New Singapore Guidance for FIs on Environmental Risks

Financial institutions expected to use guidance to bolster resilience to environmental risk and set tangible targets.

The Monetary Authority of Singapore (MAS) has published new information papers on environmental risk management for banks, insurers and asset managers.

The papers provide an overview of the progress made by financial institutions (FIs) to implement the MAS’ Guidelines on Environmental Risk Management, issued in December 2020, which had set out supervisory expectations for FIs in their governance, risk management, and disclosure of environmental risk.

The information papers are based on a thematic review conducted by MAS in 2021 on selected banks, insurers and asset managers, highlighting emerging and good practices by FIs and identifying areas where further work is needed.

Varying stages of implementation

FIs are at varying stages of putting in place the relevant risk management processes, MAS says.

The majority of the banks and insurers expected to be in full compliance with the Environmental Risk Management Guidelines by June 2022, while the rest are committed to accelerating their implementation. Apart from climate-related risks, banks and insurers have yet to make meaningful progress to address other environmental risk factors, such as biodiversity loss.

Banks and insurers have cited a number of challenges in addressing environmental risks, including the need for readily available data that is reliable and comparable, robust methodologies to quantify financial impact, and the increased demand for staff skilled in sustainable finance.

Asset managers are meanwhile showing “mixed progress” in their implementation of the Guidelines, though most asset managers recognise the relevance and urgency of environmental risk, and have put in place frameworks, governance arrangements, and policies to oversee this risk.

Many asset managers have also made public commitments to sustainable investing, and a few have pledged to achieve net zero emissions for their investment portfolios by 2050. In addition, most asset managers have hired staff with relevant expertise to lead their sustainable finance efforts, trained internal staff, and procured relevant third-party data to supplement their internal assessment of environmental risk.

MAS also notes that some asset managers have begun to make sustainability-related disclosures to share how they manage environmental risk and seize opportunities to deliver long-term value to their stakeholders.

Urgency and ambition

FIs should refer to the industry practices shared in the papers, and assess the applicability of the practices to their efforts to bolster their resilience to environmental risk in a way that is commensurate to their size, nature of activities and risk profile, MAS says.

Particular attention should be paid to areas where further work is required as highlighted in the papers, and the impact of their efforts may have on business strategies and risks, as well as on the financial system and the broader transition to a sustainable economy.

The regulator says some banks have been indiscriminately withdrawing credit withdrawal from sectors deemed to be of higher climate-related risks, which could impact companies with credible transition plans and increase the risk of stranded assets and a disorderly transition.

MAS encourages FIs to translate their environmental risk strategy and risk appetite into concrete milestones and tangible targets for action with “urgency and ambition”.

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