Peter Routledge at House of Commons Standing Committee on Environment and Sustainable Development, Opening Remarks

Mr. Chair and members of the Committee.

Thank you for inviting us to contribute to your study on environment and climate impacts related to the Canadian financial system. I am joined by my colleague Stephane Tardif, Managing Director of OSFI’s Climate Risk Division.

Parliament has assigned to OSFI a mandate comprised of two basic principles. It asks OSFI to ensure financial institutions are in sound financial condition and to ensure they adequately protect themselves against threats to their integrity or security, including foreign interference. When institutions are at risk of falling short of these principles, we oblige management and boards of directors to take prompt corrective measures.

OSFI operates a principles-based regulatory model in which we articulate broad prudential principles to which we ask financial institutions to adhere. In contrast to many global peers, we do not impose rules on regulated constituents, preferring instead to issue guidelines that articulate sound principles aimed at protecting creditors, depositors, and policyholders. We believe our principles-based model produces better institutional resilience at a lower cost to our regulated constituents.

At OSFI, we see the risks posed by climate change on our regulated constituents as an emerging financial risk with uncertain and non-linear downside costs. As economies adapt to climate change, we also recognize that financial institutions will have opportunities to fund that adaptation and profit from that activity. In pursuing our mandate, Parliament instructs OSFI to protect the rights of creditors, depositors, policyholders having due regard to allow financial institutions to compete and take reasonable risks.

To support sound management of the financial risks posed by climate change without unduly impairing profitable pathways to profitable investments in adaptation, OSFI has undertaken a number of initiatives to encourage Canadian financial institutions to advance their capabilities in measuring and managing climate risk. Through in-depth, empirical analysis, Canadian financial institutions can become early beneficiaries of sound climate risk management.

In closing, 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 respond to the opportunities and threats of climate change effectively.

Thank you.