Inflated climate change data to be adopted by 250 Canadian financial institutions

CALGARY — A climate change study that was retracted for inflating data is still being used as evidence for climate change risk assessments (CCRAs) at Canadian financial institutions — and 250 more institutions are planning to use it.The Superintendent of Financial Institutions (OSFI), Peter Routledge, reflected on the 2024 fiscal year climate returns at a conference just last week.Climate risk returns show how climate change risks — like extreme weather — could affect financial institutions' business and financial health, using CCRAs."Institutions should continue building climate data discipline and improved emissions measurement to price climate risks accurately," stated Routledge at the conference..He said in 2026, they will be recruiting 250 more institutions to use CCRAs to provide "greater insights into climate risk vulnerabilities."The redacted data these CCRAs used by OSFI are from data in the retracted study, The economic commitment of climate change (cited: Kotz et al 2024). "The authors of a highly publicized study predicting climate change would cost $38 trillion a year by 2049 have retracted their paper following criticism of the data and methodology, including that the estimate is inflated," stated Nature in the retraction.Friends of Science (FOS), a non-profit composed of retired scientists which offers insights on climate science, says among those who cited the article, the Network for Greening the Financial System (NGFS) used the data in their climate risk evaluation models..These climate risk models were used by OSFI, which has been a part of the NGFS since 2020 — officially a member since 2021.It is an assessment of risk, "to better incorporate the financial implications in base case underwriting, and to conduct deeper assessments of indirect risk."Back in 2020, the Bank of Canada (BOC) and OSFI launched their pilot project on climate risk scenarios using NGFS data; however, the retracted article would not have been included, since it was written in 2024.In 2022, the BOC and OSFI reiterated they would be using the climate scenario analysis models developed with NGFS data going forward — soon beginning to use data from Kotz et al 2024..The pilot project was initially used in 2020 by, to name a few, Manulife, Royal Bank of Canada (RBC), and Sun Life Financial.As FOS highlights, the Kotz et al. article exaggerated its prediction that global GDP would drop by 62%, three times greater than previous estimates.However, "other analysts found that when an 'Uzbekistan' anomalous data set was removed, the damage estimates closely paralleled previous, non-exaggerated ones," FOS stated.FOS says, as a consequence, "NGFS and OSFI [are] promoting an economic climate damage baseline that overexaggerates global economic damage to GDP.".Routledge also added last week, climate related risks "continue to pose real threats to financial stability."Our climate scenario exercise and returns show clear evidence that these risks are escalating, not receding."He also claims it is important these assessments are promoting the use of "robust, evidence-based methodologies—supported by better data, geospatial analysis, and consistent scenario design."He claims the goal with CCRAs is to make them"embedded in risk management frameworks," like "governance, underwriting, capital and strategic planning, and enterprise risk management.".FOS wrote an open letter to the Office of the Superintendent of Financial Institutions (OSFI) regarding the retraction of the Kotz et al article.They have since written a follow-up letter to OSFI, since they say their first letter sent back in September was never answered.FOS says Routledge had the opportunity to point out the climate risk had been widely overestimated due to the inflated data used back in November, at the the Canadian Sustainability Standards Board (CSSB) and the UN-supported Principles for Responsible Investment (PRI)'s panel discussion, Sustainability Disclosure in Canada: Overcoming the Headwinds.However, Routledge never did so..“Because we deal on the climate issue and the international for all the time, and I’ll quote our prime minister, or maybe I’ll steal a quote from him: We take note of what our international peers are doing,” stated Routledge at the event."We don’t take direction. We’re going to do what’s right for Canada and Canada’s financial system."FOS is calling on Routledge to "clearly and publicly retract" the climate emergency narrative brought about the banking sector’s reliance on and use of data from Kotz et al.

Inflated climate change data to be adopted by 250 Canadian financial institutions

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