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A Climate-Resilient Investment Portfolio

MAS is integrating climate risks and opportunities into our investment framework, and supporting the transition of companies to a low carbon future.

Strategy

Overview

In the Sustainability Report 2021/2022, we outlined MAS’ strategy and approach to address climate-related financial risks associated with the investment of the Official Foreign Reserves (OFR) portfolio. Since then, we implemented various aspects of our strategy to identify, assess and manage climate risks and opportunities. This report provides updates to portfolio actions and metrics undertaken in the past two years, and should be read in conjunction with the Sustainability Report 2021/2022 and Sustainability Report 2022/2023, which sets out the details of these actions and metrics. 
Formulate strategy informed by assessing portfolio returns impact over the long-term

Given the uncertainty over eventual transition pathways, scenario analysis that references multiple scenarios across a wide range of plausible outcomes helps with understanding and analysing the potential impact of climate change on portfolio risks and returns. 

  • We conduct scenario analysis in partnership with GIC, Ortec Finance and Cambridge Econometrics. 
  • We are conducting the third run of the scenario analysis over the course of 2024. The results of the scenario analysis, which are expected to be finalised in the second half of the year, will be used to validate our strategy, provide insights to finetune our approaches, and inform us on advances in climate science and modelling.
  • In the latest scenario analysis in 2022, we referenced four climate scenarios: 
  Net Zero (NZ)   Delayed Disorderly (DDT) Too Little Too Late (TLTL)  Failed Transition (FT)
Transition Risk   Moderate  Moderate  High Low
Nature of transition
  • Early policy action and adoption of low carbon technology
  • Net zero emission year reached in 2050
  • Delayed and sudden policy action to push adoption of low-carbon technologies
  • Net zero emission year reached in 2070
  • Delayed and cascading policy intensity with escalating impacts resulting in multiple reflexive and abrupt policy changes to decarbonize the economy in the 2030s
  • Net zero emissions not reached before 2100 
  • Only current policy measures and technologies are implemented
  • Net zero emissions not reached
Physical Risk  Low Limited Moderate High
Temperature outcome and extreme weather events 
  • Global warming limited to within Paris agreement goals (+1.5ºC by 2100)
  • No sudden surges in extreme weather events (EWEs)
  • Slightly higher warming relative to Net Zero Scenario (+1.8ºC by 2100) due to delayed action
  • Surge in EWEs in 2030
  • Significant global warming (+2.6ºC by 2100) due to delayed action
  • Surge in EWEs in the 2030s with each shock having a larger impact than the previous shock
  • Severe global warming (+4.3ºC by 2100)
  • EWEs rise in frequency and severity over time as temperatures rise
  • The key findings from the climate scenario analysis prompted the need to take a series of early, scalable climate actions focusing on mitigating transition risks especially in the equities portfolio given their higher sensitivity of risks and returns to the impact of climate change. 
  • Collectively, these actions seek to protect the OFR portfolio from the impact of climate transition risks, enhance the climate resilience of the portfolio, and potentially benefit from transition opportunities and climate solutions. We will continue to monitor and finetune these portfolio actions and seek to calibrate them based on evidence of real-world transition progress, and corresponding implication on portfolio returns.
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