Open letter to OSFI on climate-risk/Kotz retraction

Dec. 05, 2025

To: Office of the Superintendent of Financial Institutions (OSFI)

See the PDF version for the CC list.

RE: 2025 Insights on Climate Risk Returns and Retraction by NATURE of Kotz et al (2024)

We read your recent report on the Climate Risk Returns[1] that you have received from the six banks and a handful of insurers.[2]

We assume that the climate risk evaluations made by these organizations were based on the Network for Greening the Financial System (NGFS) models, which, in the course of the past year, would have been based on Kotz et al 2024, “The economic commitment of climate change,” first issued in the fall of 2024. That was when NGFS adopted their model as a baseline for climate economic damage, despite notes and corrections being attached to the work at the journal NATURE, indicating very early on that the scientific validity of the work was unreliable.

As of Dec. 03, 2025, Retraction Watch has published details about the fact that NATURE has retracted this paper.

Consequently, it is unclear how meaningful the climate risk reports that you have received from Canadian financial and insurance companies can be, if based on unreliable, wildly skewed information.

From your report Insights from the 2025 Climate Risk Returns Page 10:

Without strong internal capabilities, controls, and reliable inputs, FRFIs cannot generate decision-useful information or meet supervisory expectations. Data quality in regulatory submissions is foundational for comparability, credibility, and ultimately for integrating climate-related risks into prudential oversight. (bold emphasis added)

Kotz et al is an unreliable input, yet apparently fundamental to NGFS climate scenario analysis.

Roger Pielke, Jr., climate policy analyst who has worked closely with the insurance industry on disaster and risk monitoring for the past ~25 years, also reported on this retraction.  He referenced a New York Times article:[3]

Curiously, in a public statement upon the retraction of this vital linchpin of central bank climate modeling, the Network for Greening the Financial System (NGFS) is apparently unwilling to abandon this climate catastrophe scenario, that conveniently results in an extraordinarily high shadow price on carbon by 2050.[4]

Imagine any corporate client similarly clinging to completely unrealistic projection of business success and voluminous profits while applying for a loan or insurance.  The financial community would blacklist the party.

Why does your regulated network and NGFS get a pass?

In fact, NGFS published a disclaimer about Kotz et al 2024 one day after we issued this press release,[5] informing the public of the fact that banks were using a wildly skewed model to set carbon prices and climate policies.  We informed you of this in our Open Letter of Sept. 11, 2025.[6]  In your Climate Risk Returns report, there is no mention of those early questions about the Kotz et al work as being questionable or unreliable.  As such, it would seem to be a critical, material change.[7]  There is certainly a very significant material change vis a vis the flawed Kotz et al 2024 paper, vis a vis economic projections due to climate damage.  Investors and securities exchanges have tight requirements for reporting on material facts and material change[8]; do you not have to meet or exceed such standards as their supervisory body?

In the case of Kotz et al’s wild exaggeration, [9] the paper predicted that global GDP would drop 62%, or some three times greater than previous estimates.  Other analysts found that when an “Uzbekistan” anomalous data set was removed, the damage estimates closely paralleled previous, non-exaggerated ones.

According to your mandate:

By supervising federally regulated financial institutions and pension plans in Canada, we’re protecting Canadians. Our goal is to contribute to public confidence in Canada’s financial system.

Our supervisory activities ensure financial institutions and pension plans follow our regulations and meet our expectations.

What’s included in supervision

• Analyzing trends in the environment to identify issues that could affect financial institutions and pension plans
• Evaluating risks facing financial institutions and pension plans by weighing the benefits of their activities versus the potential harm they could cause
• Being transparent about our practices to keep us, financial institutions, and pension plans accountable (bold emphasis added)

Just as you direct your supervised financial institutions to develop and run various scenarios, should you not also direct them to explore broader scientific views on climate change and the impacts of carbon dioxide?

This short brief from Prof. Emeritus William Happer is revealing:[10]

The unfortunate outcome of having NGFS and OSFI promoting an economic climate damage baseline that overexaggerates global economic damage to GDP is that it lends credence to demands from the Honorable Senator Rosa Galvez and her bevy of supporters, for their push for Bill – S238 (formerly Bill S243).[11] Galvez claims in her Oct. 2025 press release that insurable losses in Canada were $9.2 billion in 2024, as if these are signs of climate change.

Continue reading the letter in PDF format:

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[1] https://www.osfi-bsif.gc.ca/en/about-osfi/reports-publications/insights-2025-climate-risk-returns

[2] The term “D-SIBs” refers to Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank.

The term “IAIGs” refers to Sun Life Assurance Company of Canada, Manufacturers Life Insurance Company,

Canada Life Assurance Company, and Intact Financial Corporation. (from OSFI’s document)

[3] https://open.substack.com/pub/rogerpielkejr/p/a-huge-retraction-the-usual-playbook?r=f96qu&utm_campaign=post&utm_medium=web&showWelcomeOnShare=false

[4] https://www.ngfs.net/en/press-release/statement-regarding-physical-risk-estimates-phase-v-ngfs-long-term-scenarios

[5] https://www.prnewswire.com/news-releases/ngfs-central-banks-adopted-exaggerated-gdp-climate-damages-report-says-friends-of-science-society-302536435.html?tc=eml_cleartime

[6] https://blog.friendsofscience.org/2025/09/12/open-letter-to-osfi-on-the-network-for-greening-the-financial-systems-ngfs/

[7] https://blog.friendsofscience.org/2025/09/12/open-letter-to-osfi-on-the-network-for-greening-the-financial-systems-ngfs/

[8] https://www.mccarthy.ca/en/insights/blogs/canadian-appeals-monitor/a-material-development-the-supreme-court-of-canada-addresses-the-definition-of-a-material-change-under-canadian-securities-legislation

[9] Authors of the first “Matters Arising” commentary published August 6 noted the article projected the global gross domestic product would be lowered by 62 percent by 2100, “an impact roughly 3 times larger than similar previous estimates.” The authors of the critique also pointed out the PIK authors had used a dataset for Uzbekistan with “anomalies.” By removing the Uzbek dataset, the estimate in the original paper “aligns closely with previous literature,” the critique reads. https://retractionwatch.com/2025/12/03/authors-retract-nature-paper-projecting-high-costs-of-climate-change/

[10] https://co2coalition.org/wp-content/uploads/2025/11/Happer-Comment-Reconsideration-of-the-Greenhouse-Gas-Reporting-Program-GHGRP-2025-11-3.pdf

[11] https://rosagalvez.ca/media/3yjdoqln/2025-10-29-press-release-climate-aligned-finance-act.pdf