Today, the Monetary Authority of Singapore (MAS), the central bank and financial regulator of Singapore, unveiled consultation papers outlining proposed guidelines for net-zero transition planning by financial institutions, including banks, insurers, and asset managers.
These guidelines articulate the MAS’s supervisory requirements for financial institutions, emphasizing the need for a robust transition planning process. This process should facilitate effective climate change mitigation and adaptation measures by both their customers and portfolio companies. It should address the transition to a net-zero economy and the physical impacts of climate change.
A significant aspect of these guidelines encourages financial institutions to adopt an engagement approach instead of divestment in their transition planning. They are urged to actively collaborate with customers and portfolio companies to manage physical and transition risks, reduce their carbon footprint, and enhance climate resilience. According to MAS, withdrawing financial support from companies with credible transition plans could hinder their decarbonization efforts, especially for firms operating in climate-sensitive sectors.
Ravi Menon, the Managing Director of MAS, stressed the importance of supporting companies in their decarbonization journey rather than indiscriminately divesting from carbon-intensive activities. He acknowledged that many sectors rely on such activities for economic growth and job creation.
MAS further advised financial institutions to take a multi-year approach to transition planning, recognizing that the effects of physical and transition risks have longer time horizons.
The guidance also emphasized taking a holistic and integrated approach to address the complexities of physical and adaptation climate risk. Financial institutions are encouraged to consider environmental risks beyond climate-related concerns, such as natural capital and biodiversity loss. They should also consider the interconnectedness of these environmental risks in their transition planning.
Additionally, financial institutions are expected to disclose relevant information to stakeholders, enabling them to understand the institutions’ responses to climate-related risks and the governance and processes in place to manage these risks.
Menon emphasized the need to accept short-term emissions increases arising from transition plans, provided they support climate-positive outcomes aligned with a net-zero trajectory. Regulators are called upon to support these efforts, and MAS is taking a lead role in establishing clear supervisory expectations for financial institutions’ transition planning.
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