A Closer Look at OSFI Guideline B-15: Climate Risk Management

Implications for Federally Regulated Institutions in Canada’s Financial Sector

Key Highlights

  • More than 350 federally regulated financial institutions in Canada (each, an “Institution”) are required to comply with the new Guideline B-15 developed by the Office of the Superintendent of Financial Institutions (“OSFI”).
  • Guideline B-15 sets out OSFI’s expectations regarding the governance mechanisms that must be implemented by Institutions to identify and manage any climate-related risks.
  • Guideline B-15 introduces a reporting requirement for Institutions in respect of their climate-related risks, and the mechanisms that Institutions have implemented to address such risks. Such reports will need to be published as early as 2025 for some Institutions.

In our April 2023 article, ESG Initiatives Take Hold in Banking Sector, we noted that OSFI had published Guideline B-15: Climate Risk Management (“Guideline B-15”), setting out its expectations for the management and disclosure of climate-related risks by Institutions. In developing Guideline B-15, OSFI recognized that climate change poses numerous threats to the safety and soundness of Institutions, and the financial system more broadly. OSFI expects such climate-related risks to diversify and intensify over time, drive other financial risks (such as credit, market, insurance and liquidity risks) and lead to strategic, operational and reputational risks for Institutions, even threatening the long-term viability of an Institution’s business model.[1] To address these vulnerabilities proactively, OSFI developed Guideline B-15 to set out the practices that Institutions must implement to identify and address such climate-related risks. Guideline B-15 was finalized after public consultation, through which OSFI received more than 4,300 responses. The final product is a guideline that aligns with the climate risk management and governance procedures set out in the Task Force on Climate-Related Financial Disclosures (the “Task Force”).[2]

In implementing Guideline B-15, OSFI’s intention is that Institutions will:

  1. Understand and mitigate against potential impacts of climate-related risks to the Institution’s business model and strategy;
  2. Implement appropriate governance and risk management practices to manage identified climate-related risks; and
  3. Remain financially and operationally resilient through severe, disruptive and plausible climate risk scenarios.

Which Institutions Are Required To Comply With Guideline B-15?

Guideline B-15 applies to all Institutions,[3] with the exception of foreign bank branches.[4] OSFI also notes that Guideline B-15 applies to Canadian branches of foreign insurers to the extent the obligations set out in Guideline B-15 relate to or impact the risks insured in Canada by the foreign insurer, the sufficiency of the related vested assets relative to the foreign insurer’s insurance business in Canada, and/or the Branch Adequacy Asset Test or Life Insurance Margin Adequacy Test targets.

What “Climate-Related Risks” Are Covered by Guideline B-15?

OSFI sets out two categories of climate-related risks:

  1. Physical Risks: financial risks that arise from the increasing severity and frequency of climate-related extremes and events (e.g., increased frequency and severity of weather events), longer-term gradual shifts of the climate (e.g., increased regulation related to greenhouse gas (“GHG”) intensive industries) and indirect effects of climate change (e.g., public health implications, such as a change in mortality rates); and
  2. Transition Risks: financial risks related to the process of adjustment towards a low-GHG economy, which can emerge from current or future government policies, legislation and regulations to limit GHG emissions, or new technologies, changes in market and consumer sentiment with respect to a low-GHG economy.

OSFI also acknowledges the existence of an indirect climate risk, referred to as a liability risk (i.e., the risk of climate-related claims under liability policies, litigation and direct actions against Institutions for failing to manage climate-related risks).

Annex 1-2 of Guideline B-15 provides sample guidance that Institutions may want to consider when assessing physical and transition risks. In Annex 1-2, OSFI suggests that upon identifying the physical or transition risk, Institutions ought to consider the specific risk events (e.g., credit risk, market risk, insurance risk, operational risk, liquidity risk, liability risk, etc.) that may arise from the associated physical or transition risk, and then consider the potential impact or loss (e.g., credit impact, market loss, insurance loss, operational loss, liquidity impact, legal impact, etc.).[5]

What Climate-Related Governance Obligations Are Introduced by Guideline B-15?

Guideline B-15 is organized into two chapters, each of which introduces different obligations on Institutions.

Chapter 1 of Guideline B-15 sets out two principles (in italics below) and accompanying guidance in respect of governance and risk management practices that OSFI expects Institutions to implement to identify and manage climate-related risks:

  1. The Institution should have the appropriate governance and accountability structure in place to manage climate-related risks. OSFI further notes that an Institution’s senior management team has overall accountability for climate risk management and should consider the compensation structure of such senior management team members accordingly; and
  2. The Institution should incorporate the implications of physical risks from climate change and the risks associated with the transition to a low-GHG economy to the Institution in its business model and strategy. Specifically, OSFI’s intent is for Institutions to consider the impacts of climate-related risks on the Institution’s short- and long-term strategic, capital and financial plans. OSFI further recommends that Institutions develop and implement a Climate Transition Plan,[6] which guides the Institution’s actions in managing physical and transition risks. OSFI also recommends that Institutions “scenario test” their Climate Transition Plans to assess their achievability and determine how progress should be measured and assessed overall.

