Coordinating the Bank’s climate change work
Climate change poses risks to the economy and financial system, threatening the ability of central banks to achieve their mandates. As such, it was an important area of focus for the Bank in 2020.
Because of its scope and complexity, climate change work touches almost every aspect of the Bank’s business. To coordinate work and set priorities, in 2020 the Bank began developing a comprehensive strategy that integrates research, governance, enterprise risk management, external partnerships and internal operations.
At the same time, the Bank continued to:
- enrich its analytical expertise in this area
- work with partners to address the most pressing challenges in the financial sector
- take steps to reduce its own carbon footprint
Advancing climate change analysis and risk management
In 2020, the Bank launched a pilot project with the Office of the Superintendent of Financial Institutions. The project uses scenario analysis to further understand risks to the financial system arising from the transition to a low-carbon economy.
The Bank also continued its research on climate change. In May 2020, it published a discussion paper that lays the foundation for assessing climate-related risks to Canada’s economy and financial system.1
In 2019, the Bank formally added climate risk to its enterprise risk classification and monitoring processes. In 2020, it established a high-level road map for understanding, measuring and mitigating risks related to climate change. Such risks include:
- the Bank’s carbon footprint
- the physical risks posed by climate-related natural disasters
- the risks the Bank faces through its balance sheet holdings and counterparties
Today, the @NGFS_announced the expansion of its Steering Committee to include 3 new members: Bank of Canada, Bank Negara Malaysia and the Financial Services Agency of Japan. Congratulations! @bankofcanada @BNM_official @fsa_JAPAN https://twitter.com/NGFS_/status/1329072053073235971— @NGFS_Nov 18, 2020
Contributing to international dialogue
Climate change is a global challenge. In 2020, the Bank remained committed to working with international counterparts to tackle it—mainly through the Central Banks and Supervisors Network for Greening the Financial System (NGFS). Notably, the Bank joined the steering committee of the NGFS for a two-year term. Through this position, the Bank can continue to play a leadership role on the international stage and help to guide the efforts of the NGFS.
Bank researchers actively contributed to most NGFS workstreams this year, including those dedicated to:
- exploring macrofinancial issues
- developing sustainable (or green) financial markets
- identifying gaps in the climate-relevant data currently available
These efforts yielded several published reports that provide important insights on green finance, the use of scenario analysis to understand climate risks and how financial institutions are implementing sustainable finance.
The Bank continued to share its views on climate change issues with the public, other policy-makers and academics. In an October speech, Governor Tiff Macklem discussed the risks arising from the COVID‑19 pandemic and climate change, and in November he addressed how climate change fits into the Bank’s mandate.
The Bank also participated in many virtual academic conferences and round table sessions throughout 2020 to engage with external experts on climate change issues.
Reducing the Bank’s carbon footprint
In 2020, the Bank started building on its high-level Greening the Bank of Canada strategy published in 2019. The Bank has begun implementing a multi-year initiative focused on measuring and reducing its carbon footprint and waste. It includes a road map for:
- transitioning to 100 percent clean electricity by 2022
- reducing buildings-related greenhouse gas emissions by 80 percent by 2030 (compared with 2018 levels)
- achieving net zero emissions by 2050
These targets are aligned with those of the Government of Canada and support the objectives of the United Nation’s Paris Agreement.
Disclosing exposures to climate-related risk
The Bank believes it is important for Canadian financial institutions to disclose their exposures to climate risk. Likewise, the Bank is committed to disclosing its own exposures. The Task Force on Climate-Related Financial Disclosures (TCFD) recommends that disclosures should be structured around four core elements:
- risk management
- metrics and targets
The Bank supports such transparency, which can help businesses better manage the risks associated with climate change. Transparency also enables investors, regulators and everyday Canadians to make informed decisions.
The recommendations of the TCFD are increasingly becoming the global standard and being adopted by central banks, Canadian financial institutions and Crown corporations. The Bank is working towards aligning its future disclosures with the recommendations.
In 2021, the Bank will:
- expand its understanding of risks to the financial system and the macroeconomy related to climate change, focusing on monetary policy implications
- bridge data gaps through its scenario analysis work and participation in the pilot project with the Office of the Superintendent of Financial Institutions
- work with the financial sector to promote resilience to climate change and a smooth transition to low-carbon growth
- engage with partners domestically and internationally, including as a member of the NGFS steering committee
- implement measures toward achieving its targets to reduce greenhouse gas emissions and improve its disclosure of climate-related risks
- assess carbon emissions related to its bank note operations and purchased goods
- develop a framework for the assessment of its balance sheet exposure to climate change risk
- produce a disclosure in line with the recommendations of the TCFD