syr/downloads/report/IPCC_AR6_SYR_SPM.pdf, with high confidence, that it expects average warming to reach 1.5 degrees Celsius in the near-term with every increment intensifying multiple and concurrent physical hazards. To slow and stop global warming, economies will have to transition away from Green House Gas (GHG) emitting energy sources, a task that itself presents significant transition risks to economies, including and especially Canada’s.

Thus, responding to the threats posed by climate change remains one of the great challenges for this generation of Canadian policymakers

Before I explain what we have achieved at OSFI on climate risk management since I began my service as Superintendent, I would like to discuss OSFI’s mandate and its relation to the risks caused by climate change.

OSFI has an explicit mandate to contribute to public confidence in the financial system. This includes ensuring that the financial institutions we regulate are managing the risks that could impact their safety and soundness appropriately. Among these are the physical and transition risks associated with climate change. While OSFI does not have an explicit mandate to advance climate change objectives, our current mandate provides us with ample scope to take action to ensure the financial institutions we regulate are managing how climate change impacts their safety and soundness.

Climate change impacts Financial Institutions’ safety and soundness because it will alter the cash flows generated by some financial assets and businesses. Stronger and more frequent natural disasters are changing the economic fundamentals in some insurance segments. As the world shifts away from GHG-emitting energy sources, the Canadian financial system will have to finance business’ transition to a low carbon economy.

Thus, OSFI’s existing mandate compels my organization to react with urgency to the risks posed by climate change. If we fail to do so, then we fail to fulfill our existing mandate.

Over the last year, OSFI has made significant progress in helping regulated financial institutions advance their competence in managing the physical and transition risks associated with climate change. We have:

• Made our expectations clear through Guideline B-15 – Climate Risk Management.
• Created a platform for dialogue through the Climate Risk Forum.
• Initiated a draft Climate Risk Returns and Standardized Climate Scenario Exercise.

We have pursued regulation of the federal financial system for better climate risk management via innovation within our existing regulatory practices and toolset. We believe now is the time to deepen our application of sound risk management practices to the risks of climate change and this entails sound, bottom-up risk analysis that will, in turn, inform future regulatory decisions around risk-weighting (therefore capital allocation), scenario-testing, and disclosures.

Thank you. We are happy to answer your questions.