Regulatory transition risk, as represented by carbon pricing risk, can be linked in part to the high degree of action needed to shift comparatively weak carbon pricing policies and deliver on climate change goals. Policy measures designed to limit climate change are also likely to vary widely by sector and country as governments chart their national implementation course to reduce emissions. As a result, some Canadian companies will be affected directly or indirectly by policy decisions made internationally on climate risk.
In Canada, the Office of the Superintendent of Financial Institutions (OSFI) has launched a pilot project on climate risk scenarios with the Bank of Canada to understand the risks to the financial system related to the transition to a low-carbon economy. OSFI is also planning to issue expectations on climate risk management with its regulated entities in early 2022.
In Europe, the European Insurance and Occupational Pensions Authority (EIOPA, a European Union financial regulatory institution) published a report in 2020 presenting a sensitivity analysis of climate-related transition risks in the investment portfolio of European insurers. The results show that these investments may expose the insurance sector to transition risks in the event of a drastic alignment to an outcome in line with the aims of the Paris Agreement and other climate change regulations. More recently, EIOPA has proposed adding climate change disclosure requirements for insurers in a series of amendments targeting “more fit-for-purpose” Solvency II reporting.
In this webcast, we will have a team of experienced finance, risk, and actuarial consultants from Oliver Wyman focused on managing the implications of climate change on financial institutions. A particular focus has been on the impact of transition risks on asset risk portfolios over the last two years in Europe and North America. In this context, Oliver Wyman has developed a comprehensive bottom-up credit risk tool together with S&P Global. Alternately, Oliver Wyman Actuarial Consultants in Central Europe have developed a pragmatic top-down approach in line with the current regulatory requirements. Based on their work, they will be sharing their views on what the Canadian insurance industry will need to prepare for the next few years.