Canada's financial sector could be exposed to significant economic shocks from the transition to lower emissions according to early scenario .
The pilot study isn't meant as a forecast but considers several climate policy scenarios and how they could play out across the Canadian economy. The scenario work, however, does emphasize the immense transitions underway, said Toni Gravelle, deputy governor of the Bank of Canada.
"All scenarios showed that as we globally transition to net zero, some sectors will be significantly impacted, and the economy as a whole will undergo significant structural changes."
Speaking at a media briefing, Gravelle said that the study shows that Canada's banking and insurance industries need to plan carefully for the transition underway.
"For the financial sector, mispricing these climate risks could expose financial institutions and investors to sudden and large losses."
The Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI) say the initiative is an early attempt to better understand the long-term risks posed by the transition away from greenhouse gas emissions, and to assess how well banks and other financial institutions are themselves modelling the risk.
Gravelle said it's clear that both financial institutions and financial authorities are in the early stages of building capacity to better understand the risks and transitions ahead.
Ben Gully, assistant superintendent at OSFI, said that while many institutions are just starting to ramp up efforts, there's still time as the regulator aims to establish resiliency by the end of the decade.
"We have some time, but no time to waste in preparing for 2030."
The report says that Canada is at higher risk of economic impacts from the transition because of significant exposure to commodities that will see price declines as climate policies such as carbon pricing strengthen globally.
The scenarios show that faster action on climate change will lead to a smoother, less risky transition, while modelling for especially abrupt global policy changes showed potential financial-market disorder as Canada's GDP falls 10 per cent lower than where it would be by 2050 compared with the baseline scenario.
The pilot study found that fossil fuel sectors are particularly exposed to risk, though others including crop and livestock sectors would also take a hit, and the electricity sector would get a boost.
One scenario, which looked at moving immediately toward the policies needed to keep warming to two degrees Celsius, found that refined oil producers would see by 2050 a 72 per cent drop in net income and a 450 per cent increase in the possibility of default compared with the baseline, while the crop sector could see a 32 per cent drop and a 141 per cent increase in potential default.
The scenarios, looking at a 30-year timeline, make numerous assumptions and also didn't factor in several key factors such as the physical risks of climate change and how some new technological innovations could change the trajectories.
The report, which was produced in collaboration six financial institutions, found that modelling can take more effort than expected, and is still hampered by spotty access to data.
Gully said that while an early effort, the pilot was a success as it raises awareness of the risks and works towards better understanding the implications.
"Climate scenario exercises like this one make clear the potential impacts of transition risk across a range of different climate pathways."
This report by The Canadian Press was first published Jan. 14, 2022.
This Monday, Sept. 30 is the National Day for Truth and Reconciliation (NDTR), a federal statutory holiday and day of remembrance for the Indigenous children who never came home from Canadian residential schools, as well as those who survived them.
British Columbia saw a rare unanimous vote in its legislature in October 2019, when members passed a law adopting the United Nations Declarations on the Rights of Indigenous Peoples, setting out standards including free, prior and informed consent for actions affecting them.
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SpaceX launched a rescue mission for the two stuck astronauts at the International Space Station on Saturday, sending up a downsized crew to bring them home but not until next year.
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Francis Ford Coppola’s decades-in-the-making, self-financed epic 'Megalopolis' flopped with moviegoers, while the acclaimed DreamWorks Animation family film 'The Wild Robot' soared to No. 1 at the weekend box office.
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A crash between a car and motorcycle closed a portion of Oxford St. in downtown London for several hours on Sunday.
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A pedestrian has died after reportedly getting struck by an OPP cruiser in Bala early Sunday morning.
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Two and a half years after losing her best friend and first love to suicide, Brooke Ford shared her story of grief and resilience at the CMHA Windsor-Essex Suicide Awareness Walk.
The BSI aims to elevate Black academic excellence, promoting scholarship, mentorship, and cultural knowledge.
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Bullet casings recovered from the scene of a B.C. woman’s murder 30 years ago will be retested for DNA after the province’s highest court ruled it is “in the interests of justice†to do so in support of an ongoing appeal.
The fertility rate in Canda reached an all-time low in 2023, and the lowest rate was recorded in British Columbia, according to new data from Statistics Canada.
New Democrat Leader David Eby, speaking before his largest crowd of the provincial election campaign, says he's making a tax relief election promise that will benefit more than 90 per cent of people in British Columbia.
Fire crews in Vernon, B.C., responded to a large house fire early Saturday morning.
A pair of runaway pigs are in the custody of an animal sanctuary in the Okanagan after evading police and volunteers for hours earlier this week.
The Red Bridge, a historic landmark in Kamloops, B.C., was completely destroyed by fire early Thursday morning.
The sentencing for three men convicted of helping lead and coordinate the COVID-19 protest blockade at Coutts, Alta., in 2022 has been delayed.
A 10-year-old boy from Lethbridge is being praised as a hero after a routine summer outing at the pool nearly turned tragic for his friend.
A man and woman have been charged after a Lethbridge ice creamery was broken into earlier this week. Staff arrived at Cookie Crimes, in the 300 block of Sixth Street South, just before 5:30 a.m. on Monday to discover the front window broken.
Overnight on Thursday as the community of Elliot Lake was resting to prepare for the upcoming Kraft Hockeyville celebrations, when vandals struck a building that has been top of mind for the northern Ontario city for more than a year.
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Sault residents may notice some commotion on the Algoma University campus over the next two weeks as a team conducts an archaeological search.
A mother in a community where the cost of living is one of the highest in the country says grocery prices are 'inhumane' and retailers are putting profits ahead of people’s basic human right to food.
A soccer game in England on Tuesday night drove a spike in online traffic across the Atlantic to a website launched by the Newfoundland and Labrador government.
Newfoundland and Labrador sponsored a minor football team in England, now they’re about to play one of the biggest clubs in European soccer.
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