Change theme
Change theme


I’m very pleased to provide the Bank of Canada’s first annual climate risk disclosure report. Like other organizations, we have a responsibility to assess, manage and disclose our climate-related risks. This report represents an important first step in evaluating and communicating the climate risks we face as a financial institution. It also outlines what we are doing to manage these risks and to reduce our own greenhouse gas emissions in line with the Government of Canada’s objective of net-zero emissions.

When the topic of climate change comes up, I am often asked either why the Bank is talking about climate change or why the Bank isn’t doing more to fight climate change. So let me take this opportunity to explain what climate change has to do with the work of the Bank and what Canadians can expect from us.

The short answer is that the Bank does not set climate policy—that’s appropriately the purview of elected governments and, ultimately, parliaments. But to fulfill the Bank’s mandates to control inflation and promote financial stability, we need to understand the implications of climate change for the Canadian economy and financial system.

Let me expand.

Climate change poses enormous risks to Canada and the world. Conceptually, there are two types of risks. The first is what most people think of when they see the news of wildfires, floods and other climate-related natural disasters: the physical impacts of climate change itself. The loss of homes, businesses, crops and forests. The loss of lives and livelihoods. The financial impacts on investments and insurance. All of these affect our economic and financial well-being. The second risk is more complex and even harder to predict: the disruption that comes as the world transitions to greener growth. The transition to net-zero emissions will affect almost every sector of our economy and countless Canadians. For Canada’s oil and gas sector, the change will be profound as global demand for fossil fuels diminishes. And for many other sectors—from agriculture to manufacturing, transportation and electricity—the implications are likely to be far-reaching.

The Bank does not set climate policy—that’s appropriately the purview of elected governments and, ultimately, parliaments. But to fulfill the Bank’s mandates to control inflation and promote financial stability, we need to understand the implications of climate change for the Canadian economy and financial system.”

How smooth or disruptive these transitions are will have important implications for Canada’s economic performance, for inflationary pressures and for asset valuations and financial stability. To fulfill our responsibilities to control inflation and promote financial system stability, we must understand how Canada’s economy and financial system could be buffeted by climate change. That’s why the Bank is investing in climate models and working with others—including the Office of the Superintendent of Financial Institutions and the private sector. Together, we are assessing the physical and transition risks related to climate change and evaluating the implications of different climate scenarios for economic and financial stability.

As Canada’s central bank, we also have a duty to assess, disclose and manage our own climate-related risks. That is the focus of this report. We have a responsibility to be transparent about our own exposures and to be clear about how climate change could affect the value of assets we hold as investments or collateral.

We also want to see the quality of climate disclosures improve throughout the economy because that will support a smoother transition and help us achieve our objectives. Better data and risk assessments and more comprehensive disclosure will enable investors, businesses, regulators, governments and all Canadians to make better-informed decisions related to climate change. So the Bank has a double imperative to report on its climate-related risks—it’s part of our accountability to Canadians, and we want others to do the same so that we can all take better decisions.

This first report is a foundational step in explaining the economic risks of climate change and the work the Bank is doing to manage those risks as we pursue our inflation-control and financial stability functions. But more work still needs to be done, and Canadians can expect us to build on this foundation in the years to come.

Tiff Macklem

Executive summary

Around the world, the effects of climate change are becoming more visible, widespread and severe. In recent years, Canada has seen an increase in the frequency and severity of natural disasters and a surge in physical damage affecting both people and property.

Climate change has brought the world to a pivotal moment. The Bank of Canada has an obligation to better understand and manage the threat climate change poses. Canada’s economy and financial systems are not immune to the effects of climate change. In fact, the country is facing two distinct forms of risk:

  • from the physical impacts of climate change itself
  • from the disruption that will accompany the global transition to a low-carbon economy

This report is the first public disclosure for the Bank in this area. In the content that follows, the risks associated with climate change are assessed in terms of their impact on the Bank’s responsibilities and operations. This report lays out elements of the Bank’s strategy related to climate change and details how the issue will be managed holistically across the organization, following the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.

The first section of this report provides an overview of the Bank’s primary roles and responsibilities and elaborates on both the physical and the transition risks that could affect the Bank’s efforts to accurately predict and control inflation. This section also discusses climate-driven changes that could undermine the stability of the financial system and affect the value of assets the Bank holds as investments or collateral.

The second section focuses on how the Bank’s integrated approach to climate change is reflected in its governance structure. The Bank’s Board of Directors, Executive Council, Senior Management Council and key committees all have distinct roles and responsibilities in overseeing the management of climate-related risks. Each of their relevant functions is described in this section, including those of the newly created Climate Change Steering Committee, which provides broad oversight of the issue across all Bank operations.

The third section of this report outlines the Bank’s strategic objectives related to climate change—particularly the goal of better identifying and quantifying climate-related risks across all areas of the organization. By enhancing its overall monitoring capacity, the Bank will be better positioned to manage risks and achieve targets in both its corporate operations and its broader policy work. This section also describes how improved measurement and transparency feed into other core objectives, such as greening the Bank’s physical operations and maintaining the health of the Bank’s balance sheet and pension fund.

The fourth section describes how a risk assessment lens is applied to all aspects of the Bank’s physical operations and provides detailed objectives and targets. For example, it outlines efforts to build resilience and strengthen business continuity in response to natural disasters, especially in critical areas such as supplying bank notes to Canadians, supporting the smooth functioning of the financial system and conducting monetary policy. This section also lays out the Bank’s strategy to reduce the environmental impact of its physical operations. With the goal of eliminating waste and achieving net-zero emissions in the coming decades, the Bank’s strategy in this area includes:

  • transitioning to renewable energy sources
  • implementing various approaches to reduce the use of energy
  • establishing strategic partnerships with suppliers and other global organizations

The Bank’s balance sheet contains many assets and liabilities that are central to the effective conduct of monetary policy and the smooth functioning of the financial system. To assess the risks to its balance sheet, the Bank monitors a series of backward- and forward-looking metrics that provide insight into current and future exposure. Similarly, as part of the broader management of its investment portfolio, the Bank gauges the exposure of its pension fund assets to physical and transition risks associated with climate change. These efforts are detailed in this section of the report.

The disclosure of climate risks in this report represents the start of a journey the Bank is committed to pursuing. Through this report—and future iterations—the Bank aims to increase awareness of climate-related risks and highlight the management strategies it will employ to address them.

The Bank of Canada and climate risks

Addressing climate change is a global challenge. While the Government of Canada has the primary responsibility for climate change policy, the Bank of Canada recognizes the importance of considering climate risks, both transitional risks and those that are physical in nature. Climate change and the transition to a low-carbon economy may profoundly impact the financial system and the broader economy, so the challenges they pose are relevant to the core responsibilities of central banks. Furthermore, like other central banks, the Bank of Canada faces climate risks that it must understand and manage when conducting its operations and managing its balance sheet and the Bank of Canada Pension Plan.

The role of the Bank of Canada

As the nation’s central bank, the Bank’s principal role is to promote the economic and financial welfare of Canada. In carrying out this role, the Bank is responsible mainly for:

  • monetary policy
  • financial system stability
  • currency (designing, issuing and distributing bank notes)
  • funds management (acting as fiscal agent for the Government of Canada in managing public debt and foreign exchange reserves)
  • supervision of payment service providers

The Bank implements monetary policy by influencing short-term interest rates, which, in combination with a flexible exchange rate, helps maintain low, stable and predictable inflation. This allows Canadians to make spending and investment decisions with more confidence, encourages longer-term investment in Canada’s economy and contributes to sustained job creation, greater productivity and enhanced living standards.

The Bank also fosters a stable and efficient financial system, which includes banks and credit unions, financial markets, and clearing and settlement systems. A strong Canadian financial system not only promotes the economic and financial welfare of Canada but also supports financial stability.

