Apr 27, 2023

Landcor CEO Q&A: How Canadian financial institutions can prepare for Guideline B-15

Risk | by Cal Inman, CEO | 1 Minutes

Canada’s Office of the Superintendent of Financial Institutions has issued a guideline directing how federally-regulated financial institutions report and manage climate-related risks. The guideline, called B-15, lays out specific expectations for financial institutions’ risk management practices and climate risk-related financial disclosures.

As the regulatory environment in Canada changes, lenders, borrowers and financial institutions are increasingly incentivized to evaluate their climate-related financial risks. To understand the impact of B-15 on Canadian financial institutions, we spoke with Jeff Tisdale, CEO of Landcor Data Corporation, which provides property information to real estate professionals and financial services companies.

The significance of B-15 for financial institutions

ClimateCheck: What have clients been learning about B-15 and how has that changed your conversations with them?

Landcor CEO Jeff Tisdale: Clients are all definitely aware of the guideline and are trying to understand what that means for their own practice. They are seeking climate risk data to assess what their risks are. Our role is to provide the data to help them understand that it’s in their best interest to have some sort of climate risk strategy. B-15 just enables the consumer to be more aware of what they are potentially investing in and how that risk is distributed across assets. It enables them to make better decisions and allows the market to be more informed, so prices will go up or down based on that new climate risk information.

ClimateCheck: How does B-15 impact institutions of different sizes?

Tisdale: With B-15, different types or sizes of financial institutions have different timelines for implementing the guidelines. There are the bigger institutions who have the resources and the capacity to really dig into climate risk, and do a good job of understanding their business from a climate risk perspective. And then there are smaller organizations such as regional banks and smaller credit unions for whom evaluating and reporting climate risk could be a significant investment. In these cases they're asking themselves, what resources do we need to understand climate risk? Do we upgrade our lending systems or do we hire additional people? What outside vendors provide climate risk data and expertise? Those are the kinds of choices they’re weighing.

ClimateCheck: B-15 is currently a guideline for climate risk reporting — is there an expectation that this will become formalized into a legal requirement?

Tisdale: I think they put the guideline out in advance to get discussion going and so financial institutions can start looking at their own practices. It’s supposed to be more firm by 2024. Certain larger financial institutions need to start reporting climate-related financial risk information by fiscal year-end 2024.

Understanding physical climate risk to property

ClimateCheck: What are the most prevalent climate risks you’re seeing in Canada?

Tisdale: Canada is such a big country. Fires and floods are an issue out west. With fires, people are concerned about smoke and air quality. As you move across the country, there are tornados in the prairies, and in central Canada, the cold and ice storms are a factor. In the Atlantic region of Canada, hurricanes are an issue. Each part of the country has risks that are more geographically prevalent. All these different risks can cause different types of damage, require different types of preparation and mitigation, and can result in different costs.

ClimateCheck: Do you predict B-15 will change mortgage lending practices? Other than mortgage rates, what are some ways financial institutions may incorporate climate risks into lending decisions?

Tisdale: I anticipate that clients will be factoring climate risk into mortgage rates. They’re getting more visibility on the associated climate risks, so different lending decisions are being based on this new information. Both lenders and consumers are getting a better picture of the potential risks, so they are making different pricing and buying decisions. Other than mortgage rates, financial institutions may require a higher deposit or down payment from their borrowers to offset some of that risk. Credit unions may consciously make decisions about capping their exposure on multifamily developments, meaning they would only lend for a certain number of units in a building or development.

ClimateCheck: If lenders are becoming more climate-risk aware, will they look to distribute their risk and diversify into different regions?

Tisdale: Absolutely, that’s already underway. We are seeing how lenders that have traditionally been in certain markets are now expanding into new markets to diversify their portfolio and avoid concentration in high-risk areas. For example, we’ve seen how lenders who have predominantly focused on metro Vancouver are expanding up north or even into Vancouver Island.

ClimateCheck: How can financial institutions use data to better understand physical climate risk?

Tisdale: Working with a climate data provider like ClimateCheck has allowed us to give our clients a picture of future climate risks. We can use that to help them assess not just which climate hazards are prevalent to areas they are interested in, but also the potential for future climate hazards in those places. Clients need risk information for both current lending decisions and also to help them understand changes in risk overtime for their portfolios. One of the neat things about ClimateCheck is that it gives information to all market participants. A lot of our big insurers are based in Toronto, and about a year ago, when there were fires in the Kelowna area, they held back insurance coverage in areas where they shouldn’t have, because they didn’t really know the Okanagan area as well. They saw the Okanagan as high risk because of the fires. There were definitely fires, but they weren’t concentrated in Kelowna. A score like what ClimateCheck offers helps people understand where the risk truly lies.

- ClimateCheck’s proprietary risk assessment tools empower property buyers, owners, and brokers by exposing and quantifying climate risk to real estate. Our team of experts uses data from government, academic and other public and institutional sources, such as the Intergovernmental Panel on Climate Change (IPCC) to produce reports that rank drought, heat, fire, flood, and storm risk for entire portfolios as well as individual properties.

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