MAS aims to achieve good long-term returns on our investment portfolio, while taking care that the portfolio remains resilient across market conditions.  Managing the financial impact arising from climate change therefore aligns fully with our long-term investment objectives. 

Climate change introduces risks, but also opportunities, for the Official Foreign Reserves (OFR). 

In particular, the actions societies take to mitigate and adapt to climate change can result in structural changes to the economy. The transition to a low carbon economy will benefit some sectors and companies at the expense of others, and will create correspondingly differentiated impact on company values.

The full impact from this shift will be felt over the coming decades and the eventual outcome cannot be predicted ex-ante. 

The impact of climate change is not only structural and long term, but also dependent on the uncertain trajectory of future pathways.

Building a climate-resilient investment portfolio requires a forward-looking approach which can be calibrated over multiple time horizons.  This involves:

• Understanding the impact on portfolio returns across climate scenarios over a long-term period. We adopt a 20-year time frame as the implications of low carbon transition pathways, or the non-linear escalation of physical climate impacts can only be fully examined over a long time horizon.   
• Positioning the portfolio consistent with climate signposts that provide ex-ante medium term insights on the real progress towards a low carbon future. Trends over a three to five-year period can indicate a change in the pace of transition, and allow us to calibrate portfolio actions in line with the likely transition pathway.
• Implementing portfolio actions in the near term based on a solution set that is presently available, to build internal capabilities and experience, with a view to scaling up these actions over time.  

We continue to strengthen our study of the long-term impact of climate change as methodologies for climate scenario analysis mature 

To deepen our understanding of possible investment implications of climate change, MAS partnered GIC, Singapore’s sovereign wealth fund, and industry-leading consultants to conduct climate scenario analysis on MAS' portfolio.

Scenario analysis does not aim to predict the climate outcome and transition pathways.  Rather, it seeks to provide a range of potential future climate states. 

In MAS’ Sustainability Report 2020/2021, we developed three main climate scenarios which covered a range of risks and shocks that can manifest over both short and long term horizons.  This enabled us to assess the impact on our portfolio and take appropriate portfolio actions where necessary to enhance portfolio resilience. These scenarios will be reviewed and updated periodically.

Climate signposts help us to measure how the world is progressing towards a low carbon future

We have categorised our climate signposts into various domain indicators that track real world progress along a low carbon transition. The domains include:

• Country commitments and actions
• Business commitments and actions
• Deployment of clean technologies and consumption of fossil fuels
• Changes in global carbon emissions 

These indicators are mapped to modelled greenhouse gas (GHG) emissions and transition pathways developed using a myriad of Integrated Assessment Models, to estimate the likelihood of the various climate scenarios materialising.  This provides a basis for subsequent portfolio actions to manage associated risks. For example, in an accelerated transition scenario, we might need to further reduce exposures to companies most-at-risk of higher carbon prices and direct our external managers to step up their engagement with these companies and closely monitor how climate risks are addressed.  Alternatively, a slower global transition away from fossil fuels might warrant a recalibration of portfolio actions.  

We continue to refine the range of indicators to track across the various domains as more data become available and as higher quality indicators emerge that can more reliably signal the transition pathway that the world is on.