OSFI, AMF sound a warning on potential long-term climate-related financial risks
Canadian financial regulators have called on the nation’s banks, insurers, and mortgage lenders to upgrade their climate risk management, following the release of a major joint report by the Autorité des marchés financiers (AMF) and the Office of the Superintendent of Financial Institutions (OSFI).
The Standardized Climate Scenario Exercise (SCSE), which involved more than 250 institutions, found that climate-related financial risks could intensify over time and expose the sector to new vulnerabilities.
Mortgage lenders, in particular, face growing scrutiny as climate-related risks, such as flooding, wildfires, and regulatory changes, can directly impact property values and loan portfolios.
The Insurance Bureau of Canada reported a 379% increase in annual insurable losses over the past decade, with a record 228,000 claims—406% above the 20-year average. In 2024, financial services company Desjardins stopped issuing new mortgages in flood-risk zones in Quebec, reflecting growing financial caution.
Meanwhile, Royal Bank of Canada (RBC), the country’s largest lender, has walked away from its sustainable finance goal, citing newly expanded legal risks under Canada’s Competition Act as a key reason. Under the new provisions, claims about sustainability, environmental impact, and product performance must be scientifically verified and backed by evidence.
The SCSE, conducted in 2024, marked the first time many participants had undertaken a comprehensive climate risk assessment. The exercise aimed to deepen the sector’s understanding of both physical and transition risks, and to provide a standardized framework for measuring and comparing exposures across federally and Québec-regulated institutions.
“Enhancing the methods for measuring, assessing and managing climate-related financial risks is key to maintaining confidence in the financial system,” Yves Ouellet, AMF president and CEO, said. “Ongoing efforts in this area will help safeguard financial stability and reinforce institutional resilience as climate-related challenges evolve,” he added.
Peter Routledge, superintendent at OSFI, described the SCSE as “a key step forward in advancing climate risk management practices at financial institutions.”
The findings will be incorporated into both regulators’ supervisory expectations and risk management guidance. Future work will focus on assessing institutions’ ability to measure and manage climate- and catastrophe-related risks using robust, data-driven approaches.
