MAS Consults on Environmental Risk Management Guidelines for Financial Institutions
Singapore, 25 June 2020... The Monetary Authority of Singapore (MAS) today issued a set of three consultation papers on its proposed Guidelines on Environmental Risk Management (Guidelines) for banks, insurers and asset managers. The Guidelines aim to enhance financial institutions’ (FI) resilience to environmental risk, and strengthen the financial sector’s role in supporting the transition to an environmentally sustainable economy, in Singapore and in the region. This is part of MAS’ Green Finance Action PlanThe three limbs of the Green Finance Action Plan are to build financial system resilience to environmental risk, develop green finance solutions and markets, and leverage innovation and technology. For more information, please refer to: "Green Finance for a Sustainable World" - Keynote Speech by Mr Ong Ye Kung, Minister for Education, Singapore and Board Member, Monetary Authority of Singapore, at SFF x SWITCH 2019 and Media release on New US$2 billion Investments Programme to Support Growth of Green Finance in Singapore. to become a leading global centre for green finance.
2 The Guidelines, which were co-created with FIs and industry associationsThe Association of Banks in Singapore, General Insurance Association of Singapore, Life Insurance Association Singapore, Singapore Reinsurers’ Association and Investment Management Association of Singapore, set out MAS’ supervisory expectations for banks, insurers and asset managers in their governance, risk management, and disclosure of environmental risk.
a. Governance – Boards and senior management of FIs are expected to incorporate environmental considerations into their strategies, business plans, and product offerings, and maintain effective oversight of the management of environmental risk.
b. Risk Management – FIs should put in place policies and processes to assess, monitor, and manage environmental risk.
c. Disclosure – FIs should make regular and meaningful disclosure of their environmental risks, so as to enhance market discipline by investors.
3 Mr Ong Chong Tee, Deputy Managing Director, MAS, said, “Even as FIs, regulators and policymakers grapple with Covid-19 and its impact, it is crucial to keep our focus on environmental issues as they pose clear challenges for our economies and financial systems. It is important for FIs in Singapore to have a good understanding of environmental risk and improve their resilience against environmental-related events, as part of their business and risk management strategies. MAS is grateful to our industry partners for helping to co-create these Guidelines.”
4 The public consultation papers are available on MAS’ website: link (for banks and finance companies), link (for insurers) and link (for asset managers). MAS invites interested parties to submit their comments on the proposed Guidelines by 7 August 2020.
Environmental risk poses potential financial impact on FIs’ portfolios and activities through physical and transition risk channels. Physical risk arises from the impact of weather events and long-term or widespread environmental changes. This can impair the collateral value of bank loans and revenue generating assets of investee companies, and lead to significant insurance claims. Transition risk arises from the process of adjustment to an environmentally sustainable economy, including changes in public policies, disruptive technological developments, and shifts in consumer and investor preferences. For example, loans and investments in carbon-intensive sectors can be impaired, as the profitability of these businesses are impacted in the transition to a low-carbon economy.