Singapore Calls for “Careful” FI Assessment of Transition Plans

MAS will issue a consultation on transition planning later this year and form new association to foster a dynamic ecosystem for green and transition finance. 

The Monetary Authority of Singapore (MAS) has announced that it will establish new supervisory expectations to steer the transition planning of financial institutions (FIs), to facilitate credible decarbonisation efforts by their clients.  

The regulator intends to issue a consultation paper on transition planning later this year. 

The announcement follows MAS Managing Director and Network for Greening the Financial System (NGFS) Chair Ravi Menon’s announcement at the Green Swan Conference that it intends to set supervisory expectations for FIs on their transition plans. 

Speaking at the Financing Asia’s Transition (FAST) Conference on 8 June, MAS Chairman Tharman Shanmugaratnam said the transition planning guidance will cover the governance frameworks and client-engagement processes of FIs to manage climate-related financial risks and to enable a transition towards net zero in the real economy. 

The FAST conference was co-hosted by MAS, BlackRock and Temasek as part of Ecosperity Week 2023 – which brings together decision-makers from across FIs and the real economy to catalyse green and transition finance. 

Shanmugaratnam cautioned that FIs should not “indiscriminately de-risk” from particular sectors but instead carefully assess clients’ transition plans and provide the needed financing for transition where the plans are credible. 

While reviewing the implementation of transition plans by FIs, MAS will recognise that a short-term increase in their financed emissions may arise due to actions supporting longer-term climate-positive outcomes. 

Overcoming barriers  

Shanmugaratnam touched on the urgency of investing in climate action and highlighted two approaches to mobilise blended finance. First, to realise that investing in solutions now will bring both immediate and future benefits. Second, to establish coordinated regulation and credible transition pathways. 

“We have to think about financial regulation and supervision, as part of the arsenal of public policy required to bring forward actions to avoid catastrophe, not merely as tools to deal with the risks on today’s balance sheets, in today’s FI,” he said. 

Shanmugaratnam expressed concern that the political economy is impeding the progress of implementing carbon taxes. To overcome this obstacle, he said financial supervision, as an alternative, can come through a disciplined framework within which central banks and financial regulators are shielded from daily political impacts and the influence of other government departments. 

He added that central banks, financial regulators and FIs will be “plodding away through micro-measures and missing that big picture” if left to act based on their usual remits, underscoring the importance of financial supervision. 

Blended finance 

Shanmugaratnam also said MAS would collaborate with government agencies and industry stakeholders to explore platforms for scaling up blended finance. This approach aims to combine patient and concessional capital from sources such as philanthropy, multilateral development banks, development finance institutions, and donor partners. 

The collaboration is looking to attract conventional infrastructure financiers like banks and institutional investors by leveraging these initial funding sources. MAS will announce further details when these plans are more developed. 

In further efforts, MAS will collaborate with the industry to establish a new association, the Singapore Sustainable Finance Association (SSFA). The SSFA’s primary objective will be to foster a dynamic ecosystem for green and transition finance. It will initially concentrate on scaling voluntary carbon markets, transition finance, and blended finance initiatives. 

The Association of Banks in Singapore (ABS) will lead in the coordination and setting up of the SSFA, which will comprise representatives from FIs, financial industry associations, relevant corporations, and service providers, including ESG rating agencies. 

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