(Adds comments from officials, background, adds TORONTO to
TORONTO/OTTAWA, Jan 14 (Reuters) - Canada's low-carbon
transition poses important risks for some sectors, and delaying
actions to prepare could expose financial institutions and
investors to "sudden and large losses," the country's central
bank and financial regulator said in a report on Friday.
The transition, to be spread over 30 years, will hit
Canada's economic growth as demand and prices for commodities
fall, leading to less inflationary pressure and a need for more
stimulative monetary policy, the Bank of Canada and the Office
of the Superintendent of Financial Institutions said.
If actions are delayed and "there's a sharper policy
reaction down the road, (it) will impose more transition risk on
the economy and the financial sector," Bank of Canada Deputy
Governor Toni Gravelle told reporters.
The pilot study, which looked at various climate risk
scenarios, found Canada's economy will undergo "significant
structural changes" to meet climate targets, made more difficult
by its large carbon-intensive sectors.
Canada is the world's fourth-largest oil producer and has
the highest emissions per barrel among major oil nations,
according to consultancy Rystad Energy. Canada has committed to
achieving net-zero emissions by 2050.
The report examined three "plausible but intentionally
adverse" transition scenarios, with the 2019 climate guidelines
as the baseline.
Progress with climate-related disclosures is hampered by
poor and inconsistent reporting standards, said the financial
institutions, which are in the early stages of risk analysis.
"Theres much to be done to get to the level of quality in
evidence to drive prudential decisions like capital
requirements," Ben Gully, assistant superintendent at OSFI, told
reporters on a conference call.
The agency's focus for the short term will remain risk
management by financial institutions, he said. Any requirement
for extra capital beyond that will depend on the effectiveness
of firms' risk management measures, he added.
The pilot began in late 2020, and participants assessed the
credit and market risks posed to their balance sheets by the
climate transition. Participants included Royal
Bank of Canada, Toronto-Dominion Bank, and
insurers Manulife Financial Corp, Sun Life Financial
, Intact Financial Corp and the Co-operators
(Reporting by Nichola Saminather in Toronto and Julie Gordon in
Editing by Matthew Lewis)