Chapter 1 of Guideline B-15 also sets out three principles in respect of climate-related risk management, climate scenario analysis and stress testing, and capital and liquidity adequacy to further enhance the structures employed by Institutions to address climate-related risks:

  1. The Institution should manage and mitigate climate-related risks in accordance with the Institution’s risk appetite framework. Institutions may already develop risk appetite frameworks, engage in enterprise risk management and implement internal control frameworks. Under Guideline B-15, OSFI now mandates Institutions to identify, collect and use reliable, timely and accurate data pertaining to physical risks and transition risks relevant to its business activities. Institutions are also advised under Guideline B-15 to implement relevant tools and models, including those for climate scenario analyses, that are sufficient for the Institution to understand the embedded data, methodology, assumptions and their limitations. Ultimately, such climate-related risk management should also be incorporated in the Institution’s existing risk management and internal control frameworks and reporting systems.
  2. The Institution should use climate scenario analyses to assess the impact of climate-related risks on its risk profile, business strategy and business model. This requirement is not currently fully developed under Guideline B-15, and OSFI has noted that this expectation may be developed into a separate chapter in an updated version of Guideline B-15. In this section, OSFI acknowledges the value of climate scenario analyses as hypothetical examinations of the future state of the world to assess the impact of climate-related risks on an Institution’s operations, which can help the Institution in its long-term strategic planning and risk management. OSFI recommends that these climate scenario analyses be conducted on a short-, medium- and long-term basis, and consider a wide array of plausible and relevant scenarios giving rise to a number of physical and transition risks.
  3. The Institution should maintain sufficient capital and liquidity buffers for its climate-related risks. OSFI has also noted that this principle may be developed into a separate chapter altogether in a revised draft of Guideline B-15. Ultimately, however, this principle notes that an Institution should consider and incorporate climate-related risks into its Internal Capacity Adequacy Assessment Process, Own Risk and Solvency Assessment process, and liquidity risk profile.

What Climate-Related Disclosure Obligations Are Introduced by Guideline B-15?

Guideline B-15 requires Institutions to report on the climate-related risks identified by the Institution and any governance mechanisms implemented by the Institution to address such risks.[7] Annex 2-2 of Guideline B-15 sets out the minimum mandatory climate-related financial disclosure expectations for each type of Institution, based on the climate risk management and governance standards set out by the Task Force:

  1. Governance: includes information on the Institution’s board of directors’ oversight of climate-related risks and opportunities, and management’s role in assessing such climate-related risks and opportunities;
  2. Strategy: includes information on the climate-related risks and opportunities the Institution has identified over the short-, medium- and long-term; the impact of climate-related risks and opportunities on the Institution’s businesses, strategy and financial planning; the Institution’s climate transition plan; and the resilience of the Institution's strategy, taking into consideration different climate-related scenarios, including a scenario which limits warming to the level aligned with the latest international agreement on climate change, or lower;
  3. Risk Management: includes information on the Institution’s process for identifying and assessing climate-related risks; the Institution’s processes for managing climate-related risks; and how processes for identifying, assessing and managing climate-related risks are integrated into the Institution’s overall risk management; and
  4. Metrics and Targets: includes information on the metrics used by the Institution to assess climate-related risks and opportunities in line with its strategy and risk management process; the Institution’s Scope 1 and Scope 2 GHG emissions; the Institution’s Scope 3 GHG emissions; the targets used by the Institution to manage climate-related risks and opportunities, and the Institution’s performance against these targets; and any prudential cross-industry and industry-specific metrics.

OSFI has noted that the mandatory disclosure regime was introduced for a number of reasons: (a) to incentivize improvements in the quality of an Institution’s climate-related governance; (b) to help OSFI meet its mandate of protecting depositors, creditors and policyholders; and (c) to contribute to public confidence in the Canadian financial system. Accordingly, Chapter 2 of Guideline B-15 sets out six principles in respect of an Institution’s required disclosure of its climate-related risks:

  1. The Institution should disclose relevant information. OSFI defines “relevant information” as information specific to the current and potential future impact of climate-related risks and opportunities on its markets, businesses, corporate or investment strategy, financial statements and reports, and future cash flows. OSFI also notes that “relevant information” should be presented in sufficient detail to enable users to thoroughly assess the exposure and approach to addressing such climate-related risks and should include information from the perspective of the current and potential future impact of climate-related risks and opportunities alike on an Institution’s value creation;
  2. The Institution should disclose specific and comprehensive information. OSFI notes that an Institution should provide relevant information regarding current and potential future impacts of physical and transition risks; the potential nature and size of such impacts; the Institution’s governance, strategy and processes for managing these risks; and performance with respect to managing climate-related risks and opportunities. OSFI notes that climate-related disclosure will be considered “sufficiently comprehensive” if it includes both historical and future-oriented information, with meaningful comparisons between expected and actual results, as appropriate. Quantitative data should be consistent with that which is used in investment and risk management decision-making (i.e., should provide an explanation of the definition, measurement framework used, scope applied, and for future-oriented information, the key assumptions and judgments used, and an explanation of any data limitations or methodology changes it faced during the reporting period and their impact on disclosure);
  3. The Institution should disclose clear, balanced and understandable information. Ultimately, an Institution’s climate-related disclosures must serve the needs of a range of users and should include an appropriate balance between qualitative and quantitative information. Climate-related disclosures should also include fair and balanced narrative explanations to accompany quantitative data, and descriptions of any identified risks and opportunities must be straightforward;
  4. The Institution should disclose reliable and verifiable information. OSFI notes that an Institution’s climate-related disclosures should be free from bias and traceable to their sources. Data must be defined, collected, recorded and analyzed accordingly, much like it would be in an Institution’s existing internal governance processes and controls. Any future-oriented disclosures must be adequately explained, reasonable and supported by relevant data. No independent external assurance of data is expected at this time, but OSFI has noted that Institutions should work towards a future where external assurance and verification of data is expected;
  5. The Institution should disclose information appropriate for its size, nature and complexity. Smaller Institutions with less varied business lines and geographic locations are not expected to produce disclosures to the same extent as larger Institutions and, ultimately, an Institution must exercise its discretion when determining the appropriate level of detail in such disclosures; and
  6. The Institution should disclose information consistently over time. Ultimately, OSFI hopes that users will be able to understand the impact of climate-related risks on an Institution’s business, and thus requires Institutions to disclose their climate-related risks (i.e., with meaningful inter-period comparisons that contain appropriate quantitative detail, underlying reasons for any discrepancies between the periods and an assessment of the impact of any variances) to facilitate this analysis.

Institutions that are not in-scope DSIBs or IAIGs (both terms, as defined below) must also reference one of OSFI’s Financial Data websites to alert readers to additional information available.

Guideline B-15 also notes that Institutions may exercise their discretion regarding the format in which these climate-related disclosures are presented. OSFI has suggested that disclosures may be published as a report to shareholders (e.g., via financial statements or management’s discussion and analysis) or as a standalone environmental, social and governance (“ESG”) report.

When Are Applicable Entities Expected To Comply With Guideline B-15?

For domestic systemically important banks (“DSIBs”)[8] and internationally active insurance groups (IAIGs)[9] headquartered in Canada, Guideline B-15 will be effective fiscal year-end 2024. For all other Institutions required to adhere to Guideline B-15, OSFI has noted that Guideline B-15 will become effective at fiscal year-end 2025. Once Guideline B-15 becomes effective, Institutions must publish the applicable disclosures no later than 180 days after fiscal year-end and must publish their relevant disclosures on an annual basis, at minimum (the Institution may choose to report on its climate-related risks more frequently on a voluntary basis).

Where Must the Applicable Disclosures Be Published?

Institutions must make the climate-related financial disclosures publicly available on the Institution’s company website. Institutions are also expected to maintain an ongoing archive of all disclosures related to prior reporting periods.

What Penalties Might Be Imposed on Institutions for Failing To Comply With Guideline B-15?

While Guideline B-15 does not impose any unique penalties on Institutions for failing to comply with Guideline B-15, the OSFI Late and Erroneous Filing Penalty (LEFP) Framework (the “LEFP Framework”) notes that any disclosure that is not made in the form and manner prescribed in the relevant filing instructions, is incomplete, contains errors and is received by OSFI past the required due date may be subject to a per diem penalty in respect of individual filings that are not received by OSFI in an error-free state by the applicable due date.[10]

When Addressing Climate Risks, Are There Any Other OSFI Guidelines That Institutions Might Consider?

OSFI noted that Guideline B-15 is meant to supplement other OSFI guidelines that directly or indirectly address various elements of climate risk management and governance, such as the Corporate Governance Guideline,[11] Guideline E-18: Stress Testing,[12] Guideline E-19: Own Risk and Solvency Assessment,[13] Guideline E-19: Internal Capital Adequacy Process,[14] Guideline B-10: Third-Party Risk Management Guideline,[15] Guideline E-23: Enterprise-Wide Model Risk Management for Deposit-Taking Institutions[16] and Guideline E-21: Operational Risk Management.[17] This list is not exhaustive, and each Institution should consider how the assessment and disclosure of climate-related risks might be integrated into their existing reporting and risk management practices as mandated by the various OSFI guidelines to which they already adhere.