Climate risks

The risks associated with climate change and the transition to low-carbon alternatives are already visible today and will have far-reaching impacts across the economy and financial system in the years 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.

Physical risks

Climate change through global warming is being driven by human activities that increase the levels of greenhouse gases (GHGs) in the atmosphere, trapping heat and warming the planet through the greenhouse effect. Carbon dioxide is the largest contributor to these anthropogenic (or human-driven) GHG emissions. It is released through activities such as deforestation and the burning of fossil fuels. Methane is the second most abundant anthropogenic GHG, but it is a more potent emission, trapping more than 25 times as much heat in the atmosphere as carbon dioxide does.1 Anthropogenic sources of methane include oil and natural gas extraction and production processes as well as landfills and agricultural activities.

The physical effects of global warming are already being seen in the increasing number of extreme, life-threatening weather events, such as flooding, windstorms (e.g., tornadoes, derechos), heat waves and wildfires. The floods in the Pacific Northwest in November 2021 and the heat wave in western North America in June–July 2021 are both examples of physical risk events that could intensify and occur more frequently with further global warming. Such future events will likely lead to increases in the frequency and severity of:

  • negative supply shocks (e.g., destruction of capital stocks, disruptions to labour supply and to supply chains)
  • demand shocks (e.g., damage to household and corporate balance sheets that results in reduced consumption and investment)

While central banks can manage demand shocks effectively through monetary policy, they generally find supply shocks more challenging because of the trade-off between stabilizing inflation and stabilizing fluctuations in output. An increase in the frequency and severity of negative supply shocks challenges central banks’ ability to accurately forecast output gaps and, by extension, inflation. For example, changes in weather patterns could lead to greater volatility in headline inflation (e.g., food prices), which in turn could impact inflation expectations. In addition to their broad economic implications, physical risks pose a direct threat to the Bank’s own physical assets (e.g., buildings and systems) and to those of its supply chain partners and counterparties.

Transition risks

Reducing physical risks requires global action on climate change policies, and that action needs to be supported by technological progress and socio-economic change. But efforts to decarbonize economies can introduce different consequences depending on which transition path is taken:

  • A late and abrupt transition to a low-carbon economy resulting from sudden changes in climate policies, technology or market sentiment could lead to a rapid repricing of climate risks and a fundamental market revaluation of a variety of financial assets.
  • Clear, timely and gradual climate policies, accompanied by additional policies that support the structural reform of the economy (e.g., that make labour markets more adaptable and responsive, promote innovation and improve the business environment), can decrease the likelihood of certain negative impacts of the transition.

Although an orderly transition to a low-carbon economy is less disruptive, it may still have macroeconomic consequences and pose challenges to the financial system. Changes in global demand for fossil fuels, the rise in carbon pricing and an international increase in clean energy policies could result in long-term movements in oil and gas prices and in the Canadian dollar exchange rate. In turn, changes in import prices and in demand for exports could affect inflation as well as future inflation expectations. The speed at which repricing would occur is unknown, but such repricing could endanger the safety and soundness of the financial system and its participants.

The uncertain effects of global warming on the economy and the transition path to decarbonization also pose significant challenges to the Bank’s ability to forecast potential output and long-term economic growth. Increasing global temperatures and the adaptation that will be required as a result could have important impacts on labour and total factor productivity. Additionally, migration, disruption and litigation resulting from climate change could affect social and organizational capital as well as the productive capacity of the economy. Climate-driven economic volatility could complicate the Bank’s roles in conducting monetary policy and promoting financial stability and could also plausibly affect the value and creditworthiness of the assets it holds as investments or collateral.


The Bank has a well-established governance framework. The legal authority of the Bank is defined in the Bank of Canada Act, with the Governor serving as both the Chief Executive Officer and Chair of the Board of Directors. The Governor has the statutory authority for the direction and control of the business of the Bank on behalf of the Board.

The Governor also presides over the Executive Council. The Executive Council, composed of the Governing Council, Chief Operating Officer, and Executive Director, Supervision, supports the Governor in establishing the Bank’s strategic direction and oversees its core functions. The Governing Council supports the Governor in making policy decisions in accordance with the authority conferred upon the Governor by the Bank of Canada Act.

Governing bodies

The Bank takes a holistic view of climate change and has built climate change oversight into its governance structure and risk management framework. The Bank’s Board of Directors, Executive Council and Senior Management Council, as well as key committees—including the Climate Change Steering Committee—all have distinct roles and responsibilities in overseeing and monitoring the management of climate-related risks and achievement of planned targets. Figure 1 provides an overview of the governance of the Bank’s efforts related to climate change for both the Board and management levels.

Figure 1: Governance of the Bank of Canada’s climate-related work

Board of Directors Oversees: ●  achievement of planned targets and related investments for greening     the Bank’s physical operations ●  management of risks and opportunities related to climate change ●  reporting related to climate risk ●  climate change considerations embedded within the Bank of Canada     Pension Plan Executive Council Approves and oversees strategic direction related to:●  greener physical operations ●  climate change research ●  implementation of climate change–related     plans, risk mitigation and disclosure Senior Management Council Approves and oversees the implementation of climate change initiatives related to financial and physical operations through: ●  investments●  risk mitigation●  disclosure Climate Change Steering Committee Oversees and advises by:●  providing strategic and policy guidance ●  promoting transparency and accountability ●  reviewing programs and initiatives Risk Oversight Committee Informs and oversees the assessment and risk mitigation strategies related to environmental and climate change risks.

Board oversight

The Board of Directors provides general oversight of the management and administration of the Bank (on matters other than monetary policy, which is the responsibility of Governing Council).

The Board oversees the Bank’s greening activities and commitments that contribute to net-zero emissions and engages with management on operational risks and opportunities related to climate change. The Board also oversees the Bank’s reporting related to climate risk and, through its Pension Committee, oversees climate change considerations embedded within the Bank of Canada Pension Plan.

Management oversight

The Bank’s Executive Council charts the climate-related strategic priorities for the Bank. It also approves key reduction commitments or targets, climate-related policies and overall risk appetite recommended by the Climate Change Steering Committee.

The Climate Change Steering Committee was created in 2021 to oversee and enable the greening of the Bank’s operations through strategic and policy guidance and program oversight (Box 1). The committee plays an important role in the development and implementation of the Bank’s approach to climate-related risks and opportunities in support of achieving net-zero emissions by 2050.

Box 1: Climate Change Steering Committee

Climate change straddles many aspects of the Bank’s activities and involves multiple working groups and departments. Because of this, the Bank created the new Climate Change Steering Committee to oversee its climate work. The committee is chaired by Deputy Governor Toni Gravelle, who is responsible for policy-related climate change work, and Chief Operating Officer Filipe Dinis, who oversees the greening of the Bank’s physical operations. Two other members of the Executive Council are also on the steering committee to guide the Bank’s main areas of climate work.

Additional members of the steering committee are drawn from the Bank’s leadership to represent their various responsibilities and areas of expertise for the Bank’s climate change work.

The six key functions of the steering committee are to:

  • provide strategic and policy guidance to climate-related working groups that conduct research or deliver other initiatives to support the greening of the Bank’s operations
  • promote transparency and accountability of working group leads
  • consider and review policy documents, work plans and budgets
  • consider and review potential new regional and international engagements
  • lead strategic decision making on the Bank’s climate risk disclosure
  • review implementation plans with the goal, among others, of optimizing resources

The Senior Management Council and supporting committees focus on administrative aspects, including approving overall plans and investments toward net-zero emissions and ensuring that considerations related to climate change are incorporated effectively into Bank policies.

