Canada’s solvency supervisor, the Office of the Superintendent of Financial Institutions (OSFI), has published its Guideline B-15: Climate Risk Management, outlining how the regulator expects Canada’s property and casualty insurers to manage their climate risks.

“The publication of Guideline B-15 follows one of the most extensive consultations in OSFI’s history,” the regulator says on its website announcing the publication of B-15 guidelines. “OSFI received over 4,300 submissions from a wide range of respondents, including Federally Regulated Financial Institutions (FRFIs).”

OSFI categorized four themes emerging from the public consultations. Of particular note to the P&C industry are concerns about which environmental standards insurers should adhere to, given that there are many environmental standards and measurements published.

For this reason, many in the industry wished for OSFI to delay publication of its guideline.

“To facilitate consistency and comparability of disclosures, some [public consultation] respondents requested that OSFI delay implementation of the guideline by at least one year to harmonize its disclosure expectations and implementation timelines with those of standard setting bodies,” as OSFI summarized the feedback it received from the public consultations.

It listed several standards bodies to be harmonized such as the International Sustainability Standards Board (ISSB), the Canadian Sustainability Standards Board (CSSB), domestic regulators including those under the Canadian Securities Administrators (CSA), as well as the upcoming guidance and climate frameworks of the Partnership for Carbon Accounting Financials’ (PCAF) and the Glasgow Financial Alliance for Net Zero (GFANZ).

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Given the nascence of climate standards, some believed it was premature to commit the industry to using what might later prove to be deficient climate risk methodologies and measures/

“Some respondents commented that premature disclosures could prove counterproductive and increase the risk of incorrect decisions made,” as OSFI summarized.

Still others were concerned that forcing all to use the same standards could prove to put some businesses using different climate risk standards at a competitive disadvantage.

Finally, some called for safe-harbour provisions to reduce the risk of shareholder backlash from publicly owned companies from making “forward looking” statements on the basis of using certain climate measures over others.

OSFI, as evidenced by the publication of its guideline earlier this month, declined to delay publishing its climate risk guideline for a year.

“While OSFI acknowledges the challenges that FRFIs face in navigating the evolving landscape of climate-related disclosure, it expects FRFIs to work towards refining and increasing the robustness of their climate-related disclosure practices,” the regulator posted on its website, in response to the feedback. “Accordingly, OSFI endeavors to publish climate-related disclosure guidance which meets users’ need for timely transparency and enables progression of FRFIs’ disclosures over time.”

OSFI, however, did see the logic in harmonizing its definition of a “material” climate risk with IFRS’s definitions.

Regarding what is a “material” climate risk, several suggested OSFI adopt the definition of materiality from the International Financial Reporting Standards (IFRS).

This would allow the industry to time its climate risk-related OSFI disclosures with their IFRS financial disclosure statements. That would allow for an audit-level assurance to the statements. Plus, it would allow OSFI-regulated insurers to leverage the climate-related financial disclosures of their non-OSFI regulated parent companies in other jurisdictions.

Feature image courtesy of iStock.com/Boy Wirat

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David Gambrill