Are the Expectations Set Out in Guideline B-15 Fixed?

OSFI has stated its intention to review and amend Guideline B-15 to account for evolving practices and standards. Specifically, OSFI anticipates that Chapter 2 of Guideline B-15 will be updated when the International Sustainability Standard Board publishes their Standard IFRS S2 Climate-related Disclosures, which is anticipated to occur sometime in 2023.

How Should Institutions Prepare To Comply With Guideline B-15?

For many years now, Canadian financial institutions have been taking steps to align their climate strategies to reflect global best practices for sustainable climate-focused financing. Several Canadian banks and credit unions have joined the United Nations-convened Net Zero Banking Alliance and numerous innovative financing tools, such as sustainability-linked loans, are increasingly being offered in the banking sector.[18] Guideline B-15 will offer a Canadian framework for measuring and tracking how these strategies and tools are being seen by OSFI. Canadian financial institutions will need to ensure that the internal guidelines they have been working on over the years are also aligned with Guideline B-15 and that any internal policies evolve as guidelines published by OSFI evolve.

Public and Regulatory Considerations

Institutions should also be cognizant of public reactions and regulatory actions, which can range from youth-led movements calling on students to sever ties with financial institutions that refuse to divest investments in fossil fuels,[19] to the Competition Bureau advising that it would consider the environmental groups’ (which included West Coast Environmental Law, Climate Action Network Canada, and Environmental Defence Canada) recommendations as part of its review process for transactions.[20] The Competition Bureau has also shown an increased interest in investigating banks for greenwashing and has considered the effects that potential mergers might have in limiting sustainable banking options for consumers in Canada.


The Capital Markets Group and Financial Services Group at Aird & Berlis LLP will continue to monitor the development of Guideline B-15 and developments in ESG and climate-related risk management and disclosure, in general, and can assist Institutions with the preparation of climate-related financial disclosures under Guideline B-15 and other similar frameworks. Please contact one of the authors if you have questions or require assistance.

[1] Please see Section A: Overview of Guideline B-15 for further information.

[2] Please see the Task Force on Climate-Related Financial Disclosures Final Report for further information.

[3] More than 350 banks, trust companies, loan companies, life insurance companies, fraternal benefit societies and property & casualty insurance companies have been identified by OSFI as Institutions.

[4] Defined by OSFI to include all foreign banks authorized to carry on business in Canada on a branch basis under Part XII.I of the Bank Act.

[6] OSFI notes that such Climate Transition Plans ought to be developed in accordance with the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures Guidance on Metrics, Targets, and Transition Plans.

[7] Please see Chapter 1 of Guideline B-15 for more information.

[8] The DSIBs, as identified by OSFI, only consist of Canada’s six largest banks to be DSIBs (Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank).

[9] OSFI has identified four IAIGs headquartered in Canada as falling under its jurisdiction (Canada Life Assurance Company, Intact Financial Corporation, Manufacturers Life Insurance Company and Sun Life Assurance Company of Canada).

[10] The LEFP Framework notes that where an Institution’s total assets are greater than $10 million, the per diem penalty is $500. Where an Institution’s total assets are greater than $250 million, but less than or equal to $10 billion, the per diem penalty is $250. Finally, where an Institution’s total assets are less than or equal to $250 million, the per diem penalty is $100. While OSFI may exercise its discretion as to whether a penalty should be imposed, once it has been decided that a penalty ought to be imposed, the per diem amounts cannot be altered.

[11] This guideline sets out OSFI’s expectations for an Institution’s board of directors and senior management teams on corporate governance.

[12] This guideline sets out OSFI’s expectations on the use of use of stress testing for senior management in making decisions regarding business strategy, risk management and capital management.

[13] This guideline sets out OSFI’s expectations of an insurer’s own assessment of its risks, capital needs and solvency position, and for setting internal targets accordingly.

[14] This guideline sets out OSFI’s expectations of federally regulated deposit-taking institutions’ own assessment of the adequacy of their capital.

[15] This guideline sets out OSFI’s expectations on an Institution’s management of risks associated with and arising from third-party arrangements.

[16] This guideline sets out OSFI’s expectations regarding institutions’ establishment of sound policies and practices for an enterprise-wide model risk management framework.

[17] This guideline sets out OSFI’s expectations regarding an Institution’s management of operational risk.

[18] For further information on sustainability linked loans and other sustainable finance options, please refer to our recent article: ESG and Capital Raising: An Overview of the Unique Sustainable Finance Tools Available to Canadian Businesses (