Pension fund governance

Governance around climate risk and opportunities is integrated in the overall governance for the Bank of Canada Pension Plan. The objective of the governance framework of the pension plan is to ensure that benefits under the plan are adequately funded and that risks—including those related to environmental, social and governance (ESG) factors in general and climate change specifically—are properly managed. The Bank is the administrator of the pension plan. The Bank’s Board of Directors has ultimate responsibility for pension fund oversight.

The pension fund’s day-to-day investment activity is overseen by the Pension Fund Investment Committee, which reports quarterly to the Board’s Pension Committee. Most of the pension fund’s assets are managed externally, and the Pension Committee approves the selection and retention of the external managers. The approval process includes ensuring external managers take ESG issues into account, including climate considerations.

The Pension Fund Investment Committee assesses how ESG and climate risks are considered in the due diligence process when external fund managers are selected and as part of ongoing monitoring and performance evaluations. To enable the Pension Committee to make informed decisions and stay abreast of evolving best practices, the Pension Fund Investment Committee works with external partners to provide the Pension Committee with appropriate education around ESG and climate change.

Therefore, in carrying out their function of overseeing and making decisions related to the pension fund, the Pension Committee and the Pension Fund Investment Committee evaluate and incorporate risks and opportunities related to ESG, including those related to climate change. Ultimate responsibility for setting the ESG and climate-related strategy for the Bank of Canada Pension Plan rests with the Board.


As described in the Bank’s commitments for COP26 in November 2021,2 the Bank’s overall climate strategy spans all areas of work, including core functions and physical operations. The strategy incorporates concrete steps to better understand climate risks—including where and how these risks will manifest—in order to manage them.

In the near term, the Bank’s immediate focus is to improve its ability to measure and understand the climate risks it faces now and those it will face in the future. This information is critical for the Bank to be able to effectively contain and reduce its exposure to the physical and financial consequences of climate risks.

The potential impacts of climate change on key aspects of the Bank’s work—from the Bank’s physical operations to its balance sheet and pension plan—are already considered part of the decision-making process. However, the Bank’s ability to gauge how the related risks will affect asset prices and the broader economy is currently limited by a lack of information. The science of climate risk measurement in finance is still relatively recent and remains challenged by data gaps that limit the predictive accuracy and reliability of metrics.

Acknowledging this reality, the Bank currently focuses on initiatives that will help boost its capacity to identify and quantify climate risks in both its corporate operations and its policy work. Furthermore, the Bank’s public disclosure of its climate risk assessment and management strategy—through this report and future iterations—will help its counterparties and other market participants to better gauge mutual exposures to climate risks. This, in turn, should gradually contribute to better pricing of climate risks in everyday transactions.

The Bank’s near-term climate strategy aims to achieve three broad objectives.

To build capacity to measure climate risk and gain overall visibility into climate risks faced by the Bank and the Canadian economy

To enhance the level of financial market transparency by following the principles and guidelines of the Task Force on Climate-related Financial Disclosures and encouraging other participants to do so

To advance toward the goal of net-zero GHG emissions by 2050 in the Bank’s physical operations

To support these objectives, the Bank has established dedicated resources and started building expertise in climate risk data and measurement techniques in its core activities. The Bank has also established global partnerships with various providers of climate risk data and other climate experts, while maintaining regular dialogue with its domestic and international peers to stay apprised of best practices for climate risk management.

The publication of this Bank of Canada Disclosure of Climate-Related Risks 2022 is an important milestone, made possible by the initiatives described earlier. At the same time, significant work remains to gain forward-looking visibility and to deploy a fuller set of mitigating tools than what is currently available. This disclosure of the Bank’s climate risks in 2022 must be seen as the beginning of a journey that the Bank is committed to pursuing. It establishes a foundation on which to build a comprehensive long-term strategy, while allowing for tangible initiatives to be undertaken now.

Physical operations

As Canada’s central bank, the Bank recognizes the need to be a leader in greening its own operations and to be an advocate working with partners to lower emissions. The Bank is committed to:

  • achieving net-zero emissions by 2050
  • advancing reduction-focused policies, investments and practices
  • empowering staff to make environmentally conscious decisions with greater awareness and data

The Bank will hold itself accountable, measuring and reporting its impact on the environment and its progress toward its targets.

Recognizing that reducing its climate-related impact is important, the Bank has been making changes to its day-to-day operations for several years. For example, in 2011, the Bank transitioned Canada’s currency from paper to polymer substrate, and in 2019 it achieved LEED (Leadership in Energy and Environmental Design) Gold certification for its renovated Ottawa headquarters, a milestone that was several years in the making (see Box 2). These changes are rooted in the belief that sustainability must be built into the Bank’s operations. The Bank is guided by the idea that actions to address climate change are both the “right thing” and the “smart thing” to do.

Box 2: Greening the Bank of Canada’s physical operations
Paying with polymer: Canada’s bank notes

Canada’s polymer bank notes are the product of an exceptional marriage between design and technology. Polymer notes:

  • are more difficult than paper notes to counterfeit
  • generate substantial savings for the Bank
  • reduce the environmental impact of bank notes

The Bank commissioned a life cycle study of bank notes in Canada that examined the environmental impact of a series of cotton-based notes and the new polymer notes. The study looked at the notes “from cradle to grave”—starting with the impacts of growing cotton for bank note paper and producing the raw material for polymer and ending with the disposal of the shred after worn bank notes are destroyed.

The assessment concluded that the adoption of polymer would reduce the environmental impact of bank notes in Canada. Since the study, the Bank has validated that polymer notes are lasting at least 3.5 times longer than paper notes. Having fewer replacement notes means that the use of polymer reduces the environmental impact of:

  • the manufacturing process
  • transporting new notes to financial institutions and worn notes back to the Bank
Greening the Bank’s head office

In 2019, the Bank achieved LEED (Leadership in Energy and Environmental Design) Gold certification for its renovated Ottawa headquarters. A key goal of the renovation was to significantly increase energy efficiency. The net result was a 50% drop in energy consumption. Key sustainability milestones achieved include:

  • 3.7 million litres of water saved annually (equivalent to 10 swimming pools)
  • 50% of all materials extracted and manufactured locally
  • 30% recycled content by value in new products and materials used in the building
  • 90% or 23,000 tonnes of construction waste diverted away from landfill
  • 10.4 million kilowatt hours of electricity saved annually (equivalent to removing over 1,300 homes from the grid)
  • 85% of the Bank’s roof covered in white material that cools the building by reflecting infrared and ultraviolet rays of the sun

The Bank’s greening program to further reduce its operational carbon footprint is grounded in data, using 2018 data as the baseline and science-based methodology where feasible to chart the Bank’s path to net-zero emissions by 2050. The Bank’s focused approach to operational greening has four primary pillars, or areas of focus, of emissions contributors (see Figure 2):

  • buildings
  • business travel
  • bank notes
  • other supply chain partners

As the Bank focuses on specific opportunities to reduce emissions for each of these pillars, it is also laying a strong foundation through an implementation approach that is balanced, proactive, impact-based and geared toward individual stewardship.

At the beginning of its journey to reduce its GHG emissions, the Bank focused on emissions generated from energy use and from its operations. The Bank has now started exploring emissions contributed through its upstream and downstream supply chains.

The Bank is taking a calculated, measured and comprehensive approach to decarbonize its buildings, business travel, bank notes and supply chains while maintaining operational efficiency and enhancing resilience.

