At the Bank, we’re taking steps to better understand the impacts of climate change on the economy and to reduce our environmental footprint.
Climate change and the transition to low-carbon growth will have profound impacts on almost every sector of the economy in the decades ahead. The need to understand these effects and their implications for the economy and financial system places climate change analysis within the Bank’s mandate.
Assessing climate risks to the economy and financial system
The physical effects of climate change are already apparent in the increasing number and severity of extreme weather events, such as flooding, hurricanes and wildfires. The resulting catastrophic losses can have significant, widespread impacts on the financial system. The physical risks from more frequent and intense weather events can also adversely affect several parts of the economy. For example, global warming can diminish labour productivity, agricultural yields and industrial output.
Reducing these physical risks requires global action on climate change policies supported by technological progress and socio-economic change. But efforts to decarbonize economies carry risks of their own. A late and abrupt transition to a low-carbon economy could lead to assets suddenly losing value and a rapid repricing of climate-related risks. And this could negatively affect the balance sheets of financial market participants, with potential consequences for financial stability overall.
Through our research and analysis, we are working with partners in Canada and internationally to ensure that our economy and financial system are adequately prepared to handle such risks.
Research and analysis on climate risks
Understanding the economic impacts of climate change and the transition to a low-carbon economy is a priority for us. We have developed a multi-year research plan focused on climate-related risks to the overall economy and financial system. We have also incorporated climate-related risks into our financial system review process.
Climate change scenario analysis
Scenario analysis is a useful tool for identifying potential risks in an environment of considerable uncertainty. Climate change scenarios related to a transition to a low-carbon economy explore different pathways for emissions reductions and their implications for the economy and financial system. These pathways are driven by changes in policy, technology, and consumer and investor preferences.
Together with the Office of the Superintendent of Financial Institutions and several Canadian financial institutions, the Bank completed a climate transition scenario analysis pilot project. The project aimed to increase understanding of the financial sector’s potential exposure to risks in transitioning to a low-carbon economy and to help build the capabilities of authorities and financial institutions in assessing climate-related risks. In line with the objectives of the pilot, the Bank has developed a set of global climate transition scenarios to capture a range of risk outcomes that could be stressful to the Canadian economy and the financial system. In the pilot’s final report, the Bank and OSFI presented key takeaways, the methodologies used in this pilot to assess climate-related financial risk, and lessons learned to inform and support the broader financial sector going forward.
Climate change and the macroeconomy
We’re also working to better understand the implications of climate change for the macroeconomy. Climate change and the transition to a low-carbon economy will result in new types of shocks and structural changes. Understanding the potential impacts of climate change on the macroeconomy, inflation and jobs is essential for us to effectively carry out monetary policy. Making progress and gaining insight on these issues will take time, but we are building our expertise and working closely with our partners in Canada and internationally to accelerate this work.
Engaging with global and Canadian partners
Climate change is fundamentally a global problem, and so we have expanded our international engagement. With the help of the Network for Greening the Financial System, the International Monetary Fund and the Financial Stability Board, among other partners, we are developing strategies to mitigate transition risks and promote sustainable finance.
We are also working with our Canadian partners in government, the financial sector and academia, including through the Sustainable Finance Action Council, to promote resilience to climate change and a smooth transition to low-carbon growth in Canada.
Greening our operations
Reducing our impact on the environment is important to us. We’ve been making changes to our day-to-day operations to decrease the risks we all face from a changing climate.
Reducing operational carbon emissions
We’re taking steps to measure and reduce our carbon footprint and to integrate climate change into our planning and decision making. We committed to reducing our buildings-related greenhouse gas emissions by 80 percent by 2030 (compared with 2018 levels) and achieving net zero operational carbon emissions by 2050 or sooner. These targets are aligned with those of the Government of Canada and support the objectives of the Paris Agreement. We have also committed to meeting 100 percent of our electricity needs with renewable sources by 2022.
In 2019, we achieved LEED Gold certification for our renovated Ottawa headquarters, a milestone that was several years in the making.
- The renovation itself was done with sustainability in mind, and more than 90 percent of construction waste was diverted from landfills.
- We reduced electricity use in our head office by 50 percent—the equivalent of removing over 1,300 homes from the electricity grid.
Our other buildings across Canada are being similarly updated. Ongoing energy audits are showing positive results. With our building automation systems, we have optimized the efficiency of lighting, heating and cooling schedules to further reduce our energy consumption.
Addressing our waste and water footprints
We have committed to achieving near-zero waste—producing as little waste as possible from our operations—across our owned buildings and supply chain by 2040 or sooner. This includes diverting 75 percent of operational and plastic waste and 100 percent of construction waste by 2030.
Some of our additional green initiatives are making significant progress:
- The polymer from old bank notes is recycled to create outdoor benches and tables, trash containers and deck boards.
- Waste audits have helped us divert almost half our waste away from landfills. We are also reducing the use of single-use plastics and have expanded our composting program.
- All of our owned buildings, as well as our rented Calgary Operational Site, have fully integrated recycling and composting programs.
- We continue to reduce paper use through our “digital first” strategy, moving to online-only versions of major publications and internal communications.
We’ve also committed to achieving near-zero water—using as little water as possible in our daily work—across our owned buildings by 2035 or sooner. We have invested in water conservation and efficiency technologies and are assessing options for adopting alternative water-management practices. These include rainwater harvesting and green infrastructure to minimize wastewater discharge.
Managing the risks we face from climate change
Climate change can impede our day-to-day work through two channels: our own operations and those of our suppliers.
We assess environmental risks as part of our regular risk management process and business planning. These assessments allow us to both protect the Bank and help the environment.
We are also taking steps toward measuring and disclosing our carbon emissions. Our teams are examining the activities of private financial institutions and other central banks to determine and deploy best practices within the Bank.
The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are increasingly becoming the global standard and being adopted by central banks in many countries, as well as by Canadian financial institutions and Crown corporations. Our ongoing efforts to develop a reporting framework for climate-related financial risks will lead to a report in line with TCFD recommendations for fiscal year 2022.
Greening our pension fund
We are working to integrate environmental, social and governance (ESG) principles into the management of the Bank of Canada Pension Plan.
Our current focus is on developing practical steps to integrate ESG considerations into our investment decisions and reporting. We continue to uphold our fiduciary responsibilities, which require us to act prudently and in the sole interest of Plan members when making investment decisions.
Because best practices are still evolving, this will be a multi-year project. We will continue to work with other pension funds to build our knowledge base and accelerate this integration process.