MAS consults on environmental risk for FIs

The Monetary Authority of Singapore (MAS) has issued a set of three consultation papers on its proposed Guidelines on Environmental Risk Management for banks, insurers and asset managers. The MAS says the guidelines are designed 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 the wider region. This latest move forms part of the MAS’s Green Finance Action Plan to become a leading global centre for green finance, in which it invested some $2bn last year. The guidelines, which were co-created with FIs and industry associations, explain the MAS’s supervisory expectations for banks, insurers and asset managers in their governance, risk management and disclosure of environmental risk. These include: 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 Risk Management – FIs are expected to implement policies and processes to assess, monitor and manage environmental risk Disclosure – FIs should make regular and meaningful disclosure of their environmental risks to enhance market discipline by investors. Mr Ong Chong Tee, deputy managing director of the 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.” The MAS explains that action is needed in this area because environmental risk not only generates reputational problems, but also bears a financial impact on FIs and the assets they manage on behalf of their customers, 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. These losses can be compounded by other environmental risks including changes in land use, pollution and loss of biodiversity, which cause more severe impact on the financial system,” explains the MAS. “The financial sector should take concerted action to address the impact of environmental risk and support a smooth transition to an environmentally sustainable economy. It is crucial for FIs to build resilience against the impact of environmental risk as part of their business and risk management strategies. FIs should implement robust environmental risk management policies and processes, and effectively monitor, manage and disclose their exposures to environmental risk. Additionally, FIs can act as a “force for good” in the transition towards an environmentally sustainable economy by channelling capital through their financing, underwriting and investment activities,” adds the authority. Interested parties are invited to comment by 7 August.

MAS consults on environmental risk for FIs

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