Figure 2: The Bank of Canada’s approach to operational greening

Greening our workstreams


  • Decarbonize the building life cycle
  • Reduce resource use and waste
  • Shift to renewably sourced electricity
  • Decarbonize the Bank’s fleet
  • Enhance building resilience

Corporate travel

  • Create awareness of green travel choices
  • Promote informed decision making
  • Integrate greening objectives into existing business travel program

Bank notes

  • Lower the environmental impact of the bank note life cycle (research, manufacturing and wholesale distribution, including destruction)
  • Explore opportunities to reduce emissions with the Bank’s retail partners

Supply chain

  • Decarbonize the Bank’s supply chain by building reduction measures and incentives into procurement practices
  • Work with partners and suppliers to promote lower-emission goods and services


The Bank of Canada’s annual public disclosure for the Task Force on Climate-related Financial Disclosures will outline the Bank’s ability to adapt to evolving climate risks based on the maturity of its strategy, governance, metrics and targets and risk mitigation approaches.

Holding ourselves accountable
To achieve net-zero emissions and be an environmentally conscious organization, we will:
  • Advance reduction-centric policies, investments and practices
  • Promote innovation and innovative approaches to greening and reporting
  • Empower staff to make environmentally conscious decisions through awareness and data
  • Advocate for partners and suppliers to work together to lower emissions
Our guiding principles
  • Use a balanced approach recognizing that trade-offs are required
  • Ensure early implementation whenever we can
  • Take a sustainable view in implementing new and positive systemic, sustainable and viable change for business and the environment
  • Make impact-based investment decisions that are grounded in facts and science
  • Equip individuals with the right information up front to make informed decisions

In addition, the Bank will continue to proactively assess climate risks using an all-hazards approach to strengthen operational resilience against physical disruptions and explore opportunities to address transition risks.3

Balance sheet

One of the Bank’s core functions is to be the exclusive issuer of Canadian bank notes. The Bank’s balance sheet supports this function, but it also serves as a tool to promote the effective implementation of the Bank’s monetary policy and financial stability objectives. The Bank can adjust the composition of its balance sheet through market operations to achieve financial conditions that are consistent with its desired policy stance, under both normal and exceptional circumstances.

In keeping with its monetary policy and financial stability mandates, the Bank is reviewing its financial market operations to consider climate-related financial risks and opportunities regarding its balance sheet assets. The Bank is also assessing ways to support the stability and efficiency of the financial system by helping industry mitigate climate-related financial risks.

Pension fund

The Bank of Canada Pension Plan has a long-term investment horizon. The pension fund’s investments are diversified across asset classes, geographies and sectors and are managed largely through external asset managers. These investments are exposed to both physical and transition risks in the short, medium and long terms. Evidence shows that ESG factors, including climate change, can have a material impact on risk and return. This means the consideration of such factors is consistent with the Bank’s fiduciary duties, which require prudence and making investment decisions in the best interests of pension plan members.

The Bank’s approach is to ensure that external asset managers integrate material ESG factors—including climate change risks and opportunities—into investment decision-making processes with the goal of improving long-term risk-adjusted returns. Ensuring that this integration is consistent with each manager’s asset classes and investment strategies is an important element of the Bank’s due diligence in selecting, monitoring and evaluating managers.

From a broad, top-down perspective, the Bank conducted climate scenario analysis in 2022 as part of the pension fund’s review of its strategic asset allocation. Working with external pension plan experts, the Bank periodically conducts a comprehensive review of the pension fund’s strategic asset allocation, considering emerging economic, financial and investment trends. Climate scenario analysis helped the Bank assess the resilience of the plan’s long-term asset allocation to transition risks and physical risks over the short, medium and long terms across a range of global warming scenarios.

Engagement and encouraging ESG disclosures are other important elements of the Bank’s strategy. External fund managers are expected to engage with the companies they invest in and seek appropriate disclosures from them on relevant ESG issues, including climate risk. The Bank also seeks ESG-related disclosures from the external fund managers themselves and is actively engaging with them to align with the recommendations of the Task Force on Climate-related Financial Disclosures.

As global standards and best practices continue to evolve, the Bank will continue to refine its approach to climate-related disclosures and investment management practices.

Risk management, metrics and targets

Risk management enables risk-informed decision making that helps the Bank achieve its mandates and strategic goals. The Bank’s risk management policy sets out the objectives and expectations for effective enterprise risk management at the Bank. It is supported by the enterprise risk management framework and the enterprise risk appetite statement. The Bank continues to incorporate climate risks into existing policies and will reinforce this process with iterative and ongoing assessments, monitoring and reporting as these risks evolve.

Around the world, climate risks have been assessed as a major emerging risk area for some time. Leaders and staff across the Bank have been encouraged to consider and identify climate risks and opportunities in their areas of work as part of the Bank’s annual risk self-assessment process. By broadening its understanding of the various climate risks it faces, the Bank can leverage resources and tools to monitor, assess and manage those risks more comprehensively.

As the Bank’s insight into and understanding of climate risks improve and its related initiatives expand in scope, climate risks will become increasingly important in the Bank’s risk-informed discussions and decision-making processes. This means including climate risk factors in the Bank’s risk taxonomy and giving climate risks greater consideration in the Bank’s policy decisions (see Figure 3).

The Bank classifies risks under four categories:

  • strategic
  • operational
  • financial
  • environmental and climate-related

While outward-facing climate risks can fall directly under the fourth category, the Bank’s core climate initiatives to date have seen inward-facing climate risks become increasingly important in all categories.4

Figure 3: Incorporating climate risk activities into the Bank of Canada’s risk taxonomy

Strategic risk

  • Incorporating climate change analysis into the Bank’s mandate
  • Assessing climate-related impacts to the economy and financial system

Financial risk

  • Assessing and disclosing climate-related risks to the Bank’s balance sheet and pension fund assets

Operational risk

  • Greening the Bank’s physical operations to build resilience
  • Integrating climate considerations into budget planning and decision making

Environmental and climate-related risk

  • Managing the Bank’s carbon footprint and waste produced by buildings, travel, bank notes and supply chains

Physical operations

Operational risks

The Bank’s operations are exposed to both transition and physical risks. These can impact the Bank’s ability to conduct business or can result in increased expenses because of damages incurred, interruptions to its supply chain and rising costs. With extreme climate events becoming more frequent, the Bank is taking an all-hazards approach to physical risks by proactively assessing vulnerabilities and enhancing its operational resilience.

The impact of transition risks on the Bank’s physical operations is due primarily to increased capital and operating costs. A rise in the federal carbon price may drive up the cost of fuels such as electricity, diesel, gasoline and natural gas, which are currently essential to sustain the Bank’s physical operations. Transition risks could impact the Bank’s reputation if the pace of leveraging new technology and collaborating with diverse stakeholders is not fast enough to address these risks. Therefore, the Bank’s risk management approach must reflect its organizational responsibility to adapt, mitigate and manage physical and transition risks through science, collaboration and proactive planning.

The Bank has invested significantly in its business resilience, decentralizing critical operations and building in redundancy where possible. The following are a few highlights of the Bank’s operational resilience in the areas of currency and critical functions.


To effectively supply Canadians with bank notes, the Bank continually evaluates operational risks and introduces measures to increase resilience in the production, processing and distribution of bank notes. The Bank has:

  • improved the durability and lifespan of bank notes as a result of changes to substrate and security features
  • developed a robust supply chain that is systematically monitored to assess and mitigate risk
  • established mirrored agency operations centres in Montréal and Toronto, which are each capable of supplying Canada’s financial institutions with bank notes in the event of a crisis
  • improved resilience in the Bank Note Distribution System by:
    • decentralizing distribution and localizing inventory
    • maintaining extended-duration contingency reserves and adding strategic inventory to mitigate supply chain risk and prepare for any spikes in demand
    • securing backup transportation arrangements
    • identifying and mitigating the impacts of vulnerable distribution points and transportation routes
    • testing business continuity plans and backup options
    • exploring alternative sources of cash (e.g., digital currency)5
Continuity of critical functions

The Bank is responsible for preserving the value of money; promoting safe, sound and efficient financial systems; and conducting transactions in financial markets in support of these objectives. Over the past few years, the Bank has been increasing its operational resilience in these core functions by investing in infrastructure, staff and critical systems so that it can adapt and continue to operate smoothly during any emergency situation. The Bank has also been collaborating internationally with other central banks and G76 partners and domestically through the Canadian Financial Sector Resiliency Group (CFRG) to share information and coordinate efforts.

