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Jeremy Rudin, Superintendent of Financial Institutions for the Offfice of Financial Institutions of Canada, in Toronto on Dec. 14, 2015. Mr. Rudin has outlined his views on the potential for job losses and reduced corporate profits in a move away from fossil fuels.Fred Lum/The Globe and Mail

Canada’s banking regulator says the financial sector should assume the transition to a low-carbon economy will be “sharply negative.”

Jeremy Rudin, who heads the Office of the Superintendent of Financial Institutions, has outlined his views on the potential for job losses and reduced corporate profits in a move away from fossil fuels.

In a recent speech, Mr. Rudin said it is hard to predict how the transition will affect the Canadian economy. He said the hope is the impact will be mild or even positive – but it is safer for decision makers to assume the economy will take a serious hit.

“At present, we have very little reliable information … as so much depends on future policy decisions and yet-to-be-proven technologies,” Mr. Rudin said. “And we have to recognize that we won’t have much reliable evidence until we are well into the transition. So the prudent thing to do is to prepare for the possibility that the overall economic impact of the transition will be sharply negative, at least for some time.”

A copy of his remarks was posted to the OSFI website Tuesday. The speech was originally delivered Feb. 7 in Vancouver at the Annual Review of Insolvency Law Conference.

The OSFI is responsible for supervising the stability of Canada’s financial system and monitoring the soundness of individual banks, insurers and private pension plans.

Mr. Rudin’s speech makes reference to last year’s report by Canada’s Expert Panel on Sustainable Finance, which stated that “it is not an exaggeration to say that our future hinges on how we respond to the challenge of climate change.”

That panel, led by former deputy Bank of Canada governor Tiff Macklem, called on the federal government to set clear rules regarding the financial sector’s fiduciary obligations to consider climate change risks.

It specifically said that OSFI – which directly regulates financial institutions in Canada – should outline its climate risk expectations and issue a statement on its plans for assessing the climate risks faced by financial institutions.

The report was prepared for then-Environment Minister Catherine McKenna and Finance Minister Bill Morneau. The government has yet to formally respond to the recommendations. Mr. Morneau’s upcoming 2020 budget will be watched for signs of moving ahead with any of the panel’s suggestions.

The Liberal Party campaigned on a pledge to set legally binding five-year targets that would put Canada on the path to net-zero carbon emissions by 2050. It also promised to beat Canada’s existing 2030 emission-reduction targets and introduce the Just Transition Act, which would provide for retraining for jobs in the “clean economy.” The promises contained few details of how these goals would be achieved.

Mr. Morneau has said climate change will be a key theme of this year’s federal budget. The date has not been announced, but the budget is usually released in late March.

The “sustainable finance” push is being driven to a large degree by Bank of England Governor Mark Carney, who will leave the bank in March to take up his appointment as the United Nations special envoy on climate action in finance. Mr. Carney was Governor of the Bank of Canada from 2008 to 2013.

Over the past year, he has warned in interviews that companies that fail to adapt to climate change will go bankrupt.

In his Feb. 7 speech, Mr. Rudin said the transition risks to the economy stem from potential government, investor or consumer actions to reduce greenhouse gas emissions.

“The first round is the impact of the transition on those industries that will see their activities, and quite possibly their entire business models, strongly and directly disrupted,” he said. “Industries such as fossil fuel production, electricity generation and transportation are likely to be on this list, and there will surely be others. The second round of transition risk arises as the decline in profits and employment in the disrupted industries ripples through the broader economy.”