MAS Plans to Include Climate-Related Risks into Annual Stress Tests
MAS is working toward incorporating a broader range of climate change-related risks in thematic scenarios as part of a future industry-wide stress test. This was announced, by Ong Ye Kung who is a minister in Singapore, in response to a Parliamentary Question on the plans of MAS for including climate change-related risks in the annual industry-wide stress test. MAS is also a founding member of the global Network for Greening the Financial System, which develops best practices for a more sustainable financial industry. Locally, MAS will be issuing a consultation paper on Environmental Risk Management guidelines for various financial institutions in the first quarter of this year.
MAS has already started to stress test for risks related to climate change. However, the methodologies for stress testing climate change-related risk are still at a nascent stage. BoE, as mentioned by an MP Mr. Louis Ng Kok Kwang, has acknowledged that central banks and the financial sector are still building capacity to model financial risks arising from climate change. IMF too is working to improve its climate change-related stress scenarios. MAS takes climate change-related risks seriously as a financial supervisor. Financial institutions are potentially exposed to such risks because they provide financing and insurance services to businesses that can be impacted by a wide range of climate change-related events, including natural catastrophes. There are also risks arising from changes to public policies, technologies, or consumer preferences that can impact businesses significantly. Climate change is, therefore, increasingly relevant to financial institutions, both because the risks will be on their balance sheets and because they will play a role in enabling their customers and the economy at large to make a transition in Singapore as well as abroad.
Keywords: Asia Pacific, Singapore, Banking, Insurance, Climate Change Risk, Stress Testing, NGFS, ESG, MAS
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