Addressing climate change is a global challenge. While the Government of Canada has the primary responsibility for climate change policy, the Bank of Canada recognizes the importance of including climate change considerations in its work to promote the economic and financial welfare of Canadians.

• To fulfill its monetary policy mandate of keeping inflation low and stable, the Bank needs to understand the potential impacts of climate change on the macroeconomy and price stability. Climate change and the transition to a low-carbon net zero economy will have significant macroeconomic consequences, touching every region and sector of the Canadian and global economies. It will also have implications for structural change, the growth of potential output, and price stability.

• The Bank also has a mandate to foster a stable and efficient financial system. The climate-related increases in the frequency and severity of extreme weather events and the transition to a low-carbon net zero economy pose significant risks to the financial system. By developing and advancing the use of tools to assess climate-related risks, the Bank aims to help markets price such risks. This assists in the efficient allocation of capital to more sustainable investments and supports the stability of the financial system.

• The Bank’s role as Canada’s central bank involves demonstrating leadership in how we are managing climate risks in its own operations. Through its actions, the Bank aims to encourage Canadian financial market participants and other businesses to better manage climate change considerations.

Against this backdrop, the Bank of Canada commits to taking the following concrete steps:

1. Assess the effects of climate change on the macroeconomy and price stability

• The Bank will develop new models and data sources to better understand climate-related physical and transition effects on the Canadian economy. The Bank will also assess, among other issues, the implications of more frequent disruptions from severe weather events and the transition to low-carbon growth for potential output, the labour market and inflation. These assessments will be communicated through Bank publications, including the Monetary Policy Report.

2. Evaluate the Canadian financial system’s exposures to climate-related risks and improve associated risk management capacities

• The Bank will support Canadian authorities’ and financial institutions’ understanding of and capacity to identify and measure climate-related risks and opportunities. Building on our climate scenario analysis related to the transition to a low-carbon net zero economy, the Bank will collaborate with the Office of the Superintendent of Financial Institutions to assess the financial system implications of physical climate risks as well as the combined effects of both the physical and climate-related transition risks.
• The Bank will assess the main vulnerabilities and risks to the financial system, including climate-related risks, in its annual Financial System Review and provide research and analytical updates on its Financial System Hub.

3. Measure, mitigate and report on the Bank’s operational risks related to climate change

• The Bank will incorporate best practices from other central banks and the financial sector to measure and disclose carbon emissions from its various activities. Efforts already underway to green the Bank’s operations will continue.
• The Bank will also report on its climate-related financial risks in line with the recommendations of the Task Force on Climate-related Financial Disclosure.
• Consistent with its monetary policy and financial stability mandates, the Bank will review its financial market operations to consider climate-related financial risks and opportunities. The Bank plans to analyze and hold consultations on options for changes to its financial market policies to promote the resilience of Canada’s financial system.

4. Engage and collaborate with Canadian and international partners

• As a member of the Sustainable Finance Action Council’s public sector coordinating group, the Bank will work in partnership with members to support the scaling up of a well-functioning, sustainable finance market in Canada, with particular emphasis on climate disclosures, decision-useful climate information, and sustainable finance taxonomy.
• As a steering committee and plenary member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), the Bank will help guide the network’s efforts, particularly those related to climate transition impacts on countries with large resource sectors such as Canada. It will contribute to the development of NGFS tools and guides, including scenario analysis.
• The Bank will also contribute to the efforts of international bodies, including the Financial Stability Board’s work on climate-related financial stability risks and the work of the G20 Sustainable Finance Working Group as it develops and executes a roadmap to scale up sustainable finance that supports transitions to low-carbon net zero economies.