Navigating Canada’s New Climate Risk Regulations: What Commercial Property Owners and Developers Need to Know

With the OSFI leading the charge in setting guidelines for managing climate-related risks, it's crucial for businesses to understand the implications for their investments in real estate.

In the world of commercial real estate, staying abreast of regulatory changes and emerging trends is paramount for success. Like in many other parts of the world, Canada’s real estate industry is witnessing a shift towards sustainability and resilience, driven by new climate risk regulations and initiatives aimed at mitigating the impacts of climate change.

For commercial property owners and developers, understanding and embracing these regulatory changes is not just a matter of compliance but also an opportunity to future-proof their investments and enhance their competitive advantage in the market.

One of the newest sets of regulations impacting the commercial property ownership and development sector in Canada are those by the Office of the Superintendent of Financial Institutions (OSFI), which sets risk management guidelines for regulated financial institutions (FRFIs) and federally regulated pension plans (FRPPs) across the country.

With the impacts of the climate crisis rapidly becoming an urgent concern for the entire economy, including the financial system, the OSFI is working to establish guidelines on how FRFIs and FRPPs must manage and disclose their climate-related risks – both physical risks emanating from exposure to climatic events such as wildfires, floods, and extreme weather, and transitional risks arising from a broad societal and economic shift towards a low-carbon economy.

These emerging regulatory requirements will impact many sectors of the economy, including commercial real estate, which is heavily reliant on capital financing to continue to grow and develop, as well as a robust property insurance system to protect its assets.

The potential ramifications of climate risk on industries like insurance and lending are profound. With insurance companies increasingly likely to factor climate risk profiles into their pricing models, premiums could rise, reflecting the risk that increased exposure to climate-related hazards have on real property. Similarly, lenders may adopt a more cautious approach, particularly regarding financing for construction projects in areas susceptible to climate risk.

Consequently, tenants and buyers may encounter challenges in securing insurance coverage and mortgages for properties located in regions with heightened climate risk. This shift could potentially hinder property transactions and investment decisions in areas without climate adaptation strategies.

Moreover, building owners and developers are confronted with the challenge of navigating these regulations and understanding the cost of not implementing new practices. Many within this sector may not be fully aware of the regulatory landscape, leaving them vulnerable to being caught off guard by compliance requirements. As a result, proactive measures to understand and adapt to these regulations are imperative for stakeholders across industries to mitigate financial and operational risks associated with climate change.

Proactive Measures for Property Owners and Developers

Fortunately, commercial property owners and developers can take proactive measures to address climate risks and capitalize on emerging opportunities. To start, integrating climate considerations into asset management plans and decision-making processes is essential for identifying and mitigating potential risks associated with climate change impacts. Further, setting internal prices on carbon can incentivize sustainable investments and inform strategic decision-making regarding asset management and procurement.

Adjusting asset management strategies to account for climate change impacts on asset deterioration rates is another important step that can help mitigate financial risks associated with climate-related damages.

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By collaborating with sustainability groups, property managers, and procurement teams, commercial property owners and developers can ensure that climate resilience strategies are effectively implemented across their portfolios. Fostering open communication and collaboration among stakeholders is key to aligning goals and driving meaningful progress towards sustainability and resilience.

By aligning with the new OSFI regulations, commercial property owners and developers can enhance transparency, accountability, and risk management practices, thus strengthening their resilience to climate-related challenges.

Conclusion

In conclusion, commercial property owners and developers must recognize the importance of sustainability and resilience in today’s competitive real estate market, including compliance with regulatory standards set forth by institutions such as OSFI.

By staying informed, proactive, and collaborative, they can position themselves as leaders in sustainable development and contribute to Canada’s broader climate goals. With the right strategies and partnerships in place, commercial property stakeholders can thrive in a rapidly changing regulatory landscape and build a more sustainable future for generations to come.


Robyn Brown is Canada East Lead for Placemaking at Arcadis.

Ernesto Diaz Lozano Patiño is the Climate Adaptation Solution Lead, Canada, for Arcadis.

Kaylee Shalett is Global Technical Director, Sustainability Advisory, at Arcadis.

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