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Friends of Science Society Raises Questions on Climate Risk Analysis in Canadian Banking

In a letter dated December 5, 2025, addressed to the Office of the Superintendent of Financial Institutions (OSFI), the Friends of Science Society (FOSS) has launched a critique of the climate risk reports that various Canadian banks and insurance firms have received recognition for. This contention is primarily directed at the economic study conducted by Kotz et al. that was recently retracted from the scientific literature, raising concerns about the reliance on this flawed analysis in financial climate risk protocols.

Context of the Controversy

On December 3, 2025, the prestigious journal NATURE officially retracted the controversial study by Kotz and others titled The Economic Commitment of Climate Change. This publication had been widely embraced by central banks that are members of the Network for Greening the Financial System (NGFS) as a reference point for climate risk assessment in financial sectors. The core argument from FOSS is that the findings of the retracted paper dramatically overstate the economic ramifications of climate change on global GDP.

A recent editorial in the Wall Street Journal highlighted the alarming implications of the Kotz et al. study, which suggested potential damages amounting to $31 trillion by 2049 due to climate change—equivalent to the projected GDP of North America at approximately $31.4 trillion in 2024. This raises critical concerns, as if Canadian banks and insurers anchor their climate risk policies on such exaggerated estimates, it could lead to skewed financial practices against energy-intensive businesses and sectors.

Economic Analysis and Alternative Perspectives

The FOSS has previously conducted a detailed analysis led by its president, Ron Davison, P. Eng., titled Net Zero Climate Policy is All Pain for Minimal Gain. This report underscores that the detrimental economic impacts of striving for net-zero emissions far outweigh the hypothetical gains touted by climate activists. Davison's argument presents a stark warning against the legislative measures like the Climate Aligned Finance Act (CAFA, Bill S-238). This bill seeks to severely limit financing for high-energy-consuming industries, with its legitimacy heavily predicated on the faulty findings of the Kotz et al. study.

As Khandekar, a climate scientist and past reviewer for the Intergovernmental Panel on Climate Change (IPCC), notes in relation to FOSS's position, there is a significant trend of conflating extreme weather events with solid evidence of climate change. He advocates for adaptation strategies over restrictions on fossil fuel usage, emphasizing the need for pragmatic responses to changing climate patterns rather than trying to control the weather through stringent regulations and policies.

Canada’s Position on Climate Change and Energy Policies

Under the leadership of Prime Minister Mark Carney, Canada has proclaimed its ambitions to become an energy superpower while recently signing a pivotal Memorandum of Understanding (MOU) with Alberta that focuses on enabling enhanced pipeline projects and access to global markets. However, FOSS warns that if Canada continues to adopt misguided climate evaluation methods and policies such as the Enacting Climate Commitments Act influenced by the retracted study, the result could mirror the industrial decline observed in Germany—an alarming fate for a nation heavily reliant on its industrial base.

In response to the complexities of aligning Canadian climate policy with economic effectiveness, seasoned economist Robert Lyman released a report captioned He Shoots; Does He Score?, which dissects the implications of the Canada-Alberta MOU in light of ongoing debates about climate risk analysis in the banking sector.

As climate policies evolve globally, the FOSS argues that Canadian banks are presently operating under a misinformed and exaggerated view of climate risks, which is unsupported by an extensive review of scientific literature. In fact, over 2,000 scientists and scholars, including many members of the Friends of Science Society, have affirmed their stance by signing the CLINTEL World Climate Declaration, which specifically states that there is no climate emergency.

Conclusion and Future Outlook

The Friends of Science Society is steadfast in its belief that current climate policies in Canada's banking sector need a recalibrated perspective that considers more comprehensive scientific evidence. As the discourse around climate risk analysis continues to shape crucial financial decisions, ensuring that these analyses are based on solid scientific foundations rather than retracted or flawed studies will be imperative for fostering a balanced approach to both economic growth and environmental accountability.