ESG Risk Factors for Canadian Banking Organizations: Review of 2023

In this commentary, we examine how Canadian banking organizations' credit ratings or rating trends were affected by either an Environment, a Social, or a Governance (ESG) factor, or a combination of ESG factors in 2023, as outlined under the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings.

Key Highlights include:
-- All of our publicly rated credit unions have a common Relevant Social risk factor, which reflects our view that these banking organizations have a positive social impact on local communities as they continue to provide financial services to underbanked areas.

-- Laurentian Bank of Canada had a Significant Governance risk factor associated with the rapid succession of executive and management teams in 2023.

-- More transparency and disclosure of climate-related risks are expected in 2024 and 2025 as set out in OSFI's new Guideline B-15: Climate Risk Management.

“Morningstar DBRS will continue to closely monitor the regulatory environment for changes, particularly climate-related disclosures, data security requirements and anti-money laundering issues, and how Canadian banking organizations will consequently adjust their risk management practices,” said Jiani Wu, Vice President, North American Financial Institution Ratings at Morningstar DBRS.