Singapore’s central bank has issued new supervisory guidelines requiring banks, insurers and asset managers to strengthen the way they assess and manage risks linked to climate change, as regulators sharpen their focus on the financial sector’s preparedness for both physical and transition threats.
The Monetary Authority of Singapore (MAS) said the three Guidelines on Environmental Risk Management – Transition Planning set out its expectations for financial institutions to establish more robust processes to deal with climate-related risks across their businesses and portfolios.
The new guidance, published separately for banks, insurers and asset managers, complements the wider environmental risk management guidance MAS introduced in 2020.
The regulator said the latest addition aims to help financial institutions improve their risk assessment and risk management capabilities as climate-related pressures intensify.
According to the guidelines, financial institutions are expected to create their transition planning processes in a manner commensurate with the risk, taking into account factors such as the risk profile of their business models and the local conditions of their operations.
MAS said firms should assess and manage both physical risks, such as those arising from extreme weather conditions and long-term environmental changes, and transition risks associated with the global move towards a lower-carbon economy.
This will require organizations to adapt their business models, governance frameworks and risk management practices more proactively.
The regulator also signaled that lenders, insurers and investors need to work more closely with customers and investee companies to understand their exposure to climate-related risks and how they manage them.
MAS said such involvement was aimed at reducing the risk of general drawdowns in credit, insurance coverage or investments that could undermine wider financial stability.
MAS also said financial institutions should take a proportionate approach when collecting data, taking into account the materiality of the risks faced by customers and investee companies.
The central bank added that firms are expected to keep pace with evolving knowledge and capabilities in measuring and managing climate-related risks, especially as data quality and analytical methods continue to improve.
MAS said the rules reflected differences in business models between banks, insurers and asset managers and incorporated feedback from an earlier public consultation and industry engagement.
The rules will come into force in September 2027, giving the industry an 18-month transition period to prepare.
“These guidelines support financial institutions to improve their risk management capabilities in response to both physical and transition risks,” Ho Hern Shin, MAS deputy general manager for financial supervision, said in a statement.
