Federally regulated insurers would need to include emissions linked to activities they financially facilitate for the purposes of developing plans and targets under the Climate-Aligned Finance Act, if passed.
Bill S-238, introduced for first reading on October 29, 2025, establishes the Climate-Aligned Finance Act. For insurers, if an activity is financially facilitated by them, the associated emissions are included for the purposes of developing their plans and targets.
Insurance companies regulated under the Insurance Companies Act are reporting entities under the Act, along with banks and specified pension plans. Insurers would need to count indirect emissions across entire life cycles, including scope 2 and scope 3 emissions as described in the Greenhouse Gas Protocol.
Within a year of the relevant provision taking effect, if approved, the Superintendent of Financial Institutions must write new capital adequacy guidelines for banks, authorized foreign banks, and bank holding companies and their subsidiaries. The guidelines will impose increased capital-risk weights on financing exposed to acute transition risks, including any loan, bond or derivative exposure to any fossil fuel activity or new fossil fuel resources or infrastructure, differentiating transition-risk intensity among oil, gas and coal exposures.
A separate systemic climate risk-contribution capital surcharge would apply to banks, authorized foreign banks, and bank holding companies and their subsidiaries. The bill uses an institution's level of financially facilitated emissions as a proxy for its contribution to the systemic risk it places on the financial system.
For trust and loan companies, cooperative credit associations, insurers and certain pension plans, the Superintendent must develop separate funding requirements within six months of publishing the bank capital guidelines. These funding requirements must encompass all asset classes and types of activities those entities undertake to financially facilitate emissions-intensive activities.
The bill would also require absolute emissions targets across entire sectors and portfolios, down to individual investment holdings across all classes of debt and equity.
Insurers get two years to draft their first climate plan, then must update it at least every five years until 2050. The plans must include measures to prioritize immediate and ambitious action, emissions reductions within the value chain, and change and innovation to replace emissions-intensive activities. They must also set out measures on operational and capital allocation for existing and new lines of business to ensure achievement of targets.
Offsets cannot substitute for actual reductions except under narrow conditions. Insurers can only count offsets after they have undertaken the maximum feasible mitigation of emissions, the offsets are produced through proven emissions removal methods, and the offsets are strictly necessary to neutralize minimal residual emissions that cannot be abated with available technology.
Every year, insurers must publish a climate commitments alignment report within 60 days of their financial year-end, posted on their website with no paywall or registration barrier, unless they can demonstrate no or negligible emissions in the preceding financial year. The reports must show how targets align with a pathway that respects the global carbon budget and is consistent with limiting global temperature increase to 1.5 degrees Celsius over pre-industrial levels, with no or low overshoot.
Several federal boards would also need at least one member with climate credentials, including boards of the Canada Deposit Insurance Corporation, Canada Mortgage and Housing Corporation, Canadian Commercial Corporation, Export Development Canada, Farm Credit Canada, Business Development Bank of Canada, Canada Pension Plan Investment Board, Public Sector Pension Investment Board, Canada Infrastructure Bank, and certain boards appointed under section 105 of the Financial Administration Act.
Board members of reporting entities appointed after the third anniversary of the relevant provision coming into force would need to disclose financial stakes in organizations that do not meet the description of an entity in alignment with climate commitments, except for certain exempt assets under the Conflict of Interest Act. They must also disclose positions they hold in such organizations, lobbying activities on their behalf in the past five years, or services they provide to them. Positions and services are excepted only if they have the sole purpose of helping those organizations become an entity in alignment with climate commitments.
The Superintendent of Financial Institutions may issue orders to banks, authorized foreign banks, bank holding companies, trust and loan companies, cooperative credit associations, insurance companies, and certain pension plans if, in their opinion, doing so is in alignment with climate commitments or will help the entity ensure alignment with climate commitments.
