Main policy proposals within the discussion paper response:
- Risk weights for fossil fuel exposures should be adjusted upwards to reflect the climate-related risks associated with fossil fuel financing – Pillar I requirements. Current OSFI capital requirements do not cover these risks despite recognising the significant threat they pose for the solvency of financial institutions and financial stability overall.
- Basel prudential standards already include the necessary tools to implement the proposal: The credit risk standards provide for a possibility to apply higher risk weights to reflect higher risks associated with certain assets.
- Supervisory review and disclosure measures are insufficient to address the financial stability risk of climate change due to their limitations. Pillars II and III can only be effective given strong Pillar I requirements.
