OSFI B-15: Implications for Small and Medium Sized Businesses and CPA Practices
In 2023, the Office of the Superintendent of Financial Institutions (OSFI) released Guideline B-15 on Climate Risk Management. A significant shift in how Federally Regulated Financial Institutions (FRFIs), including banks and insurance companies, approach, manage and report on climate-related risks, large FRFI’s will be required to comply with Guideline B-15 beginning in 2024, while smaller FRFIs will have until 2025 to comply. This guideline has far-reaching implications for the clients of FRFIs, and for small and medium-sized businesses (SMBs).
What does OSFI B-15 require of FRFIs?
OSFI Guideline B-15 requires FRFIs to:
- Integrate climate-related risks into their overall risk management frameworks, considering these risks in their business strategies and financial planning.
- Create mechanisms for oversight of climate-related issues at the board and senior management levels.
- Conduct climate scenario analyses to assess potential impacts on their risk profiles and business models.
- Maintain adequate capital and liquidity buffers for climate-related risks and make comprehensive climate-related financial disclosures, including information on governance, strategy, risk management, and certain metrics such as greenhouse gas emissions.
Impact on Financial Products and Services for SMBs:
OSFI B-15 requires banks and insurance companies to incorporate climate-related risks into their risk management practices and decision-making processes. This will likely affect the availability, terms, and pricing of financial products and services offered to SMBs progressively over time as financial institutions evolve their lending and underwriting practices to incorporate climate change.
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Banks |
Insurance Companies |
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Availability |
Banks may become more selective in providing loans to businesses in order to reduce their Scope 3 emissions from their portfolios. |
Insurers in areas prone to climate-related physical risks (e.g., flood-prone regions) or in industries with high transition risk. |
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Terms |
Loan agreements may include new climate-related covenants or conditions. For example, banks might require SMBs to demonstrate climate risk mitigation strategies or set and meet emission reduction targets as part of their loan terms. |
Insurance policies may include new clauses related to climate risks, such as requirements for SMBs to implement specific risk mitigation measures. |
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Pricing |
Climate risk considerations could lead to risk-based pricing adjustments for loans. SMBs with higher climate-related risks may face higher interest rates, while those with lower risks could benefit from lower rates. Additionally, interest rates may adjust based on compliance with climate-related covenants or loan terms. |
SMBs in climate-vulnerable sectors or locations may see increased premiums for property and casualty insurance, as well as for business interruption coverage. |
What can SMBs do today?
While climate-related information requests many not be required by SMBs' bank and insurers today, these information requests will likely become the norm soon due to more regulatory pressures. SMBs should be proactive and start preparing today.
- Understand the requirements of FRFIs in relation to OSFI B-15.
- Conduct a basic climate risk assessment to understand how climate change might affect your business operations, supply chain and market demand.
- Think about developing a climate action plan (e.g. energy efficiency, securing renewable energy, how to decarbonize operations, physical risk mitigation measures/strategies).
- Liaise with your Chamber of Commerce and industry associations, while looking for opportunities to collaborate with others in your industry.
- Proactively engage with your banks and insurers on climate risk, understand what information they may require now and, in the future, and share your climate strategy (if any).
- Begin tracking basic environmental metrics relevant to your business (e.g. greenhouse gas emissions). This data may be valuable in future interactions with your financial institutions.
- Stay informed of climate-related developments in your industry and region, such as climate-related regulations that could impact your industry in the future.
How can SMPs help?
As trusted business advisors, CPAs must be prepared to meet the needs of their clients as sustainability/climate-related requirements become increasingly mainstream. Here is how CPAs can upskill to prepare:
Enhancing your expertise:
- Understand the requirements of FRFIs in relation to OSFI B-15 and how they may impact SMBs.
- Understand other sustainability regulations / reporting requirements that may be applicable to your clients.
- Subscribe to relevant newsletters or follow reputable sources for updates on sustainability regulations and trends.
- Network with sustainability professionals, build relationships with specialists who can provide specialized advice/services when needed.
Supporting your clients:
- Monitor industry trends for your clients and share relevant insights/perspectives.
- Help your clients identify where they might be impacted by climate-related regulation or reporting requirements.
- Offer basic sustainability services – e.g. a high-level review of how climate change impacts their business and identify areas for strategic change.
- Assist with data collection – e.g. setting up systems to track basic climate-related metrics to their business (e.g. greenhouse gas emissions).
- Organize client workshops to discuss sustainability/climate basics and share best practices.
- Benchmarking: Help SMBs benchmark their climate risk management practices against industry standards and best practices to identify areas for improvement.
Whether you are a CPA in a small or medium sized business or are a practitioner in a small or medium sized firm, CPA Ontario is committed to supporting you in navigating the evolving landscape of sustainability. Visit Sustainability Simplified, your go-to resource for practical, accessible sustainability guidance.