Bank of Canada publishes climate-related risks

May 7, 2023|Written by |Bank of Canada

The Bank of Canada (BoC) has begun disclosing climate-related risks to its operations and balance sheet. The report reveals a portfolio heavy in oil and gas companies, indicating vulnerability to a low-carbon economy transition.

The report is a first step in evaluating and managing climate risks, and how the national bank plans to reduce its greenhouse gas emissions in line with the government’s objective of achieving net-zero emissions by 2050.

The analysis details physical risk scores which aggregates data to identify the risks of physical climate effects on aspects of the BoC’s portfolio. Flooding was identified as the largest contributor, but the overall average scores affecting the BoC’s corporate holdings, securities portfolio and provincial bond holdings were all “relatively low”.

In lieu of metrics enabling the BoC to quantify transition risks that pertain to a shift to a low-carbon economy, the report disclosed metrics of the BoC’s exposure to carbon-intensive issuers via weighted average carbon intensity (WACI), which serves as a proxy for exposure to climate transition risks.

The WACI for the BoC, at 305 tonnes of carbon dioxide equivalent per million dollars of GDP (tCO2e/$million), is “significantly higher than the G7 average (186 tCO2e/$million), mostly driven by the relatively large size of Canada’s carbon-intensive oil and gas industry”. The report also details that the BoC’s pension portfolio holds assets of CAN$1.31bn which have a very high WACI score. This contributed to Canada’s aggregate score of 28 out of 130 in the Green Central Banking Scorecard.

Bar chart showing levels of financing given to fossil fuel companies by various banks in 2022
The Royal Bank of Canada was the leading financier of the fossil fuel industry in 2022. Graphic © Green Central Banking

The report’s findings are reflected in the recent Banking on Climate Chaos report which found that the Royal Bank of Canada was the largest financier of fossil fuels in 2022 with a total of US$42.bn, including US$4.8bn for tar sands and US$7.4bn into fracking. The report claimed that “Canadian banks are becoming the banks of last resort for fossil fuels, providing US$862bn to fossil fuel companies since the Paris Agreement”.

The report comes two months after the Canadian banking regulator published guidelines to increase transparency in the country’s financial institutions´ disclosures related to climate risks. Based on the Task Force on Climate-related Financial Disclosures framework, domestic banks and internationally active insurance groups headquartered in Canada from 2024 must disclose governance, strategy and risk management, and metrics relating to greenhouse gas emissions.

This page was last updated May 7, 2023

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