Understanding Climate Risk: How Credit Unions Can Adapt and Thrive

As climate change intensifies, credit unions in Canada are facing new challenges that demand immediate action. From wildfires to floods, the impacts of extreme weather are becoming more frequent, causing significant financial, environmental, and social disruptions. In 2023 alone, Canada experienced over $3.1 billion in insured damage from severe weather events, marking the fourth-worst year on record. As community-focused institutions, credit unions must not only support their members through these crises but also manage the associated financial risks.

A key aspect of climate risk for credit unions involves protecting assets like residential mortgages and real estate, which are increasingly vulnerable to disasters such as flooding and wildfires. Additionally, the transition to a low-carbon economy presents new risks and opportunities, particularly for sectors reliant on carbon-intensive industries.

Regulators have already begun addressing these risks. The Office of the Superintendent of Financial Institutions (OSFI) has released the B-15 Climate Risk Management Guideline, which sets out expectations for financial institutions to manage both physical and transition risks related to climate change. These guidelines emphasize the need for strong governance, robust risk management, and scenario analysis to ensure institutions remain resilient.

What can credit unions do to prepare? Here are some essential steps:

1. Educate Your Board: Ensure your board is well-versed in ESG and climate-related disclosures.

2. Strengthen Governance: Build structures that support ESG and climate risk oversight.

3. Conduct Scenario Analysis: Prepare for plausible climate-related scenarios.

4. Enhance Data Collection: Collect accurate and verifiable ESG data for disclosures.

5. Set Net-Zero Targets: Align with frameworks to reduce financed emissions.

As we look ahead, it’s clear that credit unions must prioritize climate resilience to safeguard their members and communities. For those looking to take the next step, the CCUA Climate Action Working Group is an excellent resource for learning and collaboration.

For a comprehensive look into the regulatory landscape and the steps your credit union can take, be sure to check out CCUA’s latest report on Climate Risk Management. This resource dives deeper into managing both physical and transition risks, preparing credit unions for the future.

For more information, contact Bolu Omidiji at bomidiji@ccua.com.