The Bank has focused on infrastructure and staff in its measures to support the continuity of its critical financial, banking and monetary policy activities:

  • Infrastructure—The Bank continually assesses and strengthens the resilience and availability of key infrastructure. By having backup data centres in place, it has ensured high resilience in the event of disasters and extreme weather events. The Bank has also invested in critical systems and cyber security to enhance adaptability and continuity.
  • Staff—The Bank opened the Calgary Operational Site in 2019 to support the resilience of the Bank’s market and banking operations as well as its information technology systems. This additional site enables the Bank to continue to perform its essential functions in the event of a climate-related incident.

All of these efforts toward business continuity will help ensure that the Bank can continue to serve Canadians without interruption.

Looking forward, the Bank plans to further ensure that operations and supply chains, as well as infrastructure, are resilient to the effects of climate change. It will do this by:

  • continually assessing the possible impacts of climate-related events (e.g., floods, tornadoes, ice storms) on operations and infrastructure and implementing measures to reduce risk
  • addressing transition risks by leveraging new transformative technologies, measures for energy efficiency and conservation, and fuel switching
  • engaging with partners and suppliers to assess vulnerabilities to extreme weather events and to explore transition risks and opportunities
  • continuing to include climate resilience in planning, budgeting and management strategies for capital assets

Metrics and targets

The Bank reached an important milestone in 2021 when it set aggressive targets to reduce its buildings emissions. This effort is part of an ambitious action plan that will help the Bank achieve net-zero emissions by 2050.

The Bank’s targets are aligned with those of the Government of Canada and support the objectives of the Paris Agreement. They are as follows:

  • to achieve 100% renewable electricity by 2022
  • to reduce buildings emissions by 40% by 2025 and 80% by 2030 (note that these targets exceed those of the Government of Canada)
  • to divert 75% of operational and plastic waste by 2030
  • to achieve near-zero water use by 2035 or sooner
  • to achieve net-zero waste production by 2040 or sooner

The Bank is currently tracking its climate-related metrics across its buildings portfolio, supply chain (purchased goods and services), bank note operations and business travel.

When calculating carbon emissions, it is important to distinguish between direct and indirect emissions. For the Bank, this is achieved through the concept of “scope.” Figure 4 outlines the differences between scope 1, 2 and 3 emissions.

Figure 4: Classification of greenhouse gas emissions

SCOPE 2 SCOPE 3 SCOPE 3 SCOPE 1 Indirect GHG emissions from usage of electricity, steam, heat and cooling purchased fromthird parties Downstream indirect GHG emissions from transport of product, usage of soldproducts, product disposal Upstream indirect GHG emissions fromprocured products, transport of supplies, business travel Direct GHG emissions from operations under facility’s control

Note: GHG is greenhouse gas.

The Bank initiated a review of emissions in all areas of its physical operations. This 2022 disclosure report focuses on operational emissions from scope 1 and 2 (including the Bank’s buildings and fleet). This allows the Bank to leverage reliable data on energy consumption and standardized industry assumptions for metric calculations.

As the Bank continues to build its scope 1 and 2 emissions calculations, it will expand its focus to include scope 3 emissions in the areas of bank notes, business travel and other parts of the Bank’s supply chain. This will complement the Bank’s understanding of more complex datasets of energy consumption.

The Bank does not currently have targets for scope 3 emissions. However, as it continues its operational greening journey, the Bank plans to develop scope 3 emissions targets that will reduce operational emissions to achieve net-zero by 2050.

In 2022, the Bank met its commitment to procure 100% renewable electricity for its buildings (see Box 3), and it already has in place fully integrated recycling and composting programs.

Box 3: The Bank’s approach to greening its electricity

As part of the Bank’s 2018 baseline analysis of emissions, staff quantified the carbon reduction associated with the purchase of renewable or green energy for all portfolio-owned and leased properties. The scenario analysis included assumptions about the increase or decrease in electricity consumption associated with different carbon-reduction measures, such as energy conservation and efficiency, fuel switching and electrification.

Informed by the Government of Canada’s Greening Government Strategy, which committed to purchasing 100% renewable electricity by 2022, the Bank began procuring 100% renewable electricity for all owned and leased properties in early 2022 through competitive tender.

Going forward, as part of its climate change and asset management strategy, the Bank will continue to evaluate various options to address its electricity-related carbon footprint, including onsite renewable electricity generation (e.g., solar and wind) and alternative power purchase arrangements.

Table 1 and Chart 1 detail the GHG emissions associated with the Bank’s business operations.

  • The Bank’s current scope 1 and 2 emissions footprint does not include leased buildings (4% of its overall buildings footprint).
  • Variations in the Bank’s annual fuel usage are attributable to fluctuations in seasonal weather and equipment replacement and recalibration.
  • In 2018, the Bank switched the primary heat source for its head office to an electric heat exchanger, which has significantly reduced steam use. This, combined with the purchase of renewable energy certificates beginning in 2022, resulted in the reduction of the Bank’s buildings emissions by 40% (from 2018 to 2022).
Table 1: Bank of Canada greenhouse gas inventoryGreenhouse gas emissions
  Total GHG (tCO2e)
  2018 2021 2022
Scope 1
Direct emissions

(natural gas, diesel generators, refrigerants, vehicle fleet)
1,301 993 1,042
Scope 2 (market-based)
Indirect emissions

(electricity, steam, chilled water)
1,598 1,183 681*
Total (market-based) 2,899 2,176 1,723

*The Bank purchased renewable energy certificates from Bullfrog Power in 2022 for 100% of the electricity used at its four Bank-owned buildings located in Ontario and Quebec (equivalent to 455 tCO2e). Using location-based emissions, the Bank calculates the total Scope 2 indirect emissions for 2022 to be 1,136 tCO2e.

Note: GHG is greenhouse gas, tCO2e is tonnes of carbon dioxide equivalent. These GHG results are aligned with the corporate GHG accounting and reporting standards set out in the World Business Council for Sustainable Development and World Resources Institute report, The Greenhouse Gas Protocol—A Corporate Accounting and Reporting Standard and the World Resources Institute’s GHG Protocol Scope 2 Guidance report. The underlying data and methodologies for estimating emissions continue to evolve and improve, as demonstrated through updates by Canada’s National Inventory Report organization. Therefore, the Bank’s emissions reporting may be subject to change in the future.

Looking ahead

As the Bank continues to reduce its operational emissions, planning ahead to mitigate risks and adapt to the changing climate is key. The Bank’s approach for the future is to find efficient and effective climate change solutions that can be aligned with the goal of achieving net-zero emissions in its operations by 2050 in several areas.

  • Buildings:
    • implement multiple solutions, leveraging fuel switching (from natural gas to electric), onsite renewable electricity generation and deep retrofits at Bank buildings to reduce their emissions footprint by 80% for 2030
    • find further opportunities to reduce waste and water use by embracing industry best practices in waste management and water conservation
  • Supply chain:
    • collaborate with vendors and suppliers to identify opportunities to green the Bank’s supply chain
    • introduce basic guidance and awareness to integrate climate considerations in procurement processes
  • Business travel:
    • support Bank employees to make optimized travel decisions that lead to a reduction in business travel emissions
  • Bank notes:
    • use the Bank’s baselining study (currently underway) to inform future recommendations on elements of the bank note life cycle that can reduce the environmental footprint

Balance sheet

The Bank’s balance sheet differs from those of other financial institutions, reflecting the unique role the Bank plays as Canada’s central bank. Assets and liabilities on the Bank’s balance sheet are key to supporting its core functions and ensuring its independence, rather than maximizing profits.

