BoC scenarios show that the financial sector is exposed to potential climate transition shocks

OTTAWA — A new report from the Bank of Canada and the banking regulator shows Canada’s financial institutions are potentially exposed to significant shocks as the global economy shifts away from carbon emissions.

The report is not intended to be a forecast, but considers several climate policy scenarios and how they might play out across the Canadian economy.

The Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI) say the initiative is a first attempt to better understand the long-term risks posed by the transition in greenhouse gas emissions and to assess the extent to which banks and other financial institutions the institutions themselves model the risk.

The report says Canada is more at risk of experiencing the economic impacts of the transition due to significant exposure to commodities that will see their prices decline as climate policies tighten globally.

Scenarios show that faster action on climate change will lead to a smoother and less risky transition, while modeling of particularly abrupt global policy shifts showed potential financial market disorder as Canada’s GDP falls by 10% compared to what it would be by 2050 compared to the baseline scenario.

The report finds that financial institutions are still in the early days of assessing the potential risks of climate transition and that modeling is still hampered by unequal access to data.

This report from The Canadian Press was first published on January 14, 2022


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