{
  "title": "Canada: Financial Sector Assessment Program-Technical Note on Climate Risks Analysis",
  "publication": "IMF Staff Country Reports, August 8, 2025",
  "sourceUrl": "https://www.imf.org/en/publications/cr/issues/2025/08/08/canada-financial-sector-assessment-program-technical-note-on-climate-risks-analysis-569527",
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  "summary": "This Technical Note on Climate Risk Analysis highlights that the financial sector in Canada is exposed to both physical and transition climate risks. Canadian regulators are working on advancing climate risk management in financial institutions.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Technical Note highlighting that the financial sector in Canada is exposed to both physical and transition climate risks.\n- Canadian regulators are advancing climate risk management in financial institutions.\n- The Financial Sector Assessment Program (FSAP) performed an independent analysis of key physical and transition risks for large deposit takers.\n- Focus: developing methodologies and enhancing awareness of climate risks and challenges in climate risk assessment."
    },
    {
      "heading": "Key findings",
      "content": "- The Canadian financial sector faces both physical and transition climate risks.\n- Results of the analyses are sensitive to several parameters, such as the damage function and the rate of passthrough of damages to Deposit Taking Institutions.\n- Transition risk analysis yields heterogeneous results by sectors, with notable impacts for heavy emitters.\n- Under the transition scenarios, Non-Financial Corporates’ credit risk would generally increase modestly but with significant variations across sectors.\n- Notable impacts are observed for the oil and gas sector.\n- Both the physical and transition analyses:\n  - Focus on a specific credit risk channel.\n  - Capture only direct impacts, ignoring indirect and systemic effects.\n  - Hence potentially underestimate overall climate risks facing the Canadian banking and deposit taking sector."
    },
    {
      "heading": "Methodological notes and sensitivities",
      "content": "- Analyses emphasize methodological development and awareness-raising rather than comprehensive system-wide stress testing.\n- Sensitivities highlighted include:\n  - Damage function specification.\n  - Rate of passthrough of damages to Deposit Taking Institutions.\n- Outcomes depend critically on parameter choices, implying wide variation in estimated impacts."
    },
    {
      "heading": "Transition risk analysis (summary)",
      "content": "- Finds heterogeneous sectoral outcomes.\n- Heavy emitters face notable impacts.\n- Non-Financial Corporates’ credit risk:\n  - Generally increases modestly under transition scenarios.\n  - Exhibits significant variation across sectors.\n- Oil and gas sector: identified as having notable impacts."
    },
    {
      "heading": "Physical risk analysis (summary)",
      "content": "- Physical risk exposures are identified for the Canadian financial sector.\n- Analysis concentrates on direct credit-risk channels to large deposit takers.\n- By focusing on direct effects, the analysis may understate aggregate risks due to exclusion of indirect and systemic channels."
    },
    {
      "heading": "Limitations and caveats",
      "content": "- Both analyses only capture direct impacts via a specific credit risk channel.\n- Indirect and systemic effects are ignored.\n- Potential underestimation of overall climate-related risks to the banking and deposit taking sector."
    },
    {
      "heading": "Policy implications and recommendations (implied within text)",
      "content": "- Continue development of climate risk management frameworks within financial institutions.\n- Advance methodologies for climate risk assessment, including:\n  - Refining damage functions.\n  - Improving estimates of passthrough rates of damages to Deposit Taking Institutions.\n- Enhance sectoral analysis granularity to capture heterogeneous impacts, particularly for heavy emitters such as oil and gas.\n- Expand analysis to include indirect and systemic channels to better estimate aggregate financial sector risks.\n\nInternational Monetary Fund. Monetary and Capital Markets Department \"Canada: Financial Sector Assessment Program-Technical Note on Climate Risks Analysis\", IMF Staff Country Reports 2025, 234 (2025), DOI: https://doi.org/10.5089/9798229021920.002.\n\n---\n\n Content in this bundle\n\n- 1canea2025006-source-pdf\n  - 1canea2025006-source-pdf (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 1canea2025006-source-pdf (PDF){rel=\"external\" type=\"application/pdf\"}"
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    "Published: August 8, 2025",
    "Series: IMF Staff Country Reports",
    "DOI: https://doi.org/10.5089/9798229021920.002",
    "Technical Note highlighting that the financial sector in Canada is exposed to both physical and transition climate risks.",
    "Canadian regulators are advancing climate risk management in financial institutions.",
    "The Financial Sector Assessment Program (FSAP) performed an independent analysis of key physical and transition risks for large deposit takers.",
    "Focus: developing methodologies and enhancing awareness of climate risks and challenges in climate risk assessment.",
    "The Canadian financial sector faces both physical and transition climate risks.",
    "Results of the analyses are sensitive to several parameters, such as the damage function and the rate of passthrough of damages to Deposit Taking Institutions.",
    "Transition risk analysis yields heterogeneous results by sectors, with notable impacts for heavy emitters.",
    "Under the transition scenarios, Non-Financial Corporates’ credit risk would generally increase modestly but with significant variations across sectors.",
    "Notable impacts are observed for the oil and gas sector.",
    "Both the physical and transition analyses:",
    "Analyses emphasize methodological development and awareness-raising rather than comprehensive system-wide stress testing.",
    "Sensitivities highlighted include:",
    "Outcomes depend critically on parameter choices, implying wide variation in estimated impacts.",
    "Finds heterogeneous sectoral outcomes.",
    "Heavy emitters face notable impacts.",
    "Non-Financial Corporates’ credit risk:",
    "Oil and gas sector: identified as having notable impacts.",
    "Physical risk exposures are identified for the Canadian financial sector.",
    "Analysis concentrates on direct credit-risk channels to large deposit takers.",
    "By focusing on direct effects, the analysis may understate aggregate risks due to exclusion of indirect and systemic channels.",
    "Both analyses only capture direct impacts via a specific credit risk channel.",
    "Indirect and systemic effects are ignored.",
    "Potential underestimation of overall climate-related risks to the banking and deposit taking sector.",
    "Continue development of climate risk management frameworks within financial institutions.",
    "Advance methodologies for climate risk assessment, including:",
    "Enhance sectoral analysis granularity to capture heterogeneous impacts, particularly for heavy emitters such as oil and gas.",
    "Expand analysis to include indirect and systemic channels to better estimate aggregate financial sector risks.",
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