In normal circumstances, holdings of financial assets are driven mainly by the Bank’s role as the exclusive issuer of Canadian bank notes (the Bank’s typical main liability). A comparatively smaller portion of financial assets is held to offset Government of Canada deposits and deposits by members of Payments Canada (the other two main types of liabilities). In exceptional circumstances, the Bank may choose to actively change the size and composition of financial assets on its balance sheet to promote the effective implementation of monetary policy and financial system objectives and to help achieve financial conditions consistent with the Bank’s desired policy stance.

In 2020, the Bank deployed an asset purchase strategy to support the economy and financial markets during the COVID‑19 pandemic. This strategy resulted in a substantial but temporary increase in total assets funded by deposits held on the balance sheet. While deposits are normally maintained at a lower level, they now represent the largest liability on the Bank’s balance sheet. Securities issued or guaranteed by the Government of Canada continue to represent the single most significant asset item on the balance sheet. Provincial bonds and corporate bonds take up only a small portion of the balance sheet and will mature in the near future.

For more information on programs that were introduced by the Bank to support the economy and financial markets during the COVID‑19 pandemic, see:

Risk assessment

As the nation’s central bank, the Bank must consider how climate change and the transition to a net-zero economy will impact current mandates and risk management policies. This report marks the first of many disclosures that will include an assessment of the climate risks to the Bank’s balance sheet.

In coordination with external data providers, the Bank has assessed a range of metrics that characterize the carbon footprint of key asset groups on the Bank’s balance sheet, as well as their exposure to physical and transition risks related to climate change. Given that climate risk analysis is an emerging field in finance, the Bank’s assessment of impacts to its balance sheet is accompanied by several caveats, such as incomplete data coverage, unaudited data and simplified methodological assumptions. The metrics disclosed in this report therefore provide initial estimates of balance sheet exposure to climate risks.

Scope of assets

As at December 31, 2022, Government of Canada securities7 comprise close to 97.1% of the assets on the Bank’s balance sheet that are in scope for this first disclosure. The remainder of the assets in scope are provincial bonds (about 2.9%) and corporate bonds (<0.1%), both of which were acquired as part of the Bank’s response to the COVID‑19 pandemic. Table 2 provides the breakdown of the Bank’s assets (in Canadian dollars) that are in scope for this disclosure. This revised balance sheet excludes assets held as collateral for advances made through the Standing Liquidity Facility because of the short-term holding period of these assets. The Bank is investigating alternative methods to capture climate-related financial risks associated with other balance sheet assets.8

Table 2: The Bank of Canada’s assets in scope for disclosure Par value, fiscal year‐end (December 31, 2022)
Asset type Can$ millions
Government of Canada bonds, real return bonds and Canada Mortgage Bonds 377,230
Provincial bonds 11,166
Corporate bonds 125
Total assets 388,521

Metrics and data

Climate risk metrics measure exposure to climate risks and can be used to assess and monitor progress toward achieving strategic climate-related goals. To assess balance sheet exposure to climate risks, the Bank reviews a range of backward- and forward-looking climate risk metrics used by peer institutions as well as those recommended by the Task Force on Climate-related Financial Disclosures:

  • Backward-looking metrics measure the current (point-in-time) exposure based on the entity’s historical climate performance (e.g., weighted average carbon intensity [WACI]).
  • Forward-looking (leading) metrics provide insight into an entity’s future climate risk exposure and decarbonization pathways. They can be further separated into:
    • transition risk metrics, which estimate the impacts associated with a shift toward a low-carbon economy
    • physical risk metrics, which measure an entity’s exposure to acute and chronic climate risks9

For this disclosure, the Bank excluded scope 3 emissions for the balance sheet and pension fund assets because of the limited amount of reported data and the potential for double counting. In some scenarios, one corporate entity’s scope 1 and 2 emissions can be another corporate entity’s scope 3 emissions (e.g., the combustion of fossil fuels is considered scope 1 for corporate entities that use fuel for their operations but considered scope 3 for an oil and gas extraction company). The Bank will continue to monitor scope 3 as more data become available. In some industry segments (e.g., banking, motor vehicle manufacturing), scope 3 emissions represent the largest component of those corporate entities’ carbon footprints.

Data limitations and caveats

Because evaluating climate risk is still new to the financial sector, it has considerable limitations in data, metrics and measurement techniques. The Bank’s balance sheet and pension plan face these hurdles, and this needs to be considered when analyzing the disclosures below. Additionally, at the time of writing this report, no industry standard exists that addresses climate risk taxonomy and quantification methodologies. International bodies for financial reporting standards are working to establish a comprehensive and unified set of standards to provide more consistency and comparability across reporting entities.

Sovereign and provincial exposures

To account for the Bank’s sovereign and provincial holdings (including the Bank of Canada Pension Plan), the Bank uses emissions data calculated using production-based accounting, which considers all emissions produced within a nation’s borders regardless of the final destination of the good or service.10 This method of determining a country’s GHG emissions is practical and consistent with international standards, but it does introduce risks, such as carbon leakage.11 Production-based accounting also introduces double counting when multi-asset classes (e.g., corporate bonds and sovereign bonds) are aggregated at the portfolio level. This risk is inherent in all portfolios with multi-asset classes. The Bank has mitigated this risk by separating its portfolios into sovereign, provincial and corporate exposures.12

Corporate exposures

Compared with its large portfolio of Government of Canada securities, the Bank has a small exposure to corporate bonds (see Table 3). Roughly one-third of these corporate entities report scope 1 and 2 emissions on an annual basis, while the remainder of the available data are from emissions estimation models developed by the Bank’s data vendors.13 Table 3 outlines the data emissions quality for the balance sheet and pension fund portfolios.

The use of modelled emissions data increases overall coverage at the expense of introducing some additional uncertainty around the accuracy of metric output. For year-end 2022, the percentage of modelled emissions data was 15% for the balance sheet assets in scope for disclosure, and 22% and 18% for the pension fund’s equity and fixed-income portfolios, respectively.

In addition to using modelled emissions data to increase coverage, the Bank has mapped certain corporate entities that have no reported or modelled emissions data to their respective parent entities. Parent mapping was conducted for the balance sheet’s corporate bond segment and the pension fund’s fixed-income portfolio, increasing coverage by 48% and 14%, respectively.

The Bank expects emissions data, alongside company targets and emissions accounting frameworks, to improve over time. Regulation, demand and industry behaviour have already sparked a trend of increased disclosure of emissions.

Table 3: Assessment of data quality for the Bank of Canada’s balance sheet and pension fund portfolios
Financial asset portfolio Emissions data (%) Physical risk score data (%)
Reported Vendor modelled Mapped to parent Total coverage Total coverage
Balance sheet Government of Canada securities 100     100 100
Provincial securities 100     100 100
Corporate bonds 35 15 48 98 99
Pension fund Public equities 75 22   97 90
Corporate bonds 60 18 14 92 83
Provincial securities 100     100 100
Government of Canada securities 100     100 100

Carbon footprint metrics

For this disclosure, the WACI has been calculated for the Bank’s balance sheet and pension fund portfolios. The WACI is the most common metric used by industry participants and is recommended by the Task Force on Climate-related Financial Disclosures. The WACI metric measures a portfolio’s exposure to carbon-intensive entities and allows for comparison of different portfolios across varying asset classes. Portfolios that are relatively more carbon-intensive are determined to be exposed to greater climate risks (e.g., regulatory and market changes) as countries move to a low-carbon economy. When calculating the WACI, Bank staff apportion individual corporate entities’ emissions per million dollars in sales. For sovereign and sub-sovereign exposures, emissions are presented relative to gross domestic product (GDP):

\(\displaystyle{Portfolio}\ {WACI}\) \(\displaystyle=\,\sum_{i}^{n}\frac{Holding\ value_i}{Portfolio\ value}\) \(\displaystyle\times\,\frac{{Issuer_i\ }GHG\ emissions}{{Issuer_i\ }sales\ or\ GDP}\)

Chart 2 displays the WACI of the Bank’s balance sheet assets in scope for this disclosure as at December 31, 2022. The Government of Canada securities WACI of 305 tonnes of carbon dioxide equivalent per million dollars of GDP (tCO2e/$million) is reflective of Canada’s sovereign emissions. These are significantly higher than the G7 average (186 tCO2e/$million),14 mostly driven by the relatively large size of Canada’s carbon-intensive oil and gas industry. Government of Canada securities will always be held by the Bank to support its core policy initiatives. Actively reducing the Bank’s holdings of these assets because of their WACI is not possible given the Bank’s core functions, but the WACI of those bonds is expected to decrease as Canada decarbonizes and works toward the government’s goal of net-zero emissions by 2050.15 The Bank’s WACI is therefore expected to be broadly correlated to and evolve with the decarbonization path of the Canadian economy.

The provincial securities portfolio WACI of 316 tCO2e/$million is reflective of the Provincial Bond Purchase Program’s (PBPP) strategy of market neutrality and, unsurprisingly, is close to the WACI for Government of Canada securities. Like the WACI for Government of Canada securities, the WACI for the provincial securities portfolio is also expected to decrease as Canada decarbonizes. The corporate bond WACI stands at 245 tCO2e/$million, with all corporate bonds held on the Bank’s balance sheet having been acquired from the Corporate Bond Purchase Program (CBPP). Note that both the PBPP and the CBPP were temporary and have been discontinued, and remaining assets will mature and disappear from the Bank’s balance sheet in coming years. As at December 31, 2022, the average term to maturity for PBPP securities was 3.9 years, while it was 1.2 years for CBPP securities. The transitory nature of both the PBPP and the CBPP16 reduces the transition risk of these portfolios.

Forward-looking metrics

Transition risks

As the world continues to shift to a low-carbon economy, businesses and countries will need to undergo structural changes to reduce their carbon footprints and adapt to sustainable business models. Assessing the transition risks allows the Bank to evaluate the impacts of these changes and where they might occur. These risks are broad and may include policy, regulatory and legal risks, market repricing, technological risks and other impacts that will cause significant changes to the marketplace.

In addition to considering backward-looking climate metrics, the Bank investigated transition and physical risk metrics that could support forward-looking climate risk analysis. The Bank assessed both MSCI’s implied temperature rise (ITR) and its climate value-at-risk (VaR) as metrics that could depict forward-looking transition risks.

  • Implied temperature rise
    • The ITR indicates the amount (presented in degrees Celsius) that the world would warm by if the global economy generated GHGs on the same trajectory as the corporate entity or portfolio being considered.
    • It can be used for comparison against Paris Agreement objectives—to limit global warming to well below 2 degrees Celsius, preferably 1.5 degrees Celsius—and other targets.
    • The key input to the ITR methodology is the corporate entity’s emissions reduction targets (and the pathways to the targets). These targets are used to project future emissions, which are eventually converted into an ITR value.

    Currently, only a select number of corporate entities within the Bank’s CBPP and pension fund portfolios have posted targets,17 which constrains the usability of the metric. In addition to the lack of available corporate targets, the methodology contains a significant number of assumptions that can affect the accuracy of the results. However, the Bank recognizes the value in tracking the ITR metric internally and expects coverage to improve over time as corporate entities establish plans to adapt to a low-carbon economy. As a result, the Bank may consider including this transition risk metric in future disclosures.

  • Climate value-at-risk

    In addition to the ITR metric, the Bank reviewed MSCI’s climate VaR metric. This measure is available for:

    • corporate assets
    • sovereign assets

    Methodologies differ significantly between these asset types, and although the initial sovereign climate VaR methodology was released in the second quarter of 2022, the corporate climate VaR is more established. The corporate climate VaR methodology considers different transition scenarios and calculates the present value of future climate-related costs and revenue as a percentage of a portfolio’s market value or an individual corporate entity’s enterprise value.18 The model includes all climate-related costs (including possible benefits) until 2100.

    The corporate climate VaR metric did not yield conclusive results for the Bank’s corporate bond portfolio. Furthermore, the relatively short-term average maturity of the corporate bond portfolio results in lower impacts from transition risks. Like the ITR metric, the climate VaR methodology contains a significant number of assumptions and has limited data coverage.

    The sovereign climate VaR draws on the framework from the Network for Greening the Financial System and uses the network’s range of scenarios to derive potential shocks to sovereign bond yield curves. These yield curve shocks are used to reprice sovereign bonds and ultimately measure the climate scenario’s impact on the bonds’ market values.

    The Bank will continue to work with its data vendors to support the development of corporate and sovereign climate VaR metrics as well as other new forward-looking methodologies for estimating the transition risk of assets held on the Bank’s balance sheet.

  • Analysis of nationally determined contributions

    Assessing a country’s nationally determined contributions (NDCs) can be helpful in analyzing transition risk. NDCs are commitments prepared under the Paris Agreement; they represent countries’ long-term goals and targets to reduce GHG emissions. These goals and targets can be compared across countries and against internationally recognized benchmarks (e.g., the Paris Agreement). Countries that have a disorderly transition plan will likely face greater risks compared with those that reduce emissions in an orderly fashion. The Bank will track Canada’s NDCs and the completion of its short- and medium-term goals (e.g., the 2030 emissions reduction target).

Physical risks

Physical climate effects will be experienced globally, but the severity will be uneven. The impacts on an organization or country will be driven by long-term shifts in climate patterns and the frequency of extreme weather events (e.g., hurricanes). A corporation may be affected through numerous channels, including its direct infrastructure (e.g., buildings or warehouses) and its own labour force, as well as through indirect upstream and downstream supply chains. Furthermore, physical climate effects also pose a risk of leading to mass migration out of regions that become unhabitable, which in turn would have global socio-economic impacts. Sectors across the economy will experience physical effects differently depending on their sensitivity to weather events or their reliance on natural resources.

To measure the impacts of weather events, the Bank used Moody’s ESG Solutions19 physical risk scores to identify the risks of physical climate effects. These include acute risks (caused by more severe and frequent extreme weather events, such as hurricanes or floods) and chronic risks (caused by long-term shifts in weather patterns such as rising temperatures or sea levels). The physical risk metrics used for this analysis cover corporate, sovereign and sub-sovereign (provincial) data. The methodology uses a diverse set of indicators to generate a percentile-based score for climate hazards (e.g., wildfires, rise in sea level). The percentile scores range from 0 to 100, with higher scores indicating greater risk. For example, a score of 10 indicates that compared with the universe of corporate entities (all of the corporate entities assessed), 10% have lower scores. The percentile-based scores do not assess potential damages (economic or financial) but instead illustrate the relative ranking within the larger universe of corporate entities, countries or sub-sovereigns.

Methodologies differ for sovereign and corporate entities. The corporate entity score is a weighted average of scores based on the locations of:

  • the entity’s physical operations (70%)
  • supply chain partners (15%)
  • final points of sale (15%)

For sovereign exposures, the scores are based on the proportion of current and projected populations, GDP and current agricultural land used, and then re-scaled based on the country’s total GDP (necessary for the metrics of large and small countries to be normalized).

The physical risk scores provide a granular measure of exposure to physical risk. However, a core limitation is that the data do not account for the sensitivity or adaptive capacity of the entity. The readiness to address climate change will differ significantly among corporate and sovereign entities and is dependent upon factors such as their financial position, ability to access capital and governance structures.

The physical risk scores in Chart 3 show that the Bank’s corporate assets have a relatively low exposure to physical risks. The total risk score of the Bank’s corporate holdings is 37. Of the specific factors that contribute to operations risk, floods represent the greatest physical risk (with a risk score of 66); the remaining factors are moderate to low risk. A further breakdown of these scores reveals that 59% of the Bank’s corporate assets have a total risk score that is less than or equal to 25, 37% have a score that is between 25 and 75, and only 4% have a score that is equal to or greater than 75.20

As Chart 4 shows, the physical risk scores of the Bank’s Government of Canada securities portfolio are relatively low. The total score for the portfolio is 23, which is less than half of the G7 average of 47.21 Floods and sea-level rise represent the highest physical risk scores for the portfolio.

The physical risk scores of the Bank’s provincial securities portfolio is relatively low (see Chart 5). All six climate risk factor scores are below 50, and the total score stands at 31. As with the Bank’s Government of Canada securities portfolio, for the Bank’s provincial securities portfolio, physical risk from floods is elevated relative to other physical risks.

Bank of Canada Pension Plan

Managing climate-related financial risks

Climate-related financial risks—and, more broadly, ESG-related risks—are currently assessed and managed through the Bank’s due diligence process for selecting, monitoring and evaluating external asset managers. The diversification of the Bank’s asset portfolio across sectors, geographies, asset classes and investment strategies is also an important element in managing these risks.

Manager assessments are qualitative in nature. They are designed to evaluate the degree to which an asset manager integrates material ESG considerations—including climate change—within its investment decision-making process consistent with its asset class and investment strategy.

The climate scenario analysis undertaken as part of the pension fund’s review of its strategic asset allocation allows climate risks to be measured at the overall portfolio level. It helps the Bank assess the resilience of the plan’s strategic asset allocation to transition and physical risks and, ultimately, to climate change.

Scope of assets

The Bank of Canada Pension Plan’s assets in scope for this disclosure totalled $1.31 billion as at December 31, 2022, as detailed in Table 4. The pension fund assets in scope for this report include public equities, made up of Canadian and global equities; Government of Canada securities, mainly consisting of real return bonds and treasury bills; and Canadian provincial and corporate bonds. The pension fund’s private holdings, composed of real estate and infrastructure investments, are out of scope for this report, given the limitations of data availability for private assets.

Table 4: The Bank of Canada Pension Plan’s assets in scope for disclosure Par value (excluding equities) as at December 31, 2022
Asset typeCan$ millions
Public equities619
Government of Canada securities139
Provincial bonds390
Corporate bonds165
Total assets1,313

Metrics and data

Chart 6 displays the WACI of the pension fund assets in scope for this disclosure. The WACI for Government of Canada securities (305 tCO2e/$million) reflects Canada’s sovereign emissions, which are significantly higher than the G7 average (186 tCO2e/$million). The WACI for the provincial securities portfolio (248 tCO2e/$million) is lower than the WACI for the Government of Canada securities portfolio. The WACIs of the corporate bond and public equity portfolios are 198 tCO2e/$million and 143 tCO2e/$million, respectively.

As noted earlier (Chart 4), the physical risk scores of the pension fund’s portfolio of Government of Canada securities are generally lower compared with those of the Bank’s G7 peers. The pension fund’s public equity portfolio has a relatively moderate exposure overall to physical risks (total risk score of 51), as well as across all the specific factors that contribute to operations risk (see Chart 7). The portfolio’s exposure to heat stress represents the greatest physical risk (with a score of 58).

The physical risk scores in Chart 8 show that the pension fund’s corporate bond portfolio has a relatively low exposure to physical risks (total risk score of 38). Of the specific factors that contribute to operations risk, floods are the greatest physical risk (with a score of 69). The remaining factors are moderate to low risk.

As shown in Chart 9, the physical risk score of the pension fund’s provincial bond holdings is also relatively low. All six climate risk factor scores are below 50, and the total score stands at 32. Floods are the greatest physical risk for provincial holdings (with a score of 42).

  1. 1. United States Environmental Protection Agency, “Overview of Greenhouse Gases,” May 16, 2022.[]
  2. 2. COP26 is the 26th United Nations Climate Change Conference of the Parties.[]
  3. 3. An all-hazards approach to risk assessment identifies, analyzes and prioritizes the full range of potential non-malicious and malicious threats faced by an organization. The process identifies vulnerabilities associated with potential threats and the possible impacts of those threats and considers risk mitigation strategies.[]
  4. 4. Outward-facing climate risks are those that central bank activities pose to the environment. They come from sources such as a central bank’s own emissions as well as indirect financing of carbon-emitting countries or companies through lending or investing. Inward-facing climate risks refers to the risks that climate change poses to a central bank’s balance sheet and portfolios as well as its internal operations.[]
  5. 5. The Bank is building the capability to issue a central bank digital currency (CBDC)—a digital version of the Canadian dollar. Currently, the Bank has no plans to issue a CBDC. Ultimately, Parliament and the Government of Canada will determine whether or when a CBDC should be issued.[]
  6. 6. The G7 is an international organization of seven of the world’s largest advanced economies and includes Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.[]
  7. 7. In addition to Government of Canada bonds and real return bonds, Canada Mortgage Bonds, issued by the Canada Mortgage and Housing Corporation, are mapped to the Government of Canada (i.e., considered Government of Canada securities) because the Government of Canada is the ultimate obligor (through a guarantee) for these securities.[]
  8. 8. Other balance sheet assets include shares of the Bank for International Settlements (0.1% of the Bank’s balance sheet as at December 31, 2022).[]
  9. 9. Acute climate risks include losses from extreme weather events such as heat waves and hurricanes, whereas chronic climate risks include losses from rising sea levels or higher average temperatures.[]
  10. 10. A sovereign’s emissions include all GHG emissions the country produces, not just government-funded operations.[]
  11. 11. This method of accounting would not capture a deliberate shift in production of goods and services outside a nation’s border to reduce emissions.[]
  12. 12. GHG emissions data for sovereign and provincial entities have a two-year delay; i.e., the Bank’s 2022 year-end holdings use 2020 data.[]
  13. 13. To estimate emissions, the Bank uses MSCI’s proprietary scope 1 and 2 emissions estimation models, which vary depending on the industry.[]
  14. 14. Bank staff calculated the WACI of the G7 reference portfolio by weighting total market debt of the G7 at year-end 2022 (as reported by Bloomberg Finance L.P.).[]
  15. 15. Details on the Government of Canada’s 2030 emissions reduction plan can be found at “2030 Emissions Reduction Plan—Canada’s Next Steps for Clean Air and a Strong Economy,” Environment and Climate Change Canada, March 29, 2022.[]
  16. 16. The CBPP portfolio will be 82% matured by 2024 and fully matured by the end of 2025.[]
  17. 17. Tracking the progress of a corporate entity’s emissions reduction plan to ensure its targets are met will be necessary if this metric is used.[]
  18. 18. Scenarios used for this metric are taken from the Network for Greening the Financial System’s climate scenarios (e.g., delayed transition). For more details on the scenarios, see the network’s Scenarios Portal.[]
  19. 19. Moody’s is a US business and financial services company.[]
  20. 20. Based on the market value of exposures.[]
  21. 21. Bank staff calculated the average total score for the G7 by weighting total market debt of the G7 at year-end 2022 (as reported by Bloomberg Financial L.P.).[]

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