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The Global Risk Institute (GRI) yesterday published a paper titled “Climate-Related Legal Risks for Financial Institutions: Executive Brief” (the “Paper”), authored by Dr. Janis Sarra with the Canada Climate Law Initiative and Resilient LLP’s Lisa DeMarco. The Paper provides an overview of the many risks now faced by the financial sector including regulatory liability, securities law litigation, fiduciary duty risk, professional indemnity insurance risk, “greenwashing” litigation, commercial contract risk, litigation against governments, and civil lawsuits. The Paper also provides “best practice tips” for financial institutions, risk managers, and board risk committees to consider and implement as a means to limit their liability and reduce their climate-related risks. These recommendations include, among others: Undertaking a high-level assessment of litigation exposure across loan and policy books, investment portfolios, and operations; Embedding management of climate-related risks as part of core business risk management; Investigating and disclosing climate-related vulnerabilities in investment portfolios; and Creating an action plan to reduce Scope 1, 2, and 3 carbon emissions as evidence of a financial institution’s due diligence in addressing climate-related financial risk. The first page of the Paper appears below. The full text of the paper is available on the Global Risk Institute website here. For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.

The Intergovernmental Panel on Climate Change (IPCC) yesterday released the IPCC Working Group 1 report, “Climate Change 2021: The Physical Science Basis” (the Report), part of the Sixth Assessment Report, providing an updated assessment of the physical understanding of the current state of the climate system and climate change. The Report predicts that global temperatures are likely to continue to increase beyond the 1.5-2°C target of the Paris Agreement without widespread and steep global reductions in greenhouse gas (GHG) emissions. This bulletin summarizes the Report’s key findings. The current state of the climate. The Report reiterates that the warming of the atmosphere, oceans, and land are human-caused, with rapid changes being observed in the atmosphere, ocean, cryosphere, and biosphere. In addition, the Report confirms that anthropogenic climate change is globally affecting weather and climate extremes, with increased heatwaves, heavy precipitation, droughts, and tropical cyclones more readily attributed to human influence. Possible climate futures. According to the Report, under all emissions scenarios, global surface temperatures will continue to increase until mid-century, with temperatures predicted to exceed 1.5-2°C this century without deep reductions of GHGs. As the climate warms, changes in climate systems will become larger, increasing the frequency and intensity of hot extremes, marine heatwaves, heavy precipitation, droughts, intensity of tropical cyclones, and reductions in Arctic sea ice, snow cover, and permafrost. The Report indicates that changes in the ocean, ice sheets, and global sea levels, resulting from past and future GHG emissions, will likely be irreversible for hundreds of years. Climate information for risk assessment and regional adaptation. The Report indicates that all regions are expected to increasingly experience concurrent and multiple changes in climatic impact-drivers amplified at 2°C compared to 1.5°C, with greater increases at even higher global temperatures. The Report also indicates that even “low-likelihood” outcomes such as…

The Network for Greening the Financial System (NGFS) last week released an update to their climate scenarios which assist financial institutions with analysing climate-related risks to the economy and financial system (the Study). The NGFS is a group of 91 central banks (including the Bank of Canada, US Federal Reserve, and European Central Bank), supervisors, and observers that seek to share best practices and contribute to the development of climate risk management in the financial sector, and to mobilize mainstream finance to support the transition toward a sustainable economy. This bulletin provides a high-level summary of the Study’s key findings: Transition risks: Emission prices. The Study indicates that a price of $160/tonne CO2e will be required by 2030 to incentivise the transition to net zero by 2050. Energy investment. Greater investments in renewable energy and storage will be necessary to meet net zero goals by 2050, with substantially reduced investments in fossil fuel extraction. The Study suggests that, by 2050, renewables and biomass will account for 68% of global energy needs, with fossil fuels (coal, oil, and gas) providing close to 25%, down from approximately 80% in 2020. CO2 removal. The Study assumed low to medium availability of carbon removal technology and storage such as increasing forest cover, soil sequestration, and growing crops for bioenergy with carbon capture and storage (BECCS). The Study suggests that CO2 removal would help to accelerate decarbonization goals and lower warming outcomes but on a limited scale. Agriculture, forestry and land use. Changes in land use will be important for the pathway to net zero by 2050, including increasing forest cover and bioenergy cropland and reducing cropland for food production and pasture land. The Study notes that CO2 emissions are anticipated to decline more quickly than other greenhouse gases including N2O and CH4. Physical risks:…

The Canadian Climate Law Initiative today released a new opinion by pensions lawyer Randy Bauslaugh, titled Climate Change: Legal Implications for Canadian Pension Plan Fiduciaries and Policy-Makers (the Opinion). The Opinion makes clear that (i) pension fund fiduciaries have a duty to consider climate-related financial risks and opportunities and (ii) failing to do so may lead to personal liability for economic, reputational, or organizational loss. This bulletin briefly summarizes the key findings of the Opinion: Legal responsibilities of plan fiduciaries. Climate change poses immediate and long-term economic and portfolio risks and opportunities that result in the need to take a multi-generational oversight approach. In addition, flowing from the fiduciary’s standard of care and duty of loyalty, climate change is a primary consideration of fiduciaries in advancing the primary purpose of plan fiduciaries: providing periodic payments to individuals after retirement and until death in respect of their service as employees. The financial relevance of climate change to fiduciary investment responsibilities. The financial relevance of climate change is supported by its acceptance by the financial services sector, including bankers, accountants, insurers, investment managers, securities regulators, academics, and public sector organizations, as well as the unequivocal acceptance of the causes and impacts of climate change by all parties in the recent Supreme Court of Canada decision upholding the federal Greenhouse Gas Pollution Pricing Act (read our earlier bulletin here). Must plan fiduciaries consider implications of climate change? The Opinion notes that with the growing consensus around the materiality of climate-related risks and opportunities, failure to take climate change into account may result in a fiduciary facing:  -removal;  -court-ordered disclosure of information related to climate change-related risks;  -fines and penalties under pension standards legislation; and -personal financial responsibility for investment underperformance or loss resulting from failure to properly manage climate change risks and opportunities, including equitable compensation or exemplary damages Please contact Lisa DeMarco at lisa@resilientllp.com should…

The Government of Ontario’s Capital Markets Modernization Taskforce (the Taskforce), launched in February 2020, today released its list of 74 recommendations to modernize Ontario’s capital markets regulation. The Taskforce recommends expanding the mandate of the Ontario Securities Commission (OSC) to include fostering capital formation and competition in the markets and changing the name of the OSC to the Ontario Capital Markets Authority.