MAS expands environmental risk management guidelines

[SINGAPORE] The Monetary Authority of Singapore (MAS) on Thursday (Mar 5) issued three new guidelines on environmental risk management and transition planning for financial institutions (FIs), which includes banks, insurers and asset managers.

The new guidelines outline MAS’ supervisory expectations for these three categories of FIs, in terms of how they manage the climate change-related transition and physical risks faced by themselves and their portfolios, said the central bank in a media relase.

They will take effect from September 2027, after an 18-month transition period, and expand on an earlier set of environmental risk management guidelines issued in 2020 by MAS.

The central bank said that the new guidelines aim to support FIs in building “effective risk assessment and risk management capabilities for better resilience against climate-related risks”.

Ho Hern Shin, deputy managing director (financial supervision) at MAS, highlighted the financial sector’s important role in supporting customers as they navigate climate change-related risks.

“By engaging their customers and investee companies in a risk proportionate manner, FIs can build better resilience to risks and support broader financial stability,” she said.

As with the earlier set of guidelines in 2020, the new guidelines comprise specific recommendations for banks, insurers and asset managers.

The new guidelines account for the different business models of each FI category, as well as factor in feedback from an earlier public consultation and engagement with the industry.

Three new guidelines

MAS said that FIs should establish transition planning processes in a “risk proportionate manner”, by considering various factors such as the risk profile of their business models and the local circumstances of business operations.

The new guidelines are:

• Assess and manage risks related to physical and transition risks arising from climate change. FIs should do this by adapting their business models, as well as governance and risk management practices, in a forward-looking manner;
• Engage customers and investee companies to help them better understand the climate-related risks they face, as well as their management of such risks. FIs should do this to avoid indiscriminate withdrawal of credit, insurance coverage or investments, and to support broader financial stability. In doing this, FIs should consider the risk materiality of their customers and investees when collecting data;
• Keep pace with the development of knowledge and capabilities relating to the measurement and management of climate-related risks, as data and methodologies around the understanding of such risks continuously improve.