October 20, 2022
New report offers bank directors guidance on effective governance for Canada’s transition to a net-zero economy
VANCOUVER, 20 October 2022 – There has been a dramatic shift in expectations of Canadian banks to manage climate risk and make capital allocation decisions based on greenhouse gas emissions, according to a new guide from the Canada Climate Law Initiative (CCLI). Climate change is increasingly a source of reputational risk tied to changing regulatory, investor, customer, and community perceptions that banks must have a significant leadership role in contributing to the transition to a net-zero carbon economy. There are 81 federally-regulated banks in Canada, of which six hold 90% of all the financial assets.
Banking on a Net-Zero Future: Effective Climate Governance for Canadian Banks provides a comprehensive guide to the current state of the law, the risks and opportunities associated with climate change for the financial sector, best practice guidance developed in Canada and globally on oversight and governance, and a snapshot of the kinds of decisions bank boards are making on their pathway to net-zero emissions.
“As a cornerstone of the Canadian economy, banks need to adapt and adjust as governments act, which requires strong governance, risk management, and strategic planning. Canadian governments and banks should be aligned in the goal of making this transition as just and equitable as possible,” states author Dr. Janis Sarra, Professor of Law, University of British Columbia and Principal Co-Investigator, Canada Climate Law Initiative.
“This guide will support bank directors as they work with their executives to develop strategies to transition the bank’s operating and financed emissions towards net-zero and will assist institutional investors and other stakeholders in their engagement with bank boards on these important issues,” adds Catherine McCall, Executive Director, Canadian Coalition for Good Governance.
Directors’ duties pursuant to the Bank Act to act honestly, in good faith, and with care, diligence, prudence, and skill with a view to the best interests of the bank require directors to have effective oversight of the bank’s management of climate change. Exercising their duties in respect of climate risks and opportunities will be aided by proposed new guidance issued by the Office of the Superintendent of Financial Institutions, securities regulators, and the International Financial Reporting Standards Foundation International Sustainability Standards Board. The guide examines the new regulatory requirements, including questions the boards should be considering in their oversight of the bank’s risk management, strategic planning and climate transition plans.
“As bank directors, we should be taking a leadership role in mobilizing capital for a net-zero emissions economy; this guide offers timely information on law and best practice that can support our decisions,” says William Knight, former Chair, Vancity Community Investment Bank.
Banking on a Net-Zero Future will assist bank boards that are early on their pathway to transition to net zero. The guide also offers insights to banks that have already commenced their journey in its suggestions for enhanced board oversight that will allow directors to keep pace with governance, strategy, risk management, setting targets, and meeting their commitments to decarbonize their financed emissions. The guide is also useful for diverse stakeholders that have an interest in the role of banks in a just transition to a net-zero emissions economy in that it clarifies what they can expect of directors as fiduciaries of the bank.
Download the guide here.
About the Canada Climate Law Initiative
The Canada Climate Law Initiative (CCLI) provides businesses and regulators with climate governance guidance so that they can make informed decisions in the transition to a net-zero economy. Powered by the nation’s top expertise, we engage with boards of directors and trustees to ensure businesses understand their legal duties with respect to climate change. Our legal research allows us to stay one step ahead in a rapidly transforming policy landscape.
CCLI is supported financially by family foundations, and is established at the University of British Columbia Peter A. Allard School of Law and Osgoode Hall Law School, York University.