Alex Todorovic


There is a train wreck scenario for financial institutions where inaccuracies or incomplete disclosures lead to public scrutiny and loss of trust. The financial sector is at the forefront of a significant transformation, driven by the urgency of climate change and the advent of stringent regulations. In Canada, Article B-15 by the Office of the Superintendent of Financial Institutions (OSFI) has introduced guidelines requiring banks and insurance companies to disclose the financial risks they face due to climate change, and the shift towards a low-carbon future.

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The new math for loans, investment and purchase decisioning is increasingly based on carbon emissions measurements. Front and center is the strategy on green loans and Scope 3 reporting.

Environmental activists, customers, and investors are increasingly demanding greater accountability, and any hint of greenwashing or misrepresentation can trigger a reputational crisis. Regulatory non-compliance may lead to hefty fines and penalties, further damaging the institution’s financial stability and standing in the industry.

Moreover, as governments strengthen climate-related regulations, financial institutions may face limitations on funding or investing in high-emission industries, potentially impacting their revenue streams and investment portfolios. As society moves towards a low-carbon economy, these institutions must adapt their strategies and adopt more sustainable practices to remain relevant and competitive.

In Canada guidelines require banks and insurance companies to disclose the financial risks they face due to climate change , Article B-15 by the Office of the Superintendent of Financial Institutions (OSFI) heralds a shift towards a low-carbon math on lending and investment.

The risks outlined in Article B-15 are composed of two different types. There are physical risks related to the increasing frequency and severity of events and issues related to climate change, and transition risks related to the transition towards decreasing their GHG impact. In 2022, the UK mandated large companies and financial institutions to disclose climate-related risks and opportunities in line with ISSB standards. Similarly, Switzerland and New Zealand will introduce mandated climate reporting by large companies, banks, and insurers for years commencing on or after 1 January 2024. South Korea has also set a timeline for mandatory ESG reporting for all companies listed in the Korea Composite Stock Price Index, starting in 2030. These regulations highlight the increasing global emphasis on transparency in climate-related financial risks, and could very easily spell disaster for entities that choose to ignore them.

However, disclosure alone is not enough. Financial institutions must align their portfolios with international climate goals and their Net Zero commitments. These mandates will require financial institutions to not only calculate carbon emissions, but also reduce them. Additionally, financial institutions will be required to develop a “climate transition plan” to manage these risks. To date, the Partnership for Carbon Accounting Financials (PCAF) is becoming the standard within the financial industry and has provided guidance for a method of accounting for greenhouse gas emissions, further demonstrating the importance of carbon emissions measurements.

The process of assessing and setting targets for financed emissions is complex, involving multiple factors such as sector differences, geographic variation, changing industry standards, and a rapidly evolving data environment. Banks must balance their goal of commitments made for reducing absolute emissions with the simultaneous goal of setting a pathway to lowering emission intensities in their everyday lending decisions, well before the scheduled legislations come into place. This could even include increasing financing for heavy emitters for decarbonization projects such as lowering emissions in supply chains, where feasible. It is essential that financial institutions set a strong Carbon Management strategy to deal with the complexity of carbon emissions data. Arbor, a Carbon Management platform, enables organizations to accurately and thoroughly assess the carbon impact of their activities, providing industry benchmarking and recommendations for impact reduction.

The increasing regulatory focus on carbon emissions measurements is a clear signal to the financial sector; It is no longer business as usual. The financial sector must adapt to the new reality, where carbon emissions measurements and climate risk management are integral to their operations. This shift is not just about compliance; it’s about playing a part in the global effort to combat climate change and transition to a sustainable, low-carbon economy. Financial Institutions are experiencing an unprecedented demand squeeze; from consumers, businesses and regulatory bodies. This presents tremendous risk to the traditional methods of managing and lending capital, but also offers a once in a lifetime opportunity to define what it means to be an industry leader.

Upcoming examples of regulatory pressure coming to financial markets:


According to the Office of the Superintendent of Financial Institutions (OSFI), there are set expectations for Canada’s major banks and insurance companies to begin climate-related reporting for the fiscal year 2024 beginning with scope 1 & 2 emissions (source). Disclosures of Scope 3 emissions will also be required for Category 2 and 3 Small-to-Medium Sized Deposit-Taking Institutions (SMSBs), and other federal regulated issuers beginning in 2027 (source).


In the United States of America, to date, no specific scope 3 measurement guidelines have been provided by the Securities and Exchange Commission (SEC) as of March 2023 (Source); however, the SEC is in the process of finalizing its rules regarding scope 3 disclosures for banks, which if passed will result in the first mandatory climate disclosures being filed in 2024 for most large regional banks (Source).


Eligible banks in the European market have already begun to make their first disclosures under the new rules at the end of June 2023, but the quality of the data is still very low (source). The European Banking Authority (EBA) recently announced it will make climate disclosures mandatory from December 2023 (source), and once approved by the European Commission, the EBA says EU banks will start making climate disclosures in 2023, with full phase-in by June 2024 (source). Scope 3 emissions disclosures will be phased in before becoming mandatory in June 2024 (source).

As financial institutions gear up for their moment in the headlines due to public climate disclosures, the focus is on sustainable decisioning across all financial touch points. By embracing transparency, proactively measuring and reducing their carbon footprint, and integrating environmental considerations into their operations, banks have a unique opportunity to lead the market in creating a more resilient, low-carbon economy.

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