Reply to Parliamentary Question on including climate change-related risk in MAS' annual industry-wide stress test
QUESTION NO 3410
NOTICE PAPER 1965 OF 2020
FOR ORAL ANSWER
Date: For Parliament Sitting on 4 February 2020
Name and Constituency of Member of Parliament
Mr Louis Ng Kok Kwang, MP, Nee Soon GRC
To ask the Prime Minister (a) whether the Government plans to include climate risk, particularly climate change-related risk, in MAS's annual industry-wide stress test (IWST), in line with what the Bank of England is doing and what the International Monetary Fund (IMF) recommends for central banks; and (b) if not, why the Government is choosing not to do so.
Answer by Mr Ong Ye Kung, Minister for Education, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:
1. The Monetary Authority of Singapore (MAS) takes climate change-related risks seriously as a financial supervisor. Financial institutions are potentially exposed to such risks, because they provide financing and insurance services to businesses that can be impacted by a wide range of climate change-related events, including natural catastrophes. There are also risks arising from changes to public policies, technologies, or consumer preferences that can impact businesses significantly. Climate change is therefore increasingly relevant to financial institutions, both because the risks will be on their balance-sheets, and because they will play a role in enabling their customers and the economy at large to make a transition - here in Singapore as well as abroad.
2. MAS is in fact a founding member of the global Network for Greening the Financial System, which develops best practices for a more sustainable financial industry. Locally, we will be issuing a consultation paper on Environmental Risk Management guidelines for various financial institutions in the first quarter of this year.
3. MAS has already started to stress test for climate change-related risks. For example, in the 2018 Industry-Wide Stress Test, MAS subjected insurers to a scenario featuring extreme flooding, and they had to consider the impact of higher claims on their balance sheets arising from damage to insured properties.
4. But the methodologies for stress testing climate change-related risk are still at a nascent stage, as international regulators recognise. The Bank of England, mentioned by Mr Ng, has acknowledged that central banks and the financial sector are still building capacity to model financial risks arising from climate change. The IMF too is working to improve its climate change-related stress scenarios.
5. MAS is working towards incorporating a broader range of climate change-related risks in thematic scenarios as part of a future Industry-Wide